1

In her keynote speech at the October 2013 EMEA Compensation and Benefits Conference in Lisbon, Professor Sarah Harper examined how economics and demographics intersect and looks at the implications of prevailing population trends in advanced and developing countries, as well as at developments in the health profile and productivity of the global labour pool.

FROM POPULATION EXPLOSION TO POPULATION EROSIONSince the onset of the worldwide economic downturn in 2008, many national governments have had to grapple with two conflicting but equally pressing challenges: first, the genuine need to reduce their national debt; and second, the huge demographic changes that will rapidly affect their populations over the coming decades.

According to research conducted by the United Nations (UN), the 21st century will see four major changes in population levels and patterns. It is estimated that the global population will be much larger, rising from 7 billion to a maximum of 11 billion, and that it will become much denser — currently, half of the world’s citizens live in urban environments, but that proportion is expected to rise to 75%–80%. The world’s population will also be more mobile — movement and distribution will fluctuate more fluidly than ever before — but most important, the population will be older than ever before.

The principal reason for this dramatic shift in age composition is not simply that people are living longer, but rather that fertility is falling. Fifty years ago, there was much concern that a “population explosion” would result in widespread famine and plummeting living conditions as the world struggled to support people that it simply could not feed. The reality is that with the notable exception of sub-Saharan Africa, women all over the world are actually having fewer children. Although this shift towards lower fertility rates has been ongoing since the “demographic transition” that began in mid-19th century Europe, its acceleration in recent years has been surprising — within just one generation, women in Southeast Asia have gone from having six or seven children to just one. The main outcome of this shift is that the traditional link between GDP growth and fertility has been broken. Just as important, however, and just as quick, has been the global increase in longevity — by 2050, it is likely that more than 30% of the inhabitants of OECD countries will be over 60. The escalation in the number of over-85s (the “oldest old”) will also dominate this century’s population agenda.

DEMOGRAPHIC TRENDS AND IMPLICATIONS FOR MULTINATIONAL EMPLOYERS

2

There are some important caveats to bear in mind, however. Although UN estimates suggest that birth rates in African countries will drop to replacement levels too, in reality there has been a pause in the fertility fall and populations could yet rise significantly. Recent research conducted at Oxford University has found that some governments in Africa are holding fast to the notion that more citizens equal more wealth and are actively trying to encourage larger families.

The implications of falling fertility for the global labour pool are far-reaching. If the UN’s forecasts prove correct, by 2050 less than 15% of the world’s population will be children — simply put, future workforces are not being born. Sub-Saharan Africa aside, less than two-thirds of people in the world will be of working age. Young people, traditionally the drivers behind advanced economies, will not be there in sufficient numbers to counterbalance the challenges posed by their ageing compatriots.

b. Vanishing Children: Percentage of Population Aged 5–14 in 2050

Figure 1 a. Vanishing Children: Percentage of Population Aged 5–14 in 2010

Source: UN World Population Prospects, 2010 revision

<15%

<15%

n/a

n/a

16%–20%

16%–20%

21%–25%

21%–25%

>26%

>26%

3

HOW WILL AGEING WORKFORCES IMPACT NATIONAL ECONOMIES?Ageing populations are commonly regarded as a drain on national resources. Those concerns have been exacerbated by statistical evidence indicating that in both advanced and some emerging economies, up to 40% of governmental spending is soaked up by age-related provisions, such as social security and health care. The real issues, however, are the assumptions built into that research, principally that the traditional “economic life course” has changed. In the past, employees were thought to spend, consume, and save more while they were in work and then consume less in retirement. US research has revealed a changing picture today: because people are working longer, they are no

b. Vanishing Workers: Percentage of Population Aged 15–64 in 2050

Figure 2 a. Vanishing Workers: Percentage of Population Aged 15–64 in 2010

Source: UN World Population Prospects, 2010 revision

<60%

<60%

n/a

n/a

60%–64%

60%–64%

65%–69%

65%–69%

>70%

>70%

4

longer drawing down on their assets as early and they continue to consume well into their 70s. The increasing age of the workforce has also led to a 25% increase in the net worth of employees.

THE RIPPLE EFFECT IN THE GLOBAL LABOUR POOL

Figure 3 Incoming (20–24) and Outgoing (60–64) Age Cohorts in OECD Countries (2000 to 2030)

Source: OECD

Outgoing workforce

Incoming workforce

40,000

45,000

50,000

55,000

60,000

65,000

70,000

75,000

2000 2005 2010 2015 2020 2025 2030

Age 20–24

Age 60–64

Nu

mb

er o

f wor

kers

2015 is likely to be an important milestone for OECD countries, as it is the year when the cohorts of incoming workers (aged 20–24) and outgoing employees (aged 60 and above) will cross over. Thereafter, the labour pool in most developed countries will shrink.

Traditionally, migrants have helped developed countries compensate for their ageing populations and talent shortages. Western countries have typically imported human capital north and exported economic capital south as a way of propping up their economies, but in the future, Asian countries will probably start to benefit from their demographic dividend and hold the upper hand. As ever, China will be a fascinating litmus test. Educating its vast population to the level required to compete in the future global economy will be nigh on impossible. A more appealing option for the Chinese government would be to attract the best of the best, becoming the magnet that draws the skills of the world — it may well be that ambitious Western graduates take up their first jobs in Shanghai rather than New York. Other governments in the region, including those of Singapore and Malaysia, are apparently already concerned that China will begin to poach their top talent.

‘LATE LIFE’ ECONOMIC ACTIVITY

Drawing on the (commonly untapped) skills of mature workers may be one way of combating a shrinking, or less skilled, workforce. According to OECD data, postretirement life expectancy doubled between 1970 and 2004, and older people represent a massive and underused — and often undervalued — resource. Indeed, governments are actively looking for ways to increase “late life” economic activity and encourage workers aged between 50 and 70 to share their expertise.

5

In the European Union, anti-age-discrimination legislation has meant that retirement ages are creeping up. On top of that, many firms are seeking to retain institutional knowledge by encouraging older workers to stay on board, whether full-time or as consultants. There is no doubt much to be gained by this more positive approach, but there is of course a negative consequence in the form of high levels of youth unemployment. The countries of southern Europe have felt the effects of this since 2008.

HEALTH AND ‘RADICAL LONGEVITY’

So although tapping into the expertise of an ageing workforce offers some benefits, these can be reaped only if that population remains productive. Maintaining the health of older people is then perhaps the most pressing issue facing governments today.

These days, most people in Europe live to be over 65. If this trend continues, within 25 years half of the English population will live to the age of 100. A number of factors have contributed to this push-back against mortality and, taking up the example of England again, government campaigns to cut down on smoking had dramatic effects in the 1990s — heart-disease-related deaths among males dropped 45% according to official statistics; cancer- and stress-related deaths also fell significantly.

In the 21st century, however, the bête noire of health campaigners is obesity — if left unchecked, it can result in people living at a much reduced capacity. Although obesity has been a problem in many Western countries for some time — it rocketed from 10% of the US population to more than 35% between 1986 and 2009 — it is now spreading across developed economies, and only Japan remains relatively immune, for now. And though drugs can now treat the condition and prolong life expectancy, that leaves little incentive for people to take responsibility for their own health and change their poor lifestyle habits. Even if these people do live longer, they will not be able to participate in society as effectively as when they were fitter.

Beyond pharmaceuticals, new and more radical technologies, such as stem cell therapies, may help people age more slowly and live longer. But what is the price to pay for such radical longevity? If people start living to 150 or beyond, will governments be forced to step in to enforce a maximum life span? And how will the jobs be generated to employ the ever-increasing cohort of older workers, yet still provide opportunities for young people to enter the workforce?

CONCLUSIONThe 21st century will bear witness to a sea change in global population growth, composition, and dispersal. Although employers need to proactively plan ahead to ensure they have access to the top talent they need to fulfil their corporate objectives, governments have the complex job of balancing their economic agenda with the expensive needs of ageing populations. Tapping into the vast experience of older workers while also providing stimulating career opportunities for the next generation is just one of the challenges the global community must not ignore.

ABOUT THE AUTHORSarah Harper is a professor of gerontology at the University of Oxford and director of the Oxford Institute of Population Ageing, Oxford Martin School.