The Impact of Global Aging

No country will be unaffected by this brave old world. Aging countries are likely to feel the demographic pinch first and most intensely through labor forces, which will contract as older workers head into retirement without large groups of young workers to replace them. In the United States alone, more than 70 million baby boomers are expected to exit the workforce by 2020, while only 40 million new workers enter. Similar trends are likely throughout Europe. Germany, for instance, started the century with the same working-age population as a much younger Mexico. However, Germany will have only 43.1 million workers by 2030—little more than half the 80.5 million workers Mexico will have by that time.

The shrinking pool of labor will make jobs in the developed world increasingly difficult to fill. Already, the trend has created serious problems for leading petrochemical firms, among others. By some estimates, 10 to 20 percent of senior scientists in the chemical industry have already retired, and 50 percent of employees overall may be eligible to retire over the next decade. Though many will be available as external consultants, their demands for flexible working arrangements are upending established human resource practices. Competition for younger workers is increasingly intense, so many companies find themselves hiring experienced senior engineers, technicians, and research professionals from competitors, often at higher cost and with lower expectations of company loyalty.

On a broad level, the All India Management Association estimates the gap of talented workers will reach 32 to 39 million by 2020—with 17 million jobs unfilled in the United States, 9 million in Japan, and 2 million each in France, Germany, and the United Kingdom. Very few companies are preparing for the loss of older workers and the institutional knowledge they represent. One study in the United States found that two-thirds of firms had no plans or programs to keep older workers or capitalize on their experiences, and few company executives knew anything about their state of preparedness for the coming wave of retirement. 20 This lack of foresight could become a significant drag on overall economic growth and competitiveness. According to the Organization for Economic Cooperation and Development (OECD) projections, the scarcity of working-age citizens will decrease economic growth rates in Europe to 0.5 percent, in Japan to 0.6 percent, and in the United States to 1.5 percent between the years 2025 and 2050.

Aging populations will also affect consumer spending, which accounts for as much as 60 to 70 percent of GDP in industrialized countries. To be sure, financial planning will continue to grow in importance, as older people prepare themselves for retirement. Within the decade, some three-quarters of all investible assets in the United States will be owned by people over 55 years of age, and the institutional retirement and pension funds that represent them will become even more powerful players in financial markets.

But questions remain about what exactly will happen when these retirees begin spending their accumulated savings. As their total spending exceeds the savings generated by current workers, retirees in OECD countries could depress savings rates by some 8 percent of GDP by the year 2020. Savers in industrialized countries seeking out higher rates of return might be increasingly inclined to invest their money in fast-growing emerging markets. This could weaken currencies and increase capital outflows among industrialized countries, as well as heighten financial risk as the life savings of pensioners becomes more dependent on the economic well being of China or India. On the other hand, spending on certain items will soar, as retirees who are well off direct their hard-earned savings toward improving their healthcare, going on extended vacations, and filling their homes with expensive furnishings.

Meanwhile, at the opposite end of the age spectrum, key economic sectors such as housing construction and durable goods might take a hit, since it is young professionals who are most inclined to buy new homes and appliances as they settle down and start a family. The United Nations estimates that the European Union and Japan will see respectively a 13 percent and 20 percent decline in this age bracket by the end of the decade. But as smaller families lavish their resources on fewer children, younger consumers in industrialized countries and key emerging markets (such as China) will also likely have more disposable income than ever before. In the United States alone, kids are already spending nearly as much annually as the total economic output of Turkey.