Lower birth rates and rising life expectancy present significant challenges

Future of demographic change

When the global population passed 7bn recently, the addition of about 1bn people in little over a decade marked the most rapid period of growth in recorded time.

But even more significant is that the birthrate in most industrialised and some emerging economies is slowing sharply while numbers of elderly are rising very rapidly.

Within the developed world, where old age social security systems predominate, life expectancy has risen from about 66 years at birth in 1950-55 to 77 years today. According to George Magnus, an economist who has specialised in demographic change, rising life expectancy at older ages is “an existential threat to the economic and political framework we built after the second world war”.

Social security systems that depend on contributions from workers to pay pensions are under threat. Globally, on average, total fertility rates – live births per woman – have fallen from 4.95 in 1950-55 to 2.52 in 2005-10. Yet 2.1 is needed to keep a population stable.

UN data indicates that the percentage of the world’s population aged over 60 will double from 11 per cent today to 22 per cent by 2050, while the percentage of elderly who are 80 and over will grow from 14 per cent to 20 per cent.

Worldwide, the number of people of working age available to support each retiree will halve. That also means slowing GDP growth.

The issue is global. In China, a fertility rate of 1.6 children per woman means a working age population that has already peaked. In Japan, falling births and rising longevity have created a post-60 group that accounts for about a third of its total population.

Immigration can help make up some of the shortfall in workers – a strategy Japan has assiduously avoided. Governments can also raise pension ages and boost female participation in the workforce, with affordable child care and flexible working hours.

These shifts present substantial risk. But for businesses that can adapt their strategies early to take account of demographic change, the opportunities could also be enormous.

Norma Cohen