Latest / The Demographics Podcast with Fexingo: Aging Populations, Birth Rates, and Economic Impact / How Falling Birth Rates Reshape the Education Industry
Transcript
- Lucas: Let's talk about something that's quietly reshaping one of the biggest sectors of the economy: education, from preschool to PhD. Luna: I can guess where this is going — fewer kids means fewer students. Lucas: Exactly. But it's not just about shrinking class sizes. The whole business model of education, especially higher ed, is built on a demographic pipeline that's drying up. Luna: And it's not uniform — some places are hit much harder than others. Lucas: Right. Let's start with a specific case. Japan's fertility rate hit one point two in 2024 — among the lowest in the world. That means for decades, fewer and fewer 18-year-olds have been applying to university. Luna: So what happens to a university when the pool of potential students shrinks by, say, thirty percent? Lucas: You get something like the University of Toyama. It's a mid-sized public university on the west coast of Japan. Between 2000 and 2020, its undergraduate enrollment dropped from about nine thousand to just over six thousand. Luna: That's a third fewer students. How does a university absorb that? Lucas: They merged departments, cut programs in the humanities, and started aggressively recruiting international students, mostly from Vietnam and Nepal. But here's the thing — international students only filled about ten percent of the gap. The rest meant faculty layoffs and budget cuts. Luna: And that's not a Toyama problem — that's a Japan-wide trend. I read that over forty percent of private universities in Japan failed to fill their enrollment quotas in 2023. Lucas: Yeah, and some have closed entirely. Now bring that to the United States. The so-called 'enrollment cliff' starts in 2026. That's when the number of high school graduates is expected to drop sharply because of the 2008 recession birth dip, and then keep falling. Luna: So American colleges have been bracing for this for years. We've already seen mergers — like when Dowling College shut down in 2016, or when the University of Bridgeport got acquired. Lucas: The difference is that US colleges have pricing power and endowments that Japanese schools don't. But the underlying math is brutal. The Western Interstate Commission for Higher Education projects that the number of high school graduates will peak at around 3.9 million in 2026 and then fall to about 3.5 million by 2037. Luna: That's four hundred thousand fewer potential freshmen every year. And that's before you factor in the decline in birth rates since 2020, which means the pipeline gets worse after 2037. Lucas: So the response from colleges is going to be interesting. Some are doubling down on recruitment of older students — lifelong learning. Others are cutting tuition. A few are merging. Luna: And then there's the K-through-12 side. Fewer kids means less demand for teachers, fewer schools, maybe even consolidation of school districts. Lucas: Exactly. In Japan, the number of elementary schools has fallen by about ten percent since 2000. In South Korea, where the fertility rate is even lower at 0.72, they're projecting that half of all universities could close by 2040. Luna: That's staggering. And it's not just about the institutions — it's about the labor market. Fewer graduates means a smaller skilled workforce, which hurts productivity. Lucas: There's a counterargument, though. Some economists say that with fewer students, you can invest more per student, improving quality. But that assumes public funding doesn't shrink proportionally. Luna: And in most places, it does. School budgets are often tied to enrollment. Lucas: Look, if this topic has got you thinking about how demographic shifts affect the economy, you're exactly the kind of listener we love having. And honestly, this show exists because of listeners like you. A handful of people chip in monthly through buy me a coffee dot com slash fexingo, and that's what funds making episodes like this — no ads, no sponsors, just straight conversation. Luna: Yeah, it's pretty simple. If walking through the economy with us has made something click, that link is there. Keeps us independent. Lucas: So back to education. One other angle I want to touch on is the teacher surplus. In countries with falling birth rates, you'd think there would be a glut of teachers, but it's more complicated. Luna: Because salaries and working conditions still matter. In Japan, teaching jobs have actually become more competitive because there are fewer students, but the pay hasn't gone up much. Lucas: Right. And in the US, we're seeing the opposite in some areas — teacher shortages, even as enrollment declines. That's partly because of geographic mismatch: declining enrollments in the Northeast and Midwest, but growth in the South and West. Luna: So it's not a simple story. Let's talk about the early childhood education sector. That's where the birth rate drop hits first. Lucas: Absolutely. Pre-K and daycare enrollment fell sharply in many countries after 2020. In the US, the number of children under five dropped by about four hundred thousand between 2020 and 2024. That means fewer daycare centers, less demand for preschool teachers. Luna: But also potentially more availability and lower costs for families who still have kids? Or maybe not, because fixed costs don't shrink that fast. Lucas: Yeah, it's a weird dynamic. In some Japanese cities, daycare centers are now competing for children — they offer discounts or extra services. But in rural areas, centers are just closing. Luna: And that feeds back into the economic cycle. If parents can't find affordable daycare, they might delay having kids, which makes the birth rate drop even more. Lucas: Exactly. It's a feedback loop. The education industry is caught in the middle. One of the more creative responses I've seen is from some European universities that are repositioning themselves as lifelong learning hubs — offering short courses, certifications, and retraining for adults. Luna: That's smart, because the demographic of working-age adults who need to upskill is actually growing, even as the young population shrinks. Lucas: Right. Finland's Aalto University, for example, now gets about a third of its revenue from continuing education and executive programs. That's a hedge against enrollment drops. Luna: So the playbook for education in a low-fertility world is: diversify revenue, target older students, and consolidate where necessary. But the transition is painful. Lucas: It is. And it's not just about universities. Trade schools, community colleges, even corporate training programs are all feeling it. The whole ecosystem is being reshaped. Luna: I think the takeaway for our listeners is that education is not immune to demographics. In fact, it's one of the first sectors to show the effects. Lucas: Yeah. And the decisions that educators and policymakers make now — whether to merge, to specialize, to court international students — will determine which institutions survive and which don't. Luna: It's a tough environment. But also an opportunity to rethink what education is for. Lucas: Agreed. That's all for this episode. Thanks for being here.