How a vast demographic shift will reshape the world

For decades, the world’s dominant powers have benefited from large working-age populations that help drive economic growth.

Meanwhile, particularly young populations in much of the developing world have had limited resources to divert to raising children, curbing economic opportunity.

But the world’s demographic sweet spots are changing, and fast.

Japan had the first major shift: By 2013, a quarter of the population was 65 and older, making Japan the oldest large country ever. Much of Western Europe will follow, with record old-age populations, and South Korea, Britain, and Eastern Europe will be next, along with China.

At the same time, many low-income countries today will have huge prime-age labor forces for the first time. Can they take advantage of the opportunity?

The world’s demographics have already been transformed. Europe is shrinking. China is shrinking, overtaken this year by the much younger India as the most populous country.

But what we’ve seen so far is just the beginning.

The projections are reliable and stark: By 2050, people ages 65 and older will make up nearly 40% of the population in some parts of East Asia and Europe. That’s almost twice the share of older adults in Florida, America’s retirement capital. Extraordinary numbers of retirees will be dependent on a shrinking number of working-age people to support them.

As a result, experts predict, things many wealthier countries take for granted — like pensions, retirement ages, and strict immigration policies — will need overhauls to be sustainable. And today’s wealthier countries will almost inevitably make up a smaller share of global gross domestic product, economists say.

This is a sea change for Europe, the United States, China, and other top economies, which have had some of the most working-age people in the world, adjusted for their populations. Their large workforces have helped to drive their economic growth.

Those countries are already aging off the list. Soon, the best-balanced workforces will mostly be in South and Southeast Asia, Africa, and the Middle East, according to U.N. projections. The shift could reshape economic growth and geopolitical power balances, experts say.

In many respects, the aging of the world is a triumph of development. People are living longer, healthier lives and having fewer children as they get richer.

The opportunity for many poorer countries is enormous. When birthrates fall, countries can reap a “demographic dividend,” when a growing share of workers and few dependents fuels economic growth. Adults with smaller families have more free time for education and investing in their children. More women tend to enter the workforce, compounding the economic boost.

Demography isn’t destiny, and the dividend isn’t automatic. Without jobs, having a lot of working-age people can drive instability rather than growth. And even as they age, rich countries will enjoy economic advantages and a high standard of living for a long time.

But the economic logic of age is hard to escape.

“All of these changes should never surprise anyone. But they do,” said Mikko Myrskylä, director of the Max Planck Institute for Demographic Research. “And that’s not because we didn’t know. It’s because politically it’s so difficult to react.”

The Opportunity for Youth

As in many young countries, birth rates in Kenya have declined drastically in recent years. Women had an average of eight children 50 years ago, but only just over three last year. Demographically, Kenya looks something like South Korea in the mid-1970s, as its economy was beginning a historic rise. Much of South Asia and Africa have similar age structures.

The upside is enormous.

A similar jump in the working-age population may explain about a third of the economic growth during that time in South Korea, China, Japan, and Singapore, according to the best estimates — an enormous amount of economic growth.

Many of these demographic changes are already baked in Most people who will be alive in 2050 have already been born. But predictions always involve uncertainty, and there is evidence that sub-Saharan Africa’s fertility rate is dropping even faster than the U.N. projects — meaning that those African countries could be even better positioned in 2050 than current projections anticipate.

But without the right policies, a huge working-age population can backfire rather than lead to economic growth. If large numbers of young adults don’t have access to jobs or education, widespread youth unemployment can threaten stability as frustrated young people turn to criminal or armed groups for better opportunities.

“If you don’t have employment for those people who are entering the labor force, then it’s no guarantee that the demographic dividend is going to happen,” said Carolina Cardona, a health economist at Johns Hopkins University who works with the Demographic Dividend Initiative.

East Asian countries that hit the demographic sweet spot in the last few decades had particularly good institutions and policies in place to take advantage of that potential, said Philip O’Keefe, who directs the Aging Asia Research Hub at the ARC Center of Excellence in Population Aging Research and previously led reports on aging in East Asia and the Pacific at the World Bank.

Other parts of the world – some of Latin America, for example – had age structures similar to those of East Asian countries but haven’t seen anywhere near the same growth, according to O’Keefe. “Demography is the raw material,” he said. “The dividend is the interaction of the raw material and good policies.”

The Challenges of Aging

Today’s young countries aren’t the only ones at a critical juncture. The transformation of rich countries has only just begun. If these countries fail to prepare for a shrinking number of workers, they will face a gradual decline in well-being and economic power.

The number of working-age people in South Korea and Italy, two countries that will be among the world’s oldest, is projected to decrease by 13 million and 10 million by 2050, according to U.N. population projections. China is projected to have 200 million fewer residents of working age, a decrease higher than the entire population of most countries.

To cope, experts say, aging rich countries will need to rethink pensions, immigration policies and what life in old age looks like.

The change will not come easy. More than 1 million people have taken to the streets in France to protest raising the retirement age to 64 from 62, highlighting the difficult politics of adjusting. Immigration fears have fueled support for right-wing candidates across aging countries in West and East Asia.

“Much of the challenges at the global level are questions of distribution,” Myrskylä said. “So some places have too many old people. Some places have too many young people. It would of course make enormous sense to open the borders much more. And at the same time, we see that’s incredibly difficult with the increasing right-wing populist movements.”

The changes will be amplified in Asia: Asian countries are aging faster than other world regions, according to the World Bank. A change in the age structure that took France more than 100 years and the United States more than 60 took many East and Southeast Asian countries just 20 years.

Asian countries are not only aging much faster, but some are also becoming old before they become rich. While Japan, South Korea, and Singapore have relatively high per capita GDP, China reached its peak working-age population at 20% of the income level that the United States had at the same point. Vietnam reached the same peak at 14% the same level.

Pension systems in lower-income countries are less equipped to handle aging populations than their richer counterparts.

In most of these countries, workers are not protected by a robust pension system, O’Keefe said. They rarely contribute a portion of their wages toward workers’ retirement plans, as in many wealthy countries.

“That clearly is not a situation that’s going to be sustainable socially in 20 years’ time when you have much higher shares of the aged population,” he said. “Countries will have to sort out what model of a pension system they need to provide some kind of adequacy of financial support in an old age.”

And some rich countries won’t face as profound a change — including the United States.

Slightly higher fertility rates and more immigration mean the United States and Australia, for example, will be younger than most other rich countries in 2050. Just under 24% of both populations is projected to be 65 years old or older in 2050, according to U.N. projections — far higher than today, but lower than most of Europe and East Asia, which will top 30 percent.

Despite its problems, aging is a tremendous achievement of development, experts say.

“We’ve managed to increase the length of life,” Myrskylä said. “We have reduced premature mortality. We have reached a state in which having children is a choice that people make instead of somehow being coerced, forced by societal structures into having whatever number of children.”

People aren’t just living longer; they are also living healthier, more active lives. And aging countries’ high level of development means they will continue to enjoy prosperity for a long time.

But behavioral and governmental policy choices loom large.

“You can say with some kind of degree of confidence what the demographics will look like,” O’Keefe said. “What the society will look like depends enormously on policy choices and behavioral change.”