Ageing: An impost on prosperity?

The world’s population is getting older. While many global workers may be eyeing retirement as a prize, the resulting adverse economic implications of collective ageing are cause for concern. The government must combat this due to the intergenerational effects of ‘age policy’, often taking decades to perceive changes in population structures. Foresight is necessary.

Twentieth century demography experts have scratched their heads at the exponential increase in the number of humans inhabiting the Earth. Research suggesting that the global population could peak at, and not surpass, 11 billion in 2100, has eased some demographers’ concerns. However, developed and emerging states’ birth rates are decreasing, giving rise to another quandary: global ageing. 

‘Age is an issue of mind over matter.  If you don’t mind, it doesn’t matter.’ ~Mark Twain

While Twain offers us comfort in this ode to seniority, the number of humans on earth aged over 65 will triple in just 30 years, increasing the burden of higher pensions and health care costs.This will lead to a slew of labour market impairments globally, not to mention economists’ migraines, although the latter we are used to. 

Historically, adult life expectancy has been severely lower than in the present. The United Kingdom’s 1851, male life expectancy was 40 years. Globally, life expectancy rose from 47 years in 1950 to 73 years at the time of publishing. United Kingdom infant mortality rates in the 1800s were 329 per thousand, but now a mere 4 per thousand. Medical and economic advances are responsible for this, however the advent of birth control and rising costs of children have shrunk global fertility rates, especially in developed economies. This leaves many countries with the financial burden associated with the treatment of health complications linked with age, including cancer, heart’s disease and dementia. 

Australia’s baby boomer generation is entering retirement age, dramatically increasing the numbers of Australians working in the aged care industry, which has grown by 70 percent since 2008. The exodus from the labour force has been exacerbated through the COVID-19 pandemic, which has encouraged many senior workers to retire.

Australia’s immigrants have dampened the severity of this issue through higher fertility rates than non-immigrants. Yet falling net overseas migration into Australia due to the pandemic may have accelerated the issue of ageing, giving optimists some butterflies. However the same cannot be said for culturally homogenous East Asian nations whose lack of new labour supply is beginning to represent an eerie warning for developed economies globally. 

Japan has seen no real growth in GDP for the last 30 years. A low birth rate, long life expectancy and the resultant ageing of Japan’s population have hamstrung growth in productivity, an essential element of developing an economy and living standards. Despite desperate attempts by Japan’s central bank to stimulate growth by reducing the cash rate from six percent to negative figures in the same window of time, these structural supply-side issues have left this monetary measure largely ineffective .

South Korean birth rates have slid from 4.5 children per woman to 0.9 children per woman between 1970 and 2020. The United Nations predicts the country’s population will peak in just two years, then decrease as mortality rates exceed birth rates. This has resulted in an extremely tight labour market with unemployment levels averaging 3.7% since 1999, suggesting that the South Korean economy has very little spare capacity. An ageing population will likely lead to the separation rate of workers being higher than the job finding rate. This bleeding long term labour supply may lead to long term inflation as Koreans become used to higher living standards while producers struggle to meet demand with fewer workers than prior.  

Not only is our ageing population costing the public greater resources, it is limiting the long term potential economic growth of our nations. 

Following the great Chinese Famine of the 1960s China implemented a ‘One Child Policy’, lasting from 1980 to 2015, in order to curb the overpopulation and fears of recurring inability to feed the soaring number of Chinese citizens. Years after its inception, China is faced with a disproportionate generation of elderly people. By 2050 more than one third of Chinese citizens will be only children, and given the lack of siblings in China, many may be pulled away from the labour force to care for their ageing parents. Such are the consequences for a lack of governmental foresight in family policy.

The safest, most ethical policy to mitigate an ageing population has eluded many world leaders.

While this problem seems inevitable, the pressure on the labour market from ageing may be alleviated through targeted policy.

Australia’s immigration levels have been proportional to our levels of economic growth. Immigrants bring new skills and infuse culture, attracting tourism. The influx of Vietnamese in the 70s, Balkans in the 90s and Sudanese in the 2010s play a pivotal role in Australia’s identity. Schemes allowing for greater migration into Australia will alleviate pressure on the labour market exodus, allowing fresh, educated Australians to fill jobs once held by the baby boomers. 

A 2018 report from the Australian Institute of Family Studies found that the cost of having children is higher than ever: approximately AUD$170 for low income families. Record property, education and childcare prices has led to many young parents deciding against having the extra child. 

Childcare subsidies, grants for first home buyers and legal measures to financially protect mothers on maternity leave may slow the reduction in birth rates.

Moreover, fewer workers leads to less innovation, as retirees spend less, putting reduced pressure on interest rates and discouraging investment. Research and development grants from the government may bridge this shortfall, thereby maintaining healthy streams of structural improvements to the economy in the long term. 

The United Nations General Assembly has dubbed the 2020s the ‘Decade of Healthy Ageing’. Yet analysing the changing demographics of Australia and cautionary tales of East Asia invites concern regarding the economic risk of letting this seemingly benign trend turn into something more sinister. While recommendations from intergovernmental organisations may further the correct narrative, only governments’ deliberate efforts to remedy ageing will be effective.

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