In every single region of the world, economic growth has failed to return to the rate it averaged before the Great Recession. Economists have come up with a variety of theories, and although each explanation has some merit, experts have largely overlooked what may be the most important factor: The global slowdown in the growth of the labor force.
One way to calculate the World’s Potential Growth Rate is: add “rate at which the labor force is expanding” to “rate at which productivity is rising”
And growth in the size of the labor force—which is driven mainly by increases in the number of working-age people, those between the ages of 15 and 64—has slowed across the world.
In a world with fewer young people, economic growth will be harder to come by – and Singapore is no exception from this global trend.
NO COUNTRY FOR YOUNG MEN
Since 2005, the global labour force rate has downshifted to just 1.1 percent, and it will likely slip further in the coming decades as fertility rates continue to decline in most parts of the world… The implications for the world economy are clear: a one-percentage-point decline in the population growth rate will eventually reduce the economic growth rate by roughly a percentage point.
While Governments can offer incentives to boost fertility rates and lure more adults into the work force, these half measures can only partially offset the larger forces at work. Ultimately, the world should brace itself for slower growth and fewer economic standouts.
THE POPULATION PLATEAU
According to UN forecasts, the world’s population will rise from 7.3 billion today to 9.7 billion by 2050. Although 2.4 billion sounds like a lot of people to add to the planet by 2050, the figure in fact takes into account a dramatic slowdown in the population growth rate
Thank You Medicine (sort of) – advances in medicine and nutrition have extended the average human’s life span from 50 years in 1960 to 69 years today, with more progress sure to come (yay! more old people)
No Thank You Falling Fertility – global baby bust. Since 1960, the average number of births per woman worldwide has fallen from 4.9 to 2.5
Today, more and more countries are nearing the replacement fertility rate of 2.1, below which the global population starts to shrink.
Because it takes 15 to 25 years for babies to mature into working-age adults, the economic impact of falling fertility rates is only starting to become visible. Of course, economic booms don’t always require population booms. Some countries manage long stretches of strong economic growth without reaching the threshold of two percent population growth. Still, the probability of an economic boom is much lower in the absence of strong population growth, and even in many parts of the developing world, population growth is slowing or reversing. Over the next five years, the working-age population growth rate will likely dip below the two percent threshold in all the major emerging economies.
ACCEPTING THE INEVITABLE
(Good) Governments (should) have already started trying to fight the population slowdown, beginning with:
Attack falling fertility rates — most notably, China, which ended its one-child policy last year – through so-called baby bonuses and other policies to boost fertility rates.
Bringing more adults into the labor force e.g. In 2007, Germany increased the retirement age from 65 to 67.
Attracting foreigners e.g. According to the UN, by 2013, the number of countries that announced plans to increase the size of their populations through immigration had more than doubled since 2010.
Lift the female labor-force participation rate – e.g. Japan who seems to have already gotten the message. Since coming to power in 2012, Prime Minister Shinzo Abe has acknowledged the role that women could play in fixing the country’s aging problem, and he has made “Womenomics”—a set of policies aimed at getting firms to hire more women—a centerpiece of his plan to revive the economy.
RISE OF THE MACHINES?
Yet none of these strategies can bring enough adults into the work force to compensate fully for the decline in the working-age population. Attracting immigrants, for example, has proved impractical on a large scale. One reason Germany accepted nearly one million refugees in 2015 was that its leaders recognized the economic need for new blood in an aging society, but even the authors of that controversial policy have admitted that the country cannot accept that many newcomers on a regular basis.
In a world with fewer young people, economic growth will be harder to come by. But at least the alarmists’ fears may subside. Immigrants will be less likely to be viewed as bogeymen, and the Malthusian nightmare that humanity won’t be able to feed itself should fade. Similarly, neo-Luddite warnings about robots stealing human jobs could also prove beside the point. The automation revolution is in its early stages, but it is possible that the robots will arrive just in time to ease the threat posed by depopulation. As the ranks of working-age humans thin, smart machines could do the labor they once did. Regardless, it’s hard to see how the world economy can find enough new workers to grow as fast in the future as it has in the recent past.