Cash for babies: How Europe is tackling its falling birthrate

In the far north of Europe, Finnish parents are being paid to have babies. The municipality of Miehikkälä was paying parents $3,240 per baby, but now has increased that to $10,970 per child. Other European countries are pursuing similar policies as they try to reverse the continent’s falling birthrate.

Between 1967 and 2017, the fertility rate for women in the European Union fell, from 2.6 babies to 1.6. In Greece, the fertility rate has dropped dramatically, to 1.38 births per woman in 2017, from 2.45 in 1967. Now the government is offering cash incentives of $2,235 per birth to encourage people to have more children, even if they’re not Greek citizens.

Hungary’s Prime Minister, Viktor Orbán, has described fertility clinics as a strategic priority for his country, which also offers financial incentives to new parents. All young families in Hungary are offered a loan, but that loan will be written off if they have a third child. While a woman who has four children will be permanently exempt from paying income tax.

As well as money, the Finns are also deploying other incentives to boost the birthrate: Finnish fathers now get the same amount of paid parental leave as mothers.

The hidden problems caused by a longer life

Declining birth and fertility rates cause a shift in the age profile of a population: the average age goes up, and the number of people approaching retirement can outweigh those entering the workforce.

Over the last 50 or so years, life expectancy across Europe has increased by around 10 years and it has more than doubled since the 1920s. The average life expectancy in Europe is now 75 for men and 84 for women. Europe also has the highest median age of any of the world’s continents. At 42, Europe’s median age is significantly higher than second-placed North America (35) and way ahead of the world’s youngest continent, Africa (18).

That means the number of Europeans over retirement age is increasing and those people are living longer. That’s great news, of course, but it’s not without its downsides. The longer we live, the greater the incidence of age-related illnesses.

Longer life expectancy also brings with it a host of challenges for governments and policymakers. Healthcare services risk becoming over-subscribed due to an increase in the incidence of these age-related ailments: cardiovascular disease, osteoporosis, dementia, diabetes, osteoarthritis and impaired mobility are all more common among ageing populations.

Plus, with people living longer into their retirement, pension commitments can become unsustainable, both for central governments and for the financial services sector. The total cost of Europe’s ageing population (including pensions and healthcare) is expected to increase to 26.7% of GDP by 2070.

People on the move

One short-term fix for Europe’s declining workforce has been migration - for some countries. On 1 January 2018, 22.3 million people resident in the EU were non-EU citizens, according to the European Commission.

The median age of European nationals living in the EU-28 was 44 years in 2018 but for non-nationals, it was 36. While that will help lower the overall age profile of Europe, migration has also proved to be a source of political tension in some countries.

While some European countries have taken in thousands of migrants, others have seen many of their citizens leave to find work elsewhere.

Since the 2004 European Enlargement Act, when Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia joined the EU, many young Poles have taken advantage of their right to live and work in other member states.

By 2050, the Polish population will have shrunk by around 10%, compared to 2015 figures, half of everyone living there will be aged 50 or over and the number of working-age Poles will fall by 28% in that time. The effect on Poland’s gross domestic product (GDP) per capita is likely to fall from 4.7% growth to 3% (of GDP) from 2021 onward.

Disappearing workers

The European Commission estimates that by 2070, the continent’s working population will shrink by more than 40 million. European countries actively working to increase their birthrates may well be looking at Japan as an example of what can happen if prompt action is not taken.

In 2018, there were 921,000 births and 1.37 million deaths, meaning Japan’s population dropped by 448,000 people.

By 2040, as many as 12 million Japanese people may have disappeared from the country’s workforce – that’s a fall of around 20%. The Organization for Economic Cooperation and Development (OECD) says that “Japan’s ageing population will continue to put pressure on public spending on health, which is the sixth-highest among OECD countries, and spending on long-term care, which has risen rapidly in the last decade.”