CAUSE FOR CONCERN OR CELEBRATION?
Conventional wisdom claims this is a problem. As a population ages, it is assumed there will be more ‘unproductive’ people (retirees) in the economy, supported by diminishing numbers of working people, leading to unsustainable pensions and buckling health care costs. However, there are some good reasons to question this conclusion.
1. Demographic predictions can be wrong. It wouldn’t be the first time.
Demographic trends are not easy to forecast, despite the apparent smoothness and linearity in the trends we see, and things we now assume to be norms can easily become surprises. For instance, the fall in birth rates from the 1970s was not anticipated or expected3. The US Census predicted 40-49 million births for the 1970s, but in the end, there were around 33 million. The idea that the number of births would fall below the replacement rate (ie two per couple) was virtually inconceivable. Several factors led to this confounding of expectations, including a rising age of marriage, greater deferment of childbearing, and wider access to birth control.
2. Trends aren’t static, they’re responsive.
While demographic trends can appear to be linear, that doesn’t preclude adjustment. Sociological and technological changes shape future demographic trends and affect economic outcomes.
As US Federal Reserve Chair, Janet Yellen conveyed in remarks in May 2017, the last 125 years of US history offer numerous examples of the economic upside generated by shifts in participation. In 1890, only 54% of females aged 5 to 19 were enrolled in school; and of the 2% of all 18-24 year olds who were enrolled in an institution of higher learning, only one third were women. The latter half of the twentieth century provides a clear contrast: between 1948 and 1990, the rise in female participation contributed about 1/2 percentage point per year to the potential growth rate of GDP.
Today, there are some hopeful signs of progress, sometimes in unexpected places. Female labour force participation is now higher in Japan than the US, for example. Yet it’s also clear that there’s great potential that remains untapped. As Ivanka Trump and Jim Yong Kim recently noted only 55% of women participate in the paid workforce globally, depriving the world of billions of dollars of economic activity each year. We’ve argued previously that in Asia, such a renewed push could create a second ‘demographic dividend’ just by enabling women to work in greater numbers, adding 314m employees to the labour force in the region.
Those who might fret that such incremental change is too small to be of consequence, should also consider that diverse and unplanned societal shifts can provide grist for government policy changes that in turn further hasten change, in a kind of reinforcing feedback loop. In Japan, a corporate culture that traditionally forced employees out at age 60 gave way to contemporary realities in 2013, when legislation was enacted requiring companies to keep on all workers who wish to continue working until 65. The country is working to gradually raise the retirement age from 60 to 65. In Australia, the participation rate of those aged over 65 has doubled in the last 15 years, and discussions are under way to gradually raise the retirement age to 70. In Brazil efforts are in place to raise the retirement age from the 50’s, to 65. We could go on.