Declining population is a key challenge for First World countries today, which results in ageing societies with shrinking workforces. According to the 2024 forecast of the United Nations, populations of countries such as Japan or South Korea can decline by as much as 15–20 per cent in the upcoming 30 years. In the European Union, the average Total Fertility Rate (TFR) was as low as 1,38 in 2023, while in Hungary it was 1,55. As a TFR of 2,1 is needed to sustain a population, this foreshadows serious economic and societal problems. As Hungary is also one of these countries, this also represents an existential challenge particularly for Hungary as well.
One of the main consequences of falling birth rates is labour shortages, which hamper economic growth and the sustainability of pension systems. In a paradoxical twist, regional inequality is deepened by the depopulation of rural areas, while in urban areas, the increase of real estate prices still hinder young people from starting new families.
Digitalization, however, could be a solution to these problems. The spread of remote work enables a new system, where employees are no longer tied to the specific geographic location of their jobs, which could ease population pressure in urban centres, and on the other hand, also help revive rural communities. Moreover, Artificial Intelligence (AI) and automation can help to ease labour shortage, as certain tasks can be taken over by it, enabling people to work in jobs with higher added value.
This paper demonstrates how a combination of remote work, AI, and automation can aid the economic and societal revitalization of low TFR countries.
The Economic and Demographic Potential of Remote Work
Remote work is not only one of the most significant changes of recent years in the labour market but has also had a deep impact on demographic and economic trends. The COVID-19 pandemic accelerated this trend, which persisted to this day, and can, in the long run, result in a systemic change in demographic and housing patterns.
As a result of the COVID-19 pandemic, the practice of remote work has rapidly spread, and a significant share of businesses recognized its benefits. According to data by the European Commission, the share of people working in remote arrangements increased from about 10 per cent before the pandemic to more than 20 per cent by 2021 in the EU as a whole. In Hungary, the share increased from less than 3 per cent to about 17 per cent.
The preference for remote work has persisted even after the pandemic. A 2023 survey showed that 30 per cent of European employees and 35 per cent of US employees works at least one day per week from home.
High real estate prices in overcrowded urban areas encouraged young employees to move to smaller towns or rural areas. A new phenomenon of Zoom-Towns emerged, where the population of certain rural communities, mainly vacation destinations, spiked. Remote workers moving to rural areas generate consumer demand, which helps the local economy. On the other hand, this trend can ease population pressure on the real estate markets of urban centres.
‘Promoting remote work could not only increase economic growth but also help decelerate the population decline’
Unaffordable housing is a major reason behind low birth rates, therefore the more widespread remote work becomes, and the more it encourages employees to move from urban centres to smaller communities or rural areas, the more it can help birth rates, as those who move from urban centres acquire larger and cheaper housing, while for those who do remain in the cities, the pressure on the urban housing market eases, making housing more affordable for them as well. It also enables parents to spend more time with their children, and decreases the likelihood of women leaving the labour market, which can facilitate long-term career planning. This means that promoting remote work could not only increase economic growth but also help decelerate the population decline. Governments could encourage the normalization of remote work with tax benefits and other similar tools.
As opposed to popular beliefs that remote work may have a negative impact on the performance of employees engaged, scientific research concludes the contrary. According a paper by the National Bureau of Economic Research, data from the COVID-19 period showed that remote work actually increases productivity by 5 per cent in average, while another research by Stanford University conducted in randomized control trials of Chinese call-centre workers found that working from home increased their productivity by 13 per cent in average.[11]
This all strongly suggests that the combination of higher productivity and lower office space expenses actually make remote work a comparative advantage for firms that allow it, as opposed to those who attempt to force their employees back to the office. This means that the current widespread resistance to the normalization of remote work is not a rational calculation but rather some kind of irrational intuitive insistence on increasingly outdated employment patterns. Therefore, promoting remote work as a solution for the demographic problems of ageing societies not only would not hamper the productivity of the given economies, but would most likely even increase it.
The Opportunities Offered by AI for Ageing Societies with Shrinking Demographics
While digitalization can help declining birth rates, AI and automation can help ageing societies by replacing low-skilled workers, and thus easing the labour shortage. This could make AI and automation a key component in the sustainability of the economies of ageing societies. As automation progresses, more and more job roles become susceptible to mechanization. According to a 2023 Goldman Sachs report, two thirds of occupations could be partially automated by AI in the upcoming decades.
Artificial intelligence is transforming various industries, significantly reshaping the demand for human labour. In manufacturing and logistics, advancements in robotics and self-driving vehicles are expected to reduce the need for low-value-added labour, optimizing efficiency and productivity. Similarly, in customer service and administration, AI-powered chatbots and automated systems are increasingly handling routine tasks, streamlining processes and minimizing the need for human intervention. Meanwhile, the financial and healthcare sectors are also experiencing profound changes, as AI enables faster and more accurate medical diagnoses while enhancing financial analysis capabilities. As AI continues to evolve, its impact on these industries is expected to grow, redefining traditional job roles and operational structures.
‘AI and automation will replace certain jobs, while creating others. Education needs to closely follow these trends and retrain people for job roles in demand’
This, however, does not necessarily lead to massive job losses, rather than the restructuring of the job market. As the Goldman report states, 60 per cent of people today works in jobs that did not exist in 1940, which suggests that new jobs may appear, while on the other hand, according to the report, the increasing involvement of AI in the economy could raise GDP by 7 per cent in a 10-year period. A proper use of this tool would of course be to focus it on replacing the human workforce in low-paid, low-creativity jobs that people are reluctant to do anyway.
Another advantage of AI for ageing societies is the increase in productivity, thus enabling a shrinking workforce to produce and increase output. AI can help productivity by enhancing decision-making capabilities, by more efficient resource-management, and by directly increasing the productivity of employees using AI. According to a McKinsey report, AI can contribute by an average 1,2 per cent additional GDP growth annually until 2030.
This opportunity, on the other hand, can only be used in an efficient way if it is combined with an investment in education, aiming both to teach the rights skills and training and retraining people to in-demand job roles that AI cannot replace. AI and automation will replace certain jobs, while creating others. Education needs to closely follow these trends and retrain people for job roles in demand. Such an education policy is needed to avoid a combination of structural unemployment and structural labour shortages, where people are available, but not in the job roles in demand.
Such a strategy, however, can work only with a special tax arrangement to channel some of the profits of the AI sector to sustain the pension system of the given country. Without special taxes or alternative financing mechanisms, pension and social security systems in ageing, shrinking populations will become unsustainable. Traditional payroll-based taxation is no longer sufficient because AI-driven, high-profit companies do not contribute adequately to social security, as their profits accumulate in different channels rather than as taxable wages. If automation replaces a significant share of jobs, fewer workers make payments into pension funds, while corporate profits increasingly flow into capital gains, dividends, or reinvestments that are taxed at lower rates. At the same time, the number of retirees continues to grow, and this creates a funding gap that could ultimately result in the collapse of the pension system.
To address this, a certain share of AI-generated wealth must be redirected into social security through mechanisms such as AI-related profit taxes, capital gains contributions, or digital social security levies. These measures would ensure that the benefits of automation are shared across society, maintaining the stability of the pension system even in countries with declining populations. Such taxation, however, must stay within a certain goldilocks zone: it has to be sufficiently high to keep the pension system sustainable, but also low enough to make sure it does not scare investment away.
Conclusion
Used wisely, digitalization could be the game changing grand strategy for ageing societies, and could, in a great part, solve the economic problems of shrinking demographics, while decelerating the demographic shrinking itself. How making remote work a general norm can—and hopefully will—help is that it would enable large numbers of young professionals to relocate from urban centres to smaller communities or rural areas as their job would no longer tie them to urban centres. This could help in three ways: first, by easing population pressure on the housing markets of urban centres, thus making housing more affordable there; second, by enabling significant quantities of young professionals to acquire cheap and spacy housing in smaller communities and rural areas; and third, by revitalizing depopulating rural areas, not only by bringing young professionals there, but also with the increased consumer demand that they would represent there. Easing the housing shortage for both young professionals moving out from the urban centres, and for those as well who remain in the urban centres by easing pressure on the housing market there would likely be a major help in increasing birth rates themselves.
‘Used wisely, digitalization could be the game changing grand strategy for ageing societies’
As academic research demonstrates, remote work does not decrease, but even increases the productivity of employees, therefore, the widespread resistance to it by employers can hardly be seen as anything else than an irrational, intuitive insistence to work patterns that technology just turned outdated, and this should not be allowed to hamper a technological breakthrough that could be a game changer regarding the problems of ageing societies.
AI and automation, on the other hand, could help by easing labour shortages in ageing societies with a shrinking labour force. To properly fulfil this role, however, the opportunities offered by AI should be wisely regulated. First, replacing jobs by AI or automation should as much as possible be focused on low-paid, low-creativity jobs that humans are less willing to do. Second, a focused education policy should closely follow the labour market impact of automation, and train and retrain people for job roles in demand among the changing circumstances. Third, it is important to create some kind of carefully balanced taxation for AI profits to sustain the pension system. If used wisely, digitalization could be a game changing economic and societal breakthrough for ageing societies with shrinking demographics, and could potentially be the cornerstone of their long-term sustainability and survival.
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