The globe is currently experiencing an unparallelled demographic experiment with enormous ramifications due to rising longevity and falling birth rates.
The exponential worldwide burden of overpopulation was the main demographic concern not too long ago. The idea of adding billions more to the list without causing additional human suffering seemed absurd, especially because millions were already dying from starvation and extreme poverty. The quick depletion of fossil fuel supplies and the harm in feeding a constantly growing population was considered disastrous for the earth.
When the world’s population surpassed four billion in the 1970s, some scholars, including Paul Ehrlich, claimed that there was a “population bomb” and that the world was “minutes away from famine,” according to Jane Falkingham, Professor of Demography and International Social Policy and Director of the ESRC Centre for Population Change.
These gloomy predictions, however, did not come to pass since technological advancements altered how we produce commodities and the “green revolution” raised agricultural productivity and harvests.
When people are more productive, they can earn higher incomes, pay more taxes, and save more money, which creates a positive cycle for the economy.
Thanks to rapid advancements in medicine and a significant decline in infant mortality rates, people now live much longer. These changes align with societal trends, as many individuals are choosing to delay having children and are opting for smaller families when they do. Consequently, the current demographic challenge we face is the ageing population.
As more economies deal with this problem, the world is entering a previously unheard-of situation. George Magnus, an economist and specialist in global demographic trends, stated that, with a few exceptions, “global population growth is basically grinding to a halt according to the UN population division, which is sort of the font of all wisdom on population and demographic matters.”
Ageing population
“The average life expectancy for a man in the UK was 45 in 1901,” Falkingham told. This increased by 30 years every 100 years, or three years every ten years, or 3.6 months a year, or two days a week, or around seven hours a day, to 75 years by 2001! These increases in life expectancy are a result of improvements in public health and medicine, as well as improvements in lifestyle choices, education, nutrition, and living standards.
Since the population is ageing, baby boomers are a large part of the problem. According to the United Nations report World Population Ageing 2015, the percentage of the world’s population aged 60 or older increased by 48% between 2000 and 2015. Experts predict that by 2050, the number will have tripled from 2000.
Experts predict that by 2050, the population will have tripled from 2000. Retirement is a phase that will last for a long time.
By the middle of this century, experts predict that no age group will grow as quickly as the over-60s. Finally, those in that group will also age, according to United Nations research, the percentage of people in the world who are 80 years of age or older will rise from the current 14% to more than 20% between 2030 and 2050.
Developed regions of the world currently have the highest concentrations of elderly people, with up to one in four people being 60 years of age or older; predictions indicate this percentage will rise to one in three in the near future.
It’s interesting to note that this change is also anticipated to occur in emerging countries, where the percentage of the population over 60 is predicted to increase from the current 5.5% to 9.8% by 2050. Given that developed nations currently observe this same percentage, the trend poses a truly global problem.
“Rapid changes in age structure make it more difficult for societies to adjust, and the speed of population ageing has important implications for government policy in the fields of health and social care, as well as pensions,” Falkingham said, highlighting the serious ramifications of such developments.
The fact that several nations in the global south are ageing before becoming wealthy further complicates the establishment of social protection systems.
Families in harsh developing nations often have multiple children as a form of insurance, with the hope that some will survive birth and childhood, and that at least one will earn sufficient income as an adult to care for their ageing parents. This strategy naturally coincides with economic expansion: as an economy grows, personal incomes rise and child mortality reduces. Fertility rapidly declines in tandem with this.
Birth rates have previously decreased as a result of war, warfare, and widespread diseases. However, current cultural norms are to blame for the sharp decline in the number of children born.
“This is a unique phenomenon in human history,” Magnus continued.
When planning a family, people in developed economies now take into account a wide range of additional considerations, such as the lifestyle and education they can offer their children; these are typically better when the number of children is smaller.
Reduced workforce
As workplace equality increases and women have greater professional choices, they are leaving the workforce later to raise families. This element may be responsible for Japan’s low birth rate, which stands at 1.4 children per woman, well below the 2.1 average required to maintain the nation’s long-term economic stability. Japan has the world’s oldest population (33% over 60) and is straining the government and working-age people.
Magnus stated that the definition of working age is constantly evolving. Otto von Bismarck, a Prussian statesman, developed the concept of government-supported retirement in 1881 and provided pensions from the age of 65. Traditionally, this term encompassed those between the ages of 15 and 64.
The working age range is currently decreasing in many industrialised states; nevertheless, as more people continue their education for longer periods, there are more options for workers to retire early.
Magnus explained that the 15–64 age group is under a lot of pressure because the over-65s are doubling in the next 20 or 30 years, and the number of workers growing up to replace them as they retire is shrinking very slowly because we are not having enough babies to become workers.
The working-age group is the one that contributes most to the creation of economic value in society because they have jobs, earn money, build wealth, and buy goods and services. Older people still rely on them to pay taxes that fund their healthcare, pensions, and other necessities. Ageing populations not only put more strain on the state and working-age population, but they also hinder economic progress.
Businesses suffer from having fewer employees and clients. The latter is important for accumulation, especially as consumption trends start to change and demand shifts from durable commodities like vehicles and technology to services like senior homes and healthcare. As a result, there may be an exponential increase in demand for jobs in certain places and a decrease in demand in others. For example, the US construction industry is currently experiencing a labour shortage due to the retirement of baby boomers and a decline in homeownership rates.
As people age, their savings habits also evolve. Taking out loans and spending more on homes, kids, and jobs is more common in the 20s and 30s. However, as they enter their 40s and 50s, their responsibilities decrease and their earnings likely increase, prompting them to start saving more, particularly as retirement approaches.
When that time comes, people over 65 rely on their savings and government assistance. When accumulated, this change can significantly affect an economy, slowing growth as consumption declines. An economy’s savings rate will eventually plateau, even if it may spur investment and accelerate output growth as employment increases.
Experience is paramount: Japan has one of the largest percentages of elderly workers worldwide.
The demographic dividend
“The so-called ‘demographic dividend’ is a phase that demographers have identified, where youth dependency is declining, the working-age population is swelling, and…the over-65 cohort of the population has (not yet) begun to expand—so this is otherwise known as the sweet spot,” Magnus said.
This phase occurs when the population bulge is of working age and has fewer children, but at the same time, there isn’t a significant increase in the number of elderly dependents. As a result, the state gains from many people saving more money, spending more, and paying more taxes—all without having to deal with the mounting costs of healthcare and pensions.
Many Western economies have profited greatly from this extraordinary window of economic opportunity and the demographic dividend. Furthermore, China serves as a shining example of leveraging this economic opportunity to achieve remarkable success. By doing so, the nation has rapidly advanced its economic development, emerging as the world’s second-largest economy.
There is a chance of losing out on this dividend entirely, even though it is crucial for many developing nations with young populations. In other words, you can only successfully exploit the demographic dividend if you have a strategy to employ people; otherwise, it can lead to waste, disruption, conflict, and violence.
Magnus specifically cited the Arab Spring as an example of what might happen if you have a large number of young people growing up without hope and without aspirations for employment.
Magnus noted that Brazil and India may not exploit it to their advantage. He said, “I believe it’s a mistake to say it’s a foregone conclusion.”
Foreign assistance
Immigration is the quickest—and possibly most evident—way to increase the working-age population. Policies that promote the entry of new workers alleviate strain on the middle class and, consequently, the dependent group of older people.
However, the admission of large numbers of immigrants into a state often sparks strong social and political hostility due to long-standing accusations of “foreigners” taking jobs and overtaxing public resources. Unfortunately, the ongoing refugee issue, which has crystallised in a few European countries in particular, has caused this animosity to intensify recently in many countries.
One such nation is Germany, which is the main destination for Syrian refugees in western Europe. It’s pertinent to note that Germany has the worst population ageing situation in the region.
According to a study by Hamburg’s World Economy Institute, Germany currently has the lowest birth rate in the world and is declining faster than any other industrialised nation.
Furthermore, experts predict that about 1.5 million skilled immigrants will support Germany’s state pension system by 2060, requiring two workers to support each retiree. Nevertheless, the people were incensed when Chancellor Angela Merkel consented to take in additional refugees in 2016, despite this pressing issue.
Aside from the social backlash, there are many challenges with implementing such measures, even if immigration might be the quickest fix. It is expensive and challenging to successfully integrate newly arrived residents into a community, especially when there are linguistic and cultural difficulties. However, denying recently arrived immigrants the opportunity to contribute positively to the economy could lead to an increase in unemployment and even a rise in crime rates.
Governments aim to increase their current labour participation rates by increasing the number of traditionally underrepresented groups, such as women and the elderly. Despite facing criticism, there is a compelling rationale behind this move.
Magnus clarified, “It’s ironic, but it’s not a coincidence that the nations with the highest rates of female labour force participation also have the highest fertility rates. You wouldn’t typically think that’s the case, but it is; the connection is really widespread, and childcare is easily accessible.”
For instance, Scandinavian nations have the most universal and reasonably priced childcare options, as well as relatively high rates of female participation.
In today’s world, the primary demographic challenge is the overabundance of elderly individuals and the scarcity of young ones, a stark contrast to earlier worries about a population explosion.
The OECD states that while labour market conditions, cultural views, and female participation all play a role in the number of women in the workforce, some policies—like paid parental leave, childcare subsidies, flexible work schedules, and child benefits—are also very important.
Employment for women is crucial to a nation’s continuous economic development. Furthermore, as the population ages and government spending on pension plans and age-related illnesses increases, it will become increasingly important. If we want more women to enter the workforce, we must break down glass ceilings and change attitudes toward women in the workplace.
Scandinavian nations demonstrate how important it is to implement policies that enable women to have kids and careers. Naturally, encouraging female work and increasing a nation’s birth rate are not straightforward tasks, especially when they appear to be mutually exclusive.
However, Norway is a terrific example of how people may successfully integrate their personal and professional lives for the benefit of the economy. Around 83%of Norwegian moms with young children are employed, according to the OECD Observer, and during the 1970s, both fertility rates and labour engagement increased significantly. With 1.9 children per woman, Norway now has one of the highest fertility rates in Europe.
This achievement started when the nation’s economic expansion led to a rise in the need for labour, which coincided with women’s increased educational attainment. It’s intriguing to note that this has turned into a self-reinforcing cycle: a larger labour pool results in more tax revenues, which allow the state to invest more in services like childcare and assistance for working mothers. More government assistance increases the likelihood that more women will find employment.
Age-related experiences
Encouraging older adults to enter employment is another possibility. While it’s still in its infancy and largely ignored, western nations have already started to witness a surge in its popularity. If given the opportunity, people in Europe are more likely to retire early, a phenomenon known as “the dream.”
In contrast, experience is paramount in Japan. The country’s strong regard for the elderly explains the far higher percentage of older workers compared to other nations. Again, the automation of procedures that enable employees to work longer hours will facilitate a shift in attitude.
Magnus asserts that enhancing productivity serves as an additional strategy to strengthen a country’s economy: “Imagine if you could turn on a light switch from one day to the next. If tomorrow’s working-age population is more productive than today’s, then we may have already advanced a long way into resolving the problem.”
Magnus stressed that productive people earn more, pay more taxes, and save more, creating a positive cycle that benefits the economy and the individual.
“Innovation has always been our salvation,” he continued, while citing the development of the wheel, the jet engine, and the internal combustion engine, among other innovations. Governments must, however, increase their funding for research, education, and other initiatives in order to spur innovation.
“Investing in human capital and new products and processes is my vision for the future,” he added.
Today’s greatest demographic concern is, to put it simply, that there are too many elderly people and too few young people. This is a significant departure from the traditional concerns of a population explosion. Crucially, we expect this global issue to worsen in the coming years, not just a problem in wealthy nations.
Despite the alarming statistics and the accompanying concern about economic loss, there are workable solutions to this demographic problem. Whether it means raising the pensionable age or inviting more migrant workers, the path that each nation takes will be unique and tailored to its own internal circumstances and challenges. Anyway, as usual, innovation is our saviour and the greatest answer.
Is the world ready for the China way of dealing with a shrinking workforce? As China’s workforce shrinks due to an ageing population, automation appears to be receiving a vibrant push in the country. As the world’s second largest economy is witnessing labour shortages due to its declining birth rate, the Xi Jinping administration has found an answer in the form of investing heavily in modern production facilities, facilities which make the human presence in factories an irrelevant one.
According to a recent report by the International Federation of Robotics (IFR), China now has a record 1.7 million industrial robots operating in its factories. The report, released in September 2024, notes that the number of robots in China’s factories grew by 17% over the past year, reaching 1,755,132 units. The Asian nation accounts for more than half of global demand, solidifying its position as the world’s largest robotics market.