What are some of the demographic changes we should be aware of, and what are the drivers?
Golding: Global demographics are changing fundamentally. This matters because they have a significant impact on economies, politics, productivity and future growth.
Until recently, overpopulation was the major concern. Now it’s ageing populations and declining fertility rates. We’re living longer and healthier. Average life expectancy has gone up by about two years every decade since the 1950s. For every hour that passes, average life expectancy increases by around 10 minutes.
Since the Second World War, public health has improved – we know what kills us and we avoid or mitigate it. We wear seatbelts, use vaccines, stop smoking and clean our water. We’ve had breakthroughs in the treatment of cancer, diabetes and other conditions. Pregnancy, childbirth and childhood have become safer. Today, air pollution remains a major health threat in many places, but we keep learning.
For every hour that passes, average life expectancy increases by around 10 minutes.
The global fertility rate is now around half that of the post-Second World War period, and still falling. For replacement, we need a fertility rate of 2.1 – that’s the average number of children born to each woman. But two-thirds of countries and two-thirds of the world’s population are below this. The only regions above replacement are Africa (4.1) and the Middle East (3.0).
The pace of demographic change is surprising. But it takes 18–20 years to affect the labour market, and the future trends are predictable.
How are these changes affecting economies?
Goldin: The workforce is shrinking relative to elder dependents. And those dependents are increasingly expensive for governments and families to look after: retirement ages are falling, but pensions and healthcare costs are rising. Back in the 1970s, average life expectancy on retirement was around seven years. Now, it’s more than 25 years. The final two years can cost the same as an entire lifetime of medical care up to that point.
As their numbers grow, older and wealthier consumers are altering the structure of economies by spending on non-tradeable services – not only care, but also complementary therapies, leisure and hospitality. These can’t be delivered remotely or by robots. On average, every high-income earner supports five lower earners through the services they use.
In democracies, older people account for a growing share of the electorate. And this is changing politics. Older people are more likely to oppose new developments in housing and infrastructure, less likely to care about climate change and are passionate about pensions. An increasingly elderly electorate makes it difficult for governments to invest in the future, forced instead to spend on pensions and health.
Photograph by Lucas Fogli
Every summer since 1946, members of the Juneau Icefield Research Program have traversed the Juneau Icefield, contributing to the longest-running study of a glacier in the Western Hemisphere. The Juneau Icefield in southeast Alaska is one of the largest ice fields in the world, covering more than 1,500 square miles.
Uwe Measuring the Velocity of a Glacier, Juneau Icefield Research Program, Alaska, USA 2016
How will governments cope with this ever-bigger proportion of retirees relative to the working-age population?
Goldin: Policies aimed at increasing fertility rates don’t work. Scandinavia offers great incentive packages, but fertility rates match the UK. Hungary spends 5% of GDP trying to encourage people to have children, but that investment is not returned in babies born. Women’s rights, contraception, education, work, wealth, the cost of space and services all influence decisions about parenthood. Urbanisation is another factor. Children are considered an asset in rural areas; in urban areas, they represent a financial cost.
Governments could try to increase working hours and reduce holidays, but that’s politically unacceptable. Raising retirement ages is unpopular with ageing electorates, as successive French governments have discovered.
The only politically acceptable answer is to make older people healthier. This way, they’re less expensive, and relatives who would otherwise be caring for them – often women – could remain in work. Life expectancy will be into the 90s within the next decades, but that comes with a higher incidence of neurodegenerative diseases. The cost of people who are “there but not there” is huge. Progress in cognitive longevity is lagging decades behind what’s being achieved in physical life extension.
Can migration from developing countries solve the working population problem for ageing societies? What is the effect on the economies left behind?
Goldin: Immigrants boost the workforce, work the jobs locals don’t want and pay taxes. They are often healthier than the local population and are less likely to require schooling, pensions or care.
Increased and better-managed immigration is part of the solution – though it’s tricky with ageing, often anti-immigration electorates. And yet ageing populations need immigrants for growth. Immigrants tend to be more innovative and more likely to start small businesses, bringing vital dynamism to stagnating advanced economies. A migration bargain can work well if managed effectively. Immigrants must be able to expect the same minimum wage and protections as local workers, to prevent exploitation. Pension portability is also important.
But on a broader scale, when developing countries invest taxpayers’ money in educating people who then emigrate, the benefits of that training transfer to other, richer countries. The answer is not to stop people leaving, but to either ensure that education loans are repaid by the individual (whose earning potential is transformed), or that the beneficiary countries compensate for the investment in human capital.
We read that AI will double productivity, but this reflects a failure to understand economics.
Briol: The past half century has seen a radical change in employment (many jobs that exist now didn’t exist before; employment has shifted from agriculture to manufacturing and then to services as economies have developed).
How do you anticipate employment changing over the next 50 years?
Goldin: Consumption changes as populations age. People spend more on professional services, intellectual property and brands, and less on material content.
These changes in demand and consumption alter the structure of workforces and employment. Production economies are place-based, historically around natural resources or logistical centres. But in a knowledge economy, most economic activity is intellectual and mobile.
The evolution into knowledge economies is transforming economic activity dramatically. In Dubai fossil fuels now represent only 3% of GDP. In its place is a thriving knowledge hive. Global economic activity is increasingly concentrated around similar hubs, where ideas pollinate easily.
How much can we expect productivity of those in work to rise, and will it be enough to offset the demographic effects on economies?
Goldin: We read that AI will double productivity, but this reflects failure to understand economics. AI has the potential to dramatically improve productivity, but only in sectors accounting for less than 15% of GDP. So, the overall impact on growth will not be as high as some expect. Within the next decade, AI is unlikely to revolutionise productivity in non-tradeable services. And, frankly, we don’t always want to double productivity – to look after our elderly parents or our children faster, or reduce an hour’s physiotherapy to five minutes. As societies get richer and older, people value quality over quantity, which limits AI’s potential to influence growth and productivity.
The bottom rungs of employment were traditionally repetitive rules-based jobs. These roles are disappearing. That’s fine if the youth population is declining – in Europe the median age is now over 40. But it’s a challenge for Africa and the Middle East, where the median age is 20 and 15 million people enter the workforce annually. AI and automation are useful in economies where the workforce is shrinking, but bad where it’s the reverse. It’s no coincidence that Japan, facing demographic change, has been at the frontier of robotics and automation.
To what extent can technology such as AI and robotics help the working population to bear the weight of supporting older people?
Goldin: Analyses of what AI is going to do are disconnected from the realities of economies, of demographics, and the structure of consumption and expenditure. But what AI can do is help increase healthy lifespans. It’s already contributing to new cures for cancer, monitoring systems and treatments. Once we get the breakthroughs in neurodegenerative medicine, we’ll have truly healthy people living into their 100s.
As healthy life expectancy increases, questions about retirement ages and sustainable pension promises become more pressing. Major shifts are coming in societal attitudes. Already, the era of the youth CEO is over. Assumptions about career paths within a single firm are fading. Lifelong learning and the continual renewal of skills are becoming more valuable. Investing in software – processes, ideas and operating systems – is just as important as investing in hardware and infrastructure.
Demographics, technology, climate change, politics and economics all shape our future. How change interacts with and impacts on individuals and markets depends on how prepared we are to manage the downside risks and embrace opportunities.
