Workforce growth will slow almost everywhere and, in some places, will shrink.
Several patterns of growth are projected, as shown in Exhibit 8. Young, mostly low-income countries that still have high fertility are projected to see continued but slowing growth in their working-age populations. For example, India is projected to have a 46% gain in working-age population over the next 25 years but much slower growth of only 9% over the subsequent 20 years.

Some countries with moderate workforce growth over the next 25 years will subsequently see workforce growth slow or decline. The United States and the United Kingdom will likely see continued growth, but China and Mexico are projected to see absolute declines from 2030 to 2050.

Many large economies face declines in their working-age populations, and some already have shrinking workforces. Japan, for example, is projected to have a 19% drop in working-age population over the next 25 years, followed by a 24% drop over the subsequent 20 years. Italy’s working-age population will decline by 10% over the next 25 years and by a further 16% from 2030 to 2050. Shrinking labor forces will be the norm throughout Europe with only a few exceptions. Of the large economies, only the United States will see growth in its working-age population.

Some countries will gain a “demographic dividend” from a labor bulge.
Many young countries with falling fertility will benefit from disproportionate growth in their working-age populations. With fewer children, the working-age population will temporarily grow faster than total population and consequently make up a growing share of the total population. The boost in economic output stemming from growth in share of working-age population has been called a “demographic dividend.”

Since around 1965, South Korea and China have enjoyed such a dividend, benefiting from a steep increase in workers per dependent. These increases will continue until only around 2010, however, when an increase in old dependents or retirees will cause the ratio to decline, leaving these countries only a few more years to capitalize on their demographic dividends (Exhibit 9).

The potential dividends for developing countries during this transition depend not just on demographic characteristics but also on salutary economic and social conditions that can help a country exploit the potential dividends of a labor bulge. Recent literature suggests that movement of the labor bulge into peak savings and investment years may create a second and potentially larger demographic dividend.

The declining number of workers per retiree will create a demographic drag. Slower growth in working-age populations and faster growth in number of retirees will result in a declining number of workers per retiree. The fiscal implications are enormous; the decline in workers per retiree will increasingly strain national budgets as fewer and fewer workers fund the pension and health-care costs of an increasing number of retirees.

Globally, the ratio of working-age population to retirement-age population will fall from 9 to 4. For more developed countries, the ratio falls from 4 to 2, and for less developed countries, from 12 to 4. The fiscal challenge of a decreasing worker-retiree ratio is particularly burdensome for young, rapidly aging countries facing steep declines in these support ratios. Such countries will have to adjust rapidly and are said to be “getting old before they get rich.”

Excerpted from Hayutin, Adele (2007).Global demographic shifts create challenges and opportunities. PREA Quarterly (Fall), 46–53. For the full article, see click here.