The right demographic mix can supercharge economic growth.
There’s a sweet spot in which the majority of a population is of workforce age, contributing to the economy through both consumption and production. As a country’s population ages, though, and retirees aren’t fully replaced by younger workers, the proportion of people who consume more than they produce begins to rise.
That trend can feed on itself; for instance, elderly people may draw younger relatives out of the labor force to provide care, making those would-be workers into so-called single-channel contributors, too. In addition, retirees collecting benefits may begin to strain public safety nets and start spending their savings, reducing the available capital for investment in the economy.
One solution to demographic woes is immigration. Germany, with the world’s second-oldest population—21 percent of citizens are 65 or older—was quick to announce it would accept at least 800,000 immigrants in 2015. That equates to about 1 percent of Germany’s population. Yet there are also political risks: An already controversial decision was made more complex by the terrorist attack in Paris and domestic anti-immigration protests. And culturally, boosting immigration is a near-impossibility for places like Japan, which sees 25% of its population at more than 65 years old, up from 13% 20 years ago.
With these potentially disastrous economic and social consequences to consider, how can nations deal with volatile demographic pressures?