For the first time in history there are more people over 65 than under 5. Pensioners outnumber children in a growing number of countries, including the UK, much of Europe and Japan. By 2030 there will be over 1bn people over 65 and more than 200mn over 80, with the number of elderly doubling over 20 years.
Improvements in public health and medicine account for increased longevity, a long-term trend of about two years per postwar decade (notwithstanding the recent reversals which are primarily due to the pandemic and inequalities in healthcare). More surprising is how quickly fertility is falling. More than half the countries in the world are now below the level of fertility required to keep the population the same from generation to generation.
In a single generation, societies as different as Iran and Ireland have seen their birth rates plummet in a way that cannot be explained by cultural and religious beliefs. Nor do income levels explain the difference. The United States and countries as diverse as Italy, South Korea, Japan, Hungary, Poland, Russia, China and Brazil are all recording record lows in fertility, and even India is now below replacement level. In fact, over half of projected population growth in the coming 30 years will be in just eight countries.
The collapse in fertility coupled with increased longevity leads to a rapid ageing of societies. The working age population of the 38 member countries of the OECD is projected to decline by around a quarter over the coming 30 years without higher levels of migration.
As a rapidly growing elderly population rely on the taxes, pension contributions and services provided by fewer and fewer workers, economies will come under increasing strain. With average life expectancy after retirement approaching 20 years in the developed world and real adjusted returns barely positive, much higher levels of savings are required to fund pensions. More saving means less consumption, dampening demand for everything other than services for the elderly.
A key challenge is to direct a growing share of the savings into long-term investment, as the collapse in corporate and public investment means that as societies have aged, so too have their stock of infrastructure, health, education and other systems, with this contributing to the slowdown in productivity.
The declining size of the workforce will mean that the revenue of governments through payroll taxes will shrink. The growing share of a declining workforce that need to be devoted to elderly care acts as a further drag on productivity and growth, since care work is necessarily not open to many gains in efficiency.
The widening gap between the improvements in life expectancy and the much slower progress in addressing dementia and other degenerative brain diseases is compounding the pressures on families, care systems and private and public finances.
Ageing also exacerbates income and wealth inequalities. With these disparities being widened by the pandemic, the gap in life expectancy exceeds 10 years between the poorest and richest communities in the US and UK. And there is a staggering 32-year gap in average life expectancy between rich countries like Japan and some of the poorest countries, such as Sierra Leone.
Across Africa, the median age is below 20, half that of Europe and much of East Asia. Asia’s growth benefited from labour-intensive manufacturing, back-office processing and call centres. The automation of these processes is removing the middle rungs of the development ladder, with potentially dire consequences for the 100mn young Africans who will be entering the labour market over the next 10 years.
Demography is not destiny, but it does need to inform public policy and individual decisions. It means greater attention must be paid to improving health, extending working lives, accepting more migrants, increasing productivity and growing savings. The shift from consumption to savings can increase the potential for a circular economy and reducing carbon emissions. It also reduces interest rates and inflation, allowing for higher levels of investment in clean infrastructure, health, housing and education, which are the bedrock of sustained growth.
If we stop kicking the demographic time bomb down the road, it will be possible to achieve stable and sustainable societies that provide a better life for future generations as well as our own.