Taiwan needs new blood for economic growth

Taiwan set to become super-aged society in 2026, which could be bad for economy

Taiwan had a fertility rate of 1.09 in 2019. (Unsplash photo)

Taiwan had a fertility rate of 1.09 in 2019. (Unsplash photo)

TAIPEI (Taiwan News) — Taiwan is enjoying the demographic dividend of economic growth resulting from a shift in the population age structure, but an increasingly aged population could be bad for the economy.

The age structure of developed countries gets older naturally, but the speed of this progression in Taiwan is worrying. The nation is set to become super-aged in 2026, meaning those aged 65 or older will account for more than 20 percent of the population.

It took Taiwan about 20 years to double its elderly population from 10 percent to 20 percent. It will take the U.K. 80 years to do the same.

An aging population places a significant burden on society. Taiwan's dependency ratio, the number of dependents compared to the working-age population, has been increasing since 2012 and will keep climbing before it hits 101.4 percent in 2065.

Taiwan has the lowest fertility rate in the world, while the aging trend heralds the possible collapse of its social insurance system.

Percentage of elderly in total population over next 40 years. (National Development Council graph)

At the same time, Taiwan has been struggling with a shortage of human resources for home care and manufacturing jobs. Around 261,457 foreign nationals worked in Taiwan's personal care industry in 2019, most from Indonesia and the Philippines.

"Although the government has seen the crisis, there are no other solutions to address it but bringing in foreign workers for now," said Chen Fen-ling (陳芬苓), a professor at National Taipei University's Department of Social Work.

She believes Taiwanese should appreciate these foreign workers as they take on demanding jobs and help out employers. Nevertheless, economic growth in these developing countries indicates few people will work overseas for a minimum wage before too long.

The low fertility rate poses a dilemma, but it does not mean lots of children are necessarily the solution. A group of economists has done the math for us.

In an article published in Science in 2014, researchers concluded that "although low fertility would challenge government programs and very low fertility undermined living standards, moderately low fertility and population decline favored a broader material standard of living."

For a long time the United Nations pegged the worldwide replacement rate as 2.1, that is, a couple needs to have 2.1 children to replace themselves in the future. However, this is not a fixed figure and might not create the greatest national wellbeing.

This is because an ample source of newborns will support consumption and the welfare system of a country, but it also increases capital costs that equip the labor force for production. The costs refer to the investment in land, construction, and equipment, as well as household savings.

As previously mentioned, high fertility also places a burden on the working-age population. This is because they shoulder the responsibility of raising the young and supporting the elderly.

Taking all these factors into account, researchers found that developed countries, such as France, Finland, and the U.S., have a fertility rate that is below the replacement rate, yet, exceeded or was very close to the consumption-maximizing fertility level.

The U.S has a 2.06 fertility rate, close to the standard (2.16) that maximizes the outcome of its fiscal support ratio (FSR). This means higher benefits for citizens but lower taxes at each age.

The results for Taiwan are not so optimistic. Its fertility rate (1.26) is below its optimized FSR (1.85) and fails to meet the requirement (1.70) of maximized consumption.

"The figures used in this model date from more than two decades ago. If we apply the current fertility rate in Taiwan to the calculation, the outcome will be even worse," said Tung, An-chi (董安琪), an economist from Taiwan's Academia Sinica, who participated in this research.

Nevertheless, people should not neglect the advantages brought about by the decline of the population. The improvement of quality of life and alleviated environmental pressure will be evident in a densely populated country like Taiwan.

"Other benefits such as potential wage increases for labor, as more investment pours in to fix the loss of the workforce, means the young receive more from their parents and grandparents because there are fewer siblings to share with, and more arable farmland per capita," Tung said.

Tung added that another reason low fertility could choke Taiwan is that it is losing more of its population than gets replenished. This is unlike European states, which experience both the benefits and challenges created by immigration.

"The whole world might share the green benefits introduced by a diminishing population, but Taiwan has to deal with the economic impact by itself," Tung said, which explains why Taiwan's population conundrum will haunt the country for years to come.

Taiwan's umbrella-shaped population pyramid up to 2060. (National Development Council graph)