Declining Fertility, Human Capital Investment, and Economic Sustainability
: Myrskylä, Mikko; Hellstrand, Julia; Lappo, Sampo; Lorenti, Angelo; Nisén, Jessica; Rao, Ziwei; Tikanmäki, Heikki
Publisher: Duke university press
: 2025
: Demography
: 11858484
: 0070-3370
: 1533-7790
DOI: https://doi.org/10.1215/00703370-11858484
: https://doi.org/10.1215/00703370-11858484
: https://research.utu.fi/converis/portal/detail/Publication/491330000
Future fertility is a key input when charting the sustainability of social security systems, and declining fertility is often expected to put pressure on economic indicators, such as pension burden. Such expectations are based on a narrow view of the impact of fertility on the economy, focusing on age structure. Dynamic impacts—for instance, the potential for increased human capital for smaller cohorts—are mostly ignored. We use a dynamic longitudinal microsimulation model to explore the extent to which investments in human capital could offset the adverse economic impact of low fertility. Our research context is Finland, the fastest aging European country and the site of dramatic fertility declines and stagnant educational levels in the 2020s. We find that an ambitious but simple human capital investment strategy that keeps the total investment constant despite declining cohort size, thereby increasing per capita investment, can offset the negative impact of a smaller labor force on the pension burden. Human capital investment not only reduces pension burden but also increases working years, pension income, retirement years, and longevity. Policies focusing on human capital investment are likely a viable strategy to maintain economic sustainability.
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Mikko Myrskylä was supported by the Strategic Research Council (SRC), FLUX consortium (decision number 364374 and 364375); by the National Institute on Aging (R01AG075208); by grants to the Max Planck–University
of Helsinki Center from the Max Planck Society (decision number 5714240218), Jane and Aatos Erkko
Foundation, Faculty of Social Sciences at the University of Helsinki, and the Cities of Helsinki, Vantaa and
Espoo; and the European Union (ERC Synergy, BIOSFER, 101071773). The views and opinions expressed
are, however, those of the author only and do not necessarily reflect those of the European Union or the European
Research Council. Neither the European Union nor the granting authority can be held responsible for them. Julia Hellstrand was supported by the SRC of the Academy of Finland, FLUX consortium (Family Formation in Flux – Causes, Consequences, and Possible Futures) (decision numbers 364374 and 364375), and the European Research Council under the European Union’s Horizon 2020 research and innovation programme (grant agreement number 101019329). Angelo Lorenti was supported by grants to the Max Planck–University of Helsinki Center from the Max Planck Society (decision number 5714240218), Jane and Aatos Erkko Foundation, Faculty of Social Sciences at the University of Helsinki, and the Cities of Helsinki, Vantaa and Espoo. Jessica Nisén received funding from the Academy of Finland (numbers 332863 and 320162) (INVEST) and the SRC (number 364374) (FLUX). Ziwei Rao acknowledges support from the SRC, FLUX consortium (decision numbers 364374 and 364375).
