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Article | WTW Research Network Newsletter

Is there a happy medium for global population and demographic variances?

Demographics are just as important as population numbers

By Stuart Calam | February 09, 2023

Growth is not simply driven by population but also productivity and there are clear ways in which countries can continue to grow despite population challenges
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The humble rabbit is an animal with big expectations. Across the globe, the rabbit is associated with fertility, growth, prosperity, abundance, and good luck. For the northern hemisphere, the rabbit is a springtime animal, signifying the start of a new harvest season and a sense of renewal.

As we enter the Year of Rabbit, the topic of human fertility and demographics is a key challenge many countries across the globe are starting to face. Recent headlines have focussed on a falling population in China and Japan, and the imminent confirmation of India as being the world’s most populous nation. An array of demographic issues including economy, labour workforce, urbanisation and social care need to be considered.

The impact on the economy

The immediate concern for many countries of a declining population is the impact on the domestic economy. Growth of economy is driven (in part at least) by growth in people. Crudely put – fewer people means less demand for goods and services. However, growth is not simply driven by population but also productivity and there are clear ways in which countries can continue to grow despite population challenges. The world’s biggest economy remains the US, with around $23 trillion GDP driven by some 331 million Americans at a per capita basis of $66k per head. China is currently second at around $17 trillion, although with a population of over 1 billion that’s a per capita GDP of $11k – 6 times less than that of the US and still under the global average of just over $12k per capita. In India it is $2k per capita.

$66k GDP per head in the US

$11k GDP per head in China

$2k GDP per head in India

Should China for example be able to increase productivity to that global average an extra $1 trillion will be added to its economy. Indeed, should China get to a level of per capita productivity of just 25% of the American counterpart it will surpass the US economy without the need for any population growth. Current trends suggest that will happen in the early 2030’s. For India, getting productivity per capita to the global average would increase its GDP six-fold and surpass both the US and China. That’s unlikely to happen soon but in the same timeframe it will take China to surpass the US it likely that India will become the third $10 trillion economy and well established as a major economic powerhouse.

Social impacts of an aging population

Demographics are just as important as population numbers. India’s stunning predicted economic growth is due in part to its young emerging talent and demographic dividend. More than half the population of India is in the traditional working age bracket of 18-65. India is facing a demographic boom of mass populations available to work and support a relatively small older population. Countries in western Europe however have long since faced the challenge of falling birth-rates and aging populations. Overall population across the EU fell in 2022 for the second year running, in particular in Greece, Italy, Poland, Portugal, and Romania whose birth rates between 1.2 and 1.6 children per woman are particularly low according to the World Bank, well below the suggested birth rate of 2.1 children per woman needed to maintain current population levels.

To mitigate this European countries have for many decades managed successful immigration policies aimed at attracting young, ambitious and hard-working people from across the globe to complement domestic labour markets. This additional workforce has so far filled in the gaps that the domestic populations have left and help maintain growth for countries across Europe. In Asia, immigration is a far harder problem. Japan, one of the first countries to face the population and demographic challenges, has long struggled to adopt a coherent immigration policy to attract young talent from other parts of the world. Indeed, only 3% of Japan’s population is foreign-born, compared with 15% for the UK, and such is the concern that in January Japan's prime minister, Fumio Kishida said it was a case of "now or never" adding "Japan is standing on the verge of whether we can continue to function as a society” because of its falling birth rate.

Likewise demographics and population growth can present challenges for countries when the economy is not growing fast enough to absorb new people into the workforce. Population growth tends to drive urbanization. More than 80% of the worlds GDP is generated in cities as hubs for talent, finance and services. China’s urbanisation rate is around 65% and steadily growing. In India urbanization rates are closer to 35%. However for countries like Bangladesh, where population growth is outstripping economic growth, providing opportunities for the young population domestically continues to be a challenge. In Papua New Guinea, central government are actively encouraging its population to return back to their village lands to help reduce social issues in the capital.

A key challenge for increasingly aging populations is maintaining the resources needed to support the elderly. China has some of the youngest retirement ages in the world, which is becoming a major problem for a country that is steadily aging. The official retirement age for men is 60. Women in managerial positions have a retirement age of 55, while blue-collar female workers can retire as early as 50. Reform is needed but will not be popular, as evidenced by the current experience in France where Macron is facing intense opposition to increase retirement ages from 62 to (a still below EU average) 64.

The end

Today’s global population is over 8 billion people. In 1679, Antoni van Leeuwenhoek, a scientist and inventor of the microscope, predicted that Earth could support 13.4 billion people. However, many experts now suggest Earth could support a maximum of 10 billion people, the impact of humanity on the planet’s resources and climate leading to potential catastrophic consequences. For many, signs of population decrease are therefore to be welcomed, perhaps offering long-term potential to address fundamental issues in human-induced impacts on the globe. Population changes and demographic shifts will undoubtedly increase the need for companies and countries to develop robust plans in this changing landscape.

Author

Head of Technology Risks Research,
Programme Director and Climate & Resilience Hub
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