Imagine a world where crutches outsell baby formulas and retirement homes hold more residents than kindergartens or nurseries. This isn’t some dystopian fiction scenario; it is the reality of the ‘silver tsunami’ crashing upon us, the rapid aging of the population across the globe. As the tide recedes, what economic footprints will it leave behind? Will it drown economies in fiscal burdens or create new opportunities in the global market? In this article, we will navigate through the economic currents of the aging world.
Why does the ageing population concern economics?
There is a direct relation between the economy and the population demographics. As the population ages, the supply of working-age people in the economy will decrease, leading to a shortage of qualified workers. This means that labor productivity decreases and leads to a diminishing output, which will result in higher general prices of goods and services in the economy, referred to as inflation. This inflationary pressure will decrease the international competitiveness of the country’s exports because they would be more expensive than local goods in that country.
What are the effects of an ageing population on a real-world economy?
More than one in ten people in Japan are aged 80 or over, unsurprisingly making it the country with the world’s oldest population. Over the years, this has proven to be a nuisance for Japan’s economy, opening doors to many economic woes. Here are the effects of the ageing revolution on the Japanese economy.
Government spending:
The International Monetary Fund (IMF) predicted in 2020 that the ageing and shrinking population of Japan would strain its public finances, and government expenditure on healthcare services would rise, along with pension schemes to support the retired and dependant elderly population. Meanwhile, taxes will have to be cut, and the government's allocation of resources and priorities will be forced to change. This would have serious consequences, such as deviating the Japanese government’s focus from other important areas of development, such as education, national defense, and price stability.
Productivity and Gross Domestic Product (GDP):
Looking over the fact that Japan's population is not only ageing but also shrinking due to its domino effect phenomenon, the nation is already looking at a labor shortage. It has been said that in 2040, Japan could be short of 11 million workers. This could be fatal for not just Japan but any country in the world. In the long run, decreased productivity would lead to diminishing national output, decreasing the country’s real GDP, which could decrease the export of goods and services while increasing imports, resulting in a current account imbalance, or more specifically, a current account deficit.
Growth-rate:
Any global economy facing the wrath of the silver tsunami will see a decrease in its GDP growth rate, making Japan no exception. Japan was the only major economy to start 2018 with a shrinking economy, ending its eight consecutive quarters of economic growth since 1989 with a contraction of 0.2%. Moreover, it is now set to become the slowest-growing country out of the G7 economies.
How does the ageing population affect global inequality?
The rising cost of supporting an ageing population, mainly through pensions and healthcare, places immense pressure on government budgets.
This can lead to higher taxes, reduced spending on other areas, or increased government debt. The burden can be particularly acute in countries with generous social safety nets.
Additionally, wealth and income inequality may widen as older generations with accumulated assets benefit disproportionately from government programs compared to younger generations facing higher taxes and fewer benefits.
Reference List
Financial Times (2018). How Japan’s ageing population is shrinking GDP:
One of the world’s oldest societies sees its economy contract. [Online] Financial Times. Available at: https://www.ft.com/content/7ce47bd0-545f-11e8-b3ee-41e0209208ec
OECD (2013). Ageing Populations: Economic Effects and Implications for Public Finance [Online] at OECD iLibrary. Available at: https://www.oecd-ilibrary.org/economics/ageing-populations_401111720150
World Bank (2019). World Population and Human Capital Investment 2019: The Changing Demographic Landscape. [Online] World Bank. Available at: https://ieg.worldbankgroup.org/evaluations/world-bank-support-aging-countries/chapter-2-world-bank-perspective-population-aging
World Economic Forum (2023). More than 1 in 10 people in Japan are aged 80 or over. Here's how its ageing population is reshaping the country. [Online] WEF. Available at: https://www.weforum.org/agenda/2023/09/elderly-oldest-population-world-japan/
Comments