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Demographics

The First Pillar Driving The New Global: Demographics

Growth-of-Working-Population

It is well accepted that the demographic profile of the population can have a profound influence on a country’s economic future. If a regulatory environment conducive enough towards job creation exists, ready access to a large enough pool of trained workers can significantly lift the competitiveness of a country and drive long-term economic growth. A relatively younger and better trained population can make it easier for businesses while planning for capacity expansions and new initiatives. In addition, favorable demographic trends are one of the key considerations for global corporations when selecting manufacturing locations.

The concept termed a demographic window explains the strong link between a favorable population profile and economic growth. Provided most of the other key economic drivers are in place, most countries see accelerated economic growth when the proportion of the population under 15 years falls below 30% while the proportion of those above 65 years is still under 15%. Among the developed countries, Germany’s demographic window lasted until 1980 while Japan’s demographic profile started worsening after 1990. China’s demographic window opened around 1985 and is expected to remain open until the end of this decade.

Growth-of-Middle-ClassThe current narrative on global demographics is often limited to how the emerging economies have a relative advantage due to their young populations. It is true that positive demographic trends have played a substantial part in the rapid growth achieved by countries such as China in recent decades. However, not all emerging countries will enjoy this demographic dividend for a very long period. For instance, China will face a rapidly aging population in two or three decades from now, due to the one child policy that was strictly enforced in the past. Further, a favorable demographic profile could become a burden if the country is unable to create sufficient economic opportunities for its young population. Countries such as India, which has the most favorable demographic profile among large economies, will underutilize the potential if they do not improve the social infrastructure – in terms of education and healthcare.

The developed countries that appear to be at a disadvantage could cushion the adverse effects through appropriate policy measures. They could follow the U.S. example of welcoming more immigrants, or leverage their good quality university systems to attract and retain youth from other countries. In fact, the U.S. is likely to be the only large developed country to see sustained growth in working age population by the middle of this century.  If the European Union is successful in forging a closer political union, increased immigration from the Eastern European countries could partly offset the demographic problems in Western Europe. Even if they are slow to redraw immigration and other policies, advances in healthcare could extend the working lives and give the developed world more time to adjust to the worsening trend. In any case, how a nation nurtures the productive potential of its population is probably the most important contributing factor to its economic future.

Demographic-Window