Immigration has been the main tool for managing Australia’s demographic challenges, primarily its ageing population. Australia’s immigration intake has likely helped maintain a younger population than would otherwise be the case. With both major parties suggesting cuts to migration ahead of this year’s federal election, it may be time to rethink how Australia manages its demographic challenges.
While migration policy shifts, fertility is on the decline. Last year, Australia’s fertility rate fell to its lowest on record, continuing a downward trend. In 2023, the fertility rate fell to 1.5 children per woman, well below the so-called replacement rate of 2.1.
Declining fertility is not unique. Countries like South Korea, Italy, and Japan face even steeper declines. Yet, Australia’s situation is important, having relied on population growth – through a combination of natural increase and immigration – to drive economic growth.
But what is driving the decline in fertility?
Some have argued that economic pressures and cost of living are key drivers. For instance, housing affordability could be a contributor, especially in major cities where the challenges are greatest. High child care costs, despite government initiatives, could also be a deterrent to having children.
But broader cultural and economic shifts also likely play a role. Over the past four decades, the age at which Australians are having children has shifted dramatically. People are having children later in life for a range of reasons including improved access to contraception and increased women’s educational attainment.
For mothers, the share of births among women aged 30 to 34 has increased since the 1980s, overtaking the 25 to 29 age group in 2000, which once dominated. Similarly, births to mothers aged 35 to 39 have steadily increased, quickly catching up to those in the 25 to 29 age group.
But what about fathers?
Fathers—who are often forgotten in conversations about the declining fertility rate—also show similar trends to mothers. The largest share of fathers is aged 30 to 34 when their child is born – a share that has been steady since the early 1990s. Like mothers, there has been a corresponding decline in younger age groups of fathers but a decline that has been much faster.
Why does all this matter? Addressing declining fertility is not just a demographic challenge—it’s an economic priority.
Australia’s record-low fertility rate comes at a time when the country is already facing the pressures of an ageing population – pressures that will only intensify. By 2064-65, it’s projected that in 1 in 4 people will be aged 65 and over.
Taken together these demographic challenges will reshape the economy. They will change consumption patterns and add pressure on Australia’s future labour supply. Fewer young people mean a smaller future workforce, which could limit productivity growth, and increase the dependency ratio—more retirees supported by fewer workers. And, they call into question the sustainability of social safety nets.
But what can policymakers do?
Migration has proven to be an effective demographic management tool already for Australia, but political support for high immigration has receded. As a result, policymakers may need to begin to look elsewhere.
Addressing declining fertility isn’t about forcing people to have more children. It’s about creating conditions where people can choose to have the number of children they desire without significant barriers.
Policies that improve housing affordability, paid parental leave that’s better shared between new parents, cheaper child care, and greater workplace flexibility are just a few ideas floated as potential solutions. But do these ideas work?
While increasing fertility could help address long-term demographic challenges, the baby boomer effect could ease in the coming decades and higher fertility is not a short-term solution to a higher dependency ratio.
In the coming months, e61 will be looking into a range of policy solutions, with the goal of identifying their impact on fertility, and the trade-offs involved. So, stay tuned for some insights in the near future.
The authors would like to thank Nicole Adams for her assistance.
Rose Khattar
Rose is an economist dedicated to advancing evidence based public policy. She has worked in the public and not-for-profit sectors with her career spanning Australia, the United States and international organisations. Most recently, she was the Director of Economic Analysis at the Center for American Progress in Washington, DC.
Pelin Akyol
Pelin Akyol, with a Ph.D. in Economics from Penn State University, is an applied economist with a diverse research portfolio in the fields of Economics of Education, Labour Economics, Demographic Economics, and Health Economics. Leveraging both structural and reduced-form methodologies, her research examines factors influencing both educational and labour market decisions, as well as their impact on social issues and public programs, with a special focus on gender and demographic inequalities. Her research outputs have been published in top economics journals and featured in VoxEU and EducationWeek.
