Does human capital compensate for population decline?

Fertility rates have been falling persistently over the past 50 years in most rich countries. Simultaneously, the trend of outward migration from poorer to richer countries has been steady. These two forces contributed to population aging, and – in an increasing number of countries – even to population decline. In this paper, we quantify the effect of decreasing fertility on the aggregate human capital stock. In doing so we take into account that parents with fewer children may raise investments in their children’s education and health. We find that the human capital impact of declining fertility is partly compensated through such responses when including the full set of countries in our regressions. For the subset of countries that experience population decline, the compensatory effect is weaker and, in many specifications, even insignificant.