The shrinking working age population

The Economist has recently published an interesting article (and a map! How I love a good, colourful map!) in which it charts the spreading phenomenon: the disappearing working-age population.

Those that are aged between 15 and 64 years old are important to a country and its economy. During those years we are the most economically productive. A country with fewer people in that age bracket must raise productivity to keep growing economically and to sustain spending on public goods. The national debt is borne by fewer workers and taxpayers while there will be fewer innovators, inventors etc that can enrich a nation. Businesses may be wary of investing in a country with fewer earners and consumers.  

The cost of the elderly weighs more heavily on society as well. The old-age dependency ratio (the ratio of those over 65 years old as opposed to those in the working age bracket) will deteriorate much faster if the number of working aged persons is declining at the same time as the elderly are living longer. For an extreme example of a ballooning old-age dependency ration, in Japan it is expect that  there will be 48 people over the age of 65 for every 100 people of working age in 2020. In 1990 there were just 17.

Unfortunately, the number of countries that have shrinking working age populations is steadily growing. In the late 1980s there were nine such countries, today there are forty. The recent additions to this unwelcome club are China, Russia and Spain. Thailand and Sri Lanka are set to join very soon. In fact, one can now walk from Portugal on the Atlantic to Vladivostok on the Pacific (taking a detour to Beijing) without leaving a country which has a falling working age population. Lithuania’s working aged population has dropped by a quarter since 1990, while the absolute numbers in China’s working age population decline are staggering: 19 million fewer workers by 2025; another 68 million fewer by 2035; and another 76 million by 2045. In thirty years, China’s working age population will have dropped by over 16 per cent.

Solutions?

So what can those countries with a shrinking working aged population do to reverse the trend? The Economist says that there are three options: do more to encourage women to enter and stay in paid work; increase the productivity of the elderly; and encourage more migrants of working age to fill skills shortages.

Having more women in the workforce obviously boosts the working population and productivity but can lead to further demographic problems by having more women choose a career over having (any or more) children. A partial answer to this is for governments grant generous parental leave and to provide good child care options while employers should be more flexible in their provision of working conditions: hours; location; and career breaks.

Although many countries currently have a retirement age of 65 years, this is not only an arbitrary (and increasingly early) cut off point, but is not even being reached by many workers in many countries. Chinese workers typically retire between 50 and 60 years of age (yet over a third of the population is expected to be over 60 in 2050!) while only 41 per cent of Europeans aged between 60 and 64 years old are in paid work. Raising the state retirement age as well as removing financial incentives to retire are ways in which elderly workers could be incentiviced to continue to work. Employers too have a role to play: continued training, flexible working arrangements and improved working conditions will be necessary to allow people to work for longer than they have up until now.  

Finally, a country can try to lure more workers from overseas. The only reason that countries such as Australia, New Zealand and Canada have growing working age populations is that they accept numbers of immigrants to fill skills gaps. However, these countries have a history of immigration which others do not. Indeed in some countries, large scale immigration is politically unthinkable. China for example “has never been a country of immigrants” according to Fei Wang of Renmin University in Beijing. However, it has recently tried to lure back emigrants and to attract members of the ethnic-Chinese diaspora. In February the government relaxed visa laws for “foreigners of Chinese origin”. These small steps suggest that China, like many other countries on the Eurasian land mass, is worried that its workers are disappearing. Whether it, or any other country, will be able to reverse the decline in the years ahead is still to be seen.

 

Font: Mercatornet