While Japan had the biggest slump in its workforce in Asia over the last 10 years, Singapore has the most to fear from an aging population over the next two decades.
The city state will face a double whammy: a shrinking workforce and slower progress than Asian neighbors in getting more people into the labor market. According to a new study from Oxford Economics, Singapore’s labor supply growth – after accounting for changes to the participation rate – will shrink by 1.7 percentage points in the 10 years through 2026 and by 2.5 percentage points in the decade after that. That’s the worst of a dozen economies in a report by Louis Kuijs, the Hong Kong-based head of Asia economics at Oxford.
Almost all Asian nations will face demographic challenges over the next two decades, and efforts to boost labor participation rates – for example, by drawing more women into the workforce and raising the retirement age – will only marginally limit the negative impact.
In Singapore, immigration restrictions can partly explain an expected drop in working age population growth from 2027, even as Kuijs credits foreign labor inflows for helping boost that pool over the last decade.
South Korea and Taiwan also will be hard hit by declining labor supply in the decades to come, while for some countries, the pain is only delayed: Thailand’s workforce growth will barely decrease over the next 10 years, but should see a 1.1 percentage point yearly drop in the decade thereafter.
The grim rule of thumb for the region: A 1-percentage-point decline in labor supply growth in any of these areas would shave off a half-point to two-thirds of a percentage point in GDP growth.
Japan should be saved by broader efforts to incorporate women into the workforce, and by higher participation among senior citizens, thus allowing the labor supply to remain unchanged in the next decade even as the working-age population shrinks. But these positive factors will run their course by around 2027, when labor supply growth again will decrease since Japan will no longer be able to wring more participation out of its dwindling pool of available workers, Kuijs estimates.
While Southeast Asian countries, like the Philippines and Indonesia, are still benefiting from younger and growing populations, they’ll need to do more to boost productivity over time, focusing on economic integration and investing in technology, said Chris Humphrey, executive director of the EU-ASEAN Business Council.
“The current demographic dividend it’s enjoying won’t last forever,” he said, referring to the region.