The author is Professor of Globalization and Development at the University of Oxford and author of “Rescue: From the Global Crisis to a Better World‘. He tweets @ian_goldin
For the first time in history, there are more people over 65 than under 5. A growing number of countries have more pensioners than children, including the UK, much of Europe and Japan. By 2030 there will be over 1 billion people over 65 and more than 200 million over 80, with the number of older people set to double in 20 years.
Improvements in healthcare and medicine are responsible for longer lifespans, a long-term trend of about two years per post-war decade (notwithstanding recent reversals, largely driven by the pandemic and healthcare inequalities). What is more surprising is how quickly fertility is declining. More than half of the countries in the world today are below the fertility level required to keep populations equal from generation to generation.
In a single generation, societies as disparate as Iran and Ireland have seen their birth rates fall in ways that cannot be explained by cultural and religious beliefs. Income level does not explain the difference either. The United States and countries as diverse as Italy, South Korea, Japan, Hungary, Poland, Russia, China and Brazil are all seeing record lows in fertility, and even India is now below replacement levels. In fact, over half of the projected population growth over the next 30 years will take place in just eight countries.
The slump in fertility coupled with increased longevity is leading to rapid aging of societies. The working-age population of the 38 member countries of the OECD is expected to decrease by about a quarter in the next 30 years without increased migration.
As a rapidly growing older population depends on the taxes, pension contributions and services provided by fewer and fewer workers, economies will come under increasing strain. Since the average life expectancy after retirement in developed countries is almost 20 years and real adjusted returns are hardly positive, much higher levels of savings are required to fund retirements. More saving means less consumption, which dampens demand for anything but elder services.
A key challenge is channeling a growing share of savings into long-term investments, as the collapse in business and public investment means that as societies age, so do their stocks of infrastructure, healthcare, education and other systems to slow down productivity.
As the labor force falls, government revenue from payroll taxes will shrink. The growing proportion of a declining workforce that must be devoted to elder care acts as another drag on productivity and growth, as care work is not necessarily open to many efficiencies.
The growing gap between improvements in life expectancy and much slower progress in tackling dementia and other degenerative brain diseases is increasing pressure on families, care systems, and private and public finances.
Aging also exacerbates income and wealth inequalities. As the pandemic widens these disparities, the life expectancy gap between the poorest and richest communities in the US and UK exceeds 10 years. And there’s a staggering 32-year difference in average life expectancy between rich countries like Japan and some of the poorest countries like Sierra Leone.
Across Africa, the median age is under 20, half that of Europe and much of East Asia. Asia’s growth benefited from labor-intensive manufacturing, back-office processing and call centers. Automating these processes removes the middle rungs of the development ladder, with potentially dire consequences for the 100 million young Africans who will enter the labor market over the next 10 years.
Demographics are not destiny, but they must influence public policy and individual decisions. It means more attention needs to be paid to improving health, lengthening working lives, welcoming more migrants, increasing productivity and increasing savings. The shift from consumption to saving can increase the potential for a circular economy and the reduction of carbon emissions. It also lowers interest rates and inflation, and allows for greater investment in clean infrastructure, health, housing and education, which form the basis for sustainable growth.
If we stop blowing up the demographic time bomb, it will be possible to achieve stable and sustainable societies that enable future generations and our own to live better.