Businesspeople and politicians seem to be afraid that population reduction will be accompanied by economic recession. In this paper we examine the experience of some countries of various sizes in which population has been declining and observe how GDP, GDP per capita, unemployment rate, and labour force participation rate are evolving during the period that population is declining. Using the pooled mean group (PMG) estimation method, we find that population decline can go hand in hand with growing GDP and increasing per capita GDP, and at the same time the labour participation rate may increase and unemployment may fall.

The basic ideas of the modern steady-state economy model can be found in the writings of the two major ancient Greek philosophers, Plato and Aristotle. Plato in his Laws and Aristotle in his Politics discuss the optimal relationship between population and available land that would give enough wealth to the city and allow the citizens to enjoy the best life. They discuss questions of income inequality and approaches to population control. The guiding thought in these models is what the two philosophers define as the ‘best life’.