The challenge for Western countries in the short to medium term is that the number of workers that they have to support their economies (and social support networks) is declining or set to decline. We’ve banged on about this challenge here at Demography is Destiny for a while now.  According to a report in the Economist, not only will an ageing population eventually result in fewer workers, but as those workers age they will also be less productive.   

First, for those that argue economic growth isn’t everything, you’re right. But it is pretty important:

“Growth is vitally needed to bring down unemployment and to reduce the burden of debts incurred in both the private and public sectors over the past 20-30 years. But rich-world economic growth in the 21st century has so far been sluggish compared with previous decades.”

If we don’t grow economically, then new jobs aren’t created and debt (and social welfare) is harder to pay.  One way to grow is to grow the number of workers that you have:

“One problem seems likely to weigh heavily on growth: it is fairly certain that, in the absence of mass immigration, the absolute number of workers in many European countries will fall over the next 20 years.”

This is of course leaving aside the fact that many of Europe’s current denizens can’t get work at the moment anyway…So apart from growing the number of workers, you can instead grow each worker’s productivity.  Unfortunately, an ageing population hinders this:

“…as Fredrik Nerbrand of HSBC, a bank, argues in a research note, productivity gains seem harder to generate with an ageing workforce.

Workers in their 20s and 30s are likely to show the fastest marginal increases in productivity as they receive formal training and get more experienced at their jobs. It is hard to define an exact age at which productivity starts to decline. The answer will vary from industry to industry and from worker to worker.

Aptitude tests show that 45- to 54-year-olds have below-average scores in areas such as motor co-ordination and numeracy. A survey of the academic literature found that declines were important after the age of 50 in areas requiring speed and problem-solving but not where experience and verbal ability were significant…”

There are competing factors at work here of course. On the one hand, there are fewer jobs requiring manual labour, which means are you productive for longer into your golden years. Conversely, the increased importance of technology can be a drawback for older people who are less adept at adapting. Taking all of that into account then:

“Mr Nerbrand makes the assumption that worker productivity peaks somewhere between the ages of 30 and 50, and declines more quickly after the age of 55. On that basis, he thinks the most likely indicator of future changes in productivity will be what he dubs the grad-to-granny ratio: the relationship of those aged 20-29 to those aged 55-75. This ratio is declining almost everywhere in the world. By 2030 there will be only half as many grads as grannies in Western Europe, and less than that in Japan.”

Of course, demography isn’t the only thing that drives productivity growth.  But if you are swimming against the demographic tide, then you will have to swim harder:

“ Technological change—3D printing and robotics, for example—or the emergence of shale oil and gas as cheap forms of energy may deliver a big boost. In Europe structural reforms, such as eliminating cartels or reducing labour-market distortions, may provide further momentum. Some countries could add many more women to the workforce; Italy has the fourth-lowest female employment rate in the OECD, for example. But if Mr Nerbrand is right, then these factors will have to make a very big difference indeed for developed countries to overcome the burden of their ageing populations.”

Let’s hope that those shale gas mining robots made on 3d printers are available soon. In the meantime, put on some Barry White and make some babies Europe!

Marcus Roberts was two years out of law school when he decided that practising law was no longer for him. He therefore went back to university and did his LLM while tutoring. He now teaches contract and...