Twenty Forty Five
This Chapter explains how demographics (age, gender, household formation, education) and socioeconomics (employment, incomes, consumption) tend to follow stable trends and the shape of today’s socio-demographics very significantly determines the shape of tomorrow’s. Therefore we can get a reasonably reliable view of what the future world will be like and how much it will have changed from the current scenario. As demonstrated throughout the subsequent Chapters, the degree of change is significant.
Segmentation of Countries by Age and Affluence
This book uses the data of 117 countries, and therefore it is necessary to develop a structure for identifying the trends that are emerging without descending into an incomprehensible level of detail. The purpose of this Chapter is to explain how using median age and average GDP per capita the world can be segmented into four meaningful groups of countries which provide the basis for much of the subsequent analysis and discussion.
Births Deaths and Migration
Births Deaths and migration, together with the age by gender profile of the existing population basically determine the future size and age profile of the population. This chapter examines the trends in these variables and the implications of that for the number of births, deaths and overall age profile of the population of each country. The differences in outcomes are considerable – from countries whose total population is expected to reduce in absolute size to others where the population nearly doubles by 2045.
It might be noted that China did not achieve a ‘One Child Policy’. For the last 20 years the average number of births per woman aged 15 to 49 years has been 1.4. Under the policy a very high proportion of the population could have a second child if the first was female.
The changing number of persons in the different age/life stage profile of the population (consumers) is a key determinant of trends in lifestyles, social and individual needs and ultimately the shape of society. For example, a rapidly growing child population creates an ongoing demand for school places. Conversely the more persons there are over 40 years of age the greater the demand for health services. This chapter highlights the major changes projected to happen to the age profile of populations and the movement of countries to a ‘Square’ rather than a ‘Pyramid’ population shape. It also highlight a critical change in the relationship between the number of persons in key consumer age range (15 to 64 years) in the affluent regions which account for 63% of global consumption and the trend in number of persons looking to be employed.
In the next decade, the number of key consumption decision makers (persons aged 15 to 64 years) in the Affluent countries shows no further growth from 715 million in 2019 to 2030 and then declines to 683 million by 2045. These people account for 63% of global consumption expenditure in 2019.
The Changing Consumer
The Existing age profile, and trends in birth rates, death rates and migration ‘size’ a society, whereas education ‘shapes’ it. Education appears to significantly influence birth rates, employability and with that individual affluence and lifestyle. The difference between countries is considerable, and more worrying is the difference in terms of the importance of improving it. Clearly some countries treat it as low priority which is unfortunate for their citizens. Others, are placing a high value on it and are benefiting from increased employment and productivity. The big concern with education is that it takes time to be effective – a child is not educated overnight. As such the countries that are not performing well on education now, will not achieve improvement (typically away from poverty) for some time.
It is estimated that in 2020 about 36 million persons turn 15 years of age but with limited education and theoretically enter working age and are looking for work. This increases to 52 million persons per annum in 2045.
Employed persons are, of course, the ‘engine’ of the economy. The greater the proportion of the population that is in work the stronger the economy. This Chapter highlights the two different stories in terms of employment that exist across the countries covered in this analysis. In the older countries (and generally more affluent) the total labour force is not projected to grow relative to the population, and in some cases decline. But due to ‘working age’ extending to age 74 it does not decline significantly. However, in the ‘younger’ world the growth in number of persons of working age (15 to 64 years) is considerable from 2.8 Billion in 2019 to 3.9 billion by 2045. To maintain employment rates there needs to be 625 million more jobs available. Even more if female participation in the labour force were to increase. The historic record in leveraging this ‘demographic dividend’ is not good.
Working age in the older and affluent countries is no longer 15 to 64 years. It now extends to 74. Already in the USA 24% of males aged 70 to 74 years are in full time employment. The same in Japan. Age 65 to 74 is typically the fastest growing age group, so these countries are not running out of workers.
Household incomes are difficult to measure on a comparable basis so we have used our own method for estimating what a household has to spend per annum given constraints including GDP per worker, number of workers per household, salary as a percent of GDP per worker and Private Consumption Expenditure per Household. While not infallible it is more defensible than averages from Household Income and Expenditure Surveys. The difference between the affluent and the poor countries is considerable, and within the poor countries the inequality of distribution is extreme. Generally the expectation is that average household incomes will increase. This will help drive on going consumption expenditure and hence future demand for workers.
While claims of a growing middle class are made about the Young Poor Countries, this hides an unfortunate truth – the lowest income segment is also growing. Globally, the lowest income segment (under US$7,500 pa) increased by 100 million households in the last decade.
The world has just gone through a consumption boom and projections indicate that it will continue for the next decade. However, after 2030 the absolute number of affluent consumers starts to decline rapidly, and a significant proportion are moving into the age band where fixed income is more common and with that more careful spending. These factors combined mean that the annual growth rate of expenditure by the ‘Older Affluent’ Country Segment which accounts for 62% of all consumer spending in 2019, falls to almost zero by 2045. However, there is projected to be rapid growth in the total expenditure of households (and hence consumers) in the younger and less affluent regions of the world. This would suggest a significant shift in the types of products and services with growing demand in future.
Over the next quarter century to 2045 total household expenditure is projected to grow at 1.8% per annum. The fastest growth will be in the Young Poor countries and they will account for 14% of total growth even though they are 3.3% of all expenditure in 2019
Combining the trends in incidence/prevalence data by age and gender for the most prevalent health conditions with the trends in the age/gender profile of the population identifies just where demand for health services is going to grow and by how much. While the probability of developing a need for treatment increases rapidly after age 40 it is not the older countries that face the biggest growth in demand – they are already middle aged populations. Instead it is the younger countries where demand increases most rapidly – in excess of 4% per annum in cases – as they move into middle age.
For the past decade health expenditure has tended to peak at 15% of GDP and most countries can afford to increase expenditure per case by 1% per annum and stay under that hurdle. The poorer, but faster growing (economically) countries can afford a 2% increase per annum. The biggest issue is who pays? Ironically in the more affluent countries the government typically accounts for 67% of health expenditure. In the poor countries it contributes 27% which means most health expenditure has to be funded by the individual household – who with low incomes cannot afford anything but basic care.
The increase in demand for health services will be greatest in the young poor countries. In those countries chronic conditions will increase by 138% compared with 26% in the older affluent countries. As the health systems in the young poor countries are already underfunded the stress will be considerable in future.
With a Population of 1.4 billion in 2019, trends in the demographic and socio economic profile of China (and India – next Chapter) are potentially significant globally. This Chapter describes the changing age structure of the urban and rural populations over the next 25 years taking into account historic and projected rural to urban migration, trends in births, and the impact of improving education, productivity and income. Changes in the birth regulations will not increase total births as the number of women of child bearing age is in steep decline due to earlier reduced births. Total Births are projected to decline from 15 million in 2019 to 11 million by 2030. As a result China’s total population peaks in 2024. This Chapter shows how rural to urban migration has and will significantly skew the age profile of the urban population with implications for ongoing consumer spending.
The Rural-Urban migration means that while China’s total labour force will decline in future, the urban labour force continues to grow. Urban is four times as productive as the rural labour force.
India is in transition, from young to middle age. This Chapter shows how the expected impact of the ‘demographic dividend’ is weakening as the growth of the working age population slows. Also it raises the concern about can India maintain employment levels given its existing poor education profile. It hasn’t for the last decade, can things improve? However, productivity per worker has improved and with ongoing improvements to education the projections indicate increased economic growth. The Chapter also shows that while birth rates are going down steeply (with education and affluence) births do not decline significantly for some years as a result of increasing number of women of child bearing age. As a result the population continues to grow and is projected to reach 1.52 Billion by 2045. It also means that there continues to be increasing demand for education (more children) which hampers the ability to lift quality rather than quantity.
India’s biggest issue is how long before the improvements in availability of education result in meaningful movement of (better educated) workers from rural to urban employment and lift overall productivity. Urbanisation is only now starting to increase as a proportion of the population.
A: GDP Forecasts
This lists the GDP forecasts used for this analysis. Global Demographics Ltd generates its own GDP forecasts based on the trends in the number of persons of working age, the propensity to be employed, the education profile of the adult population, and in the accumulated Fixed Capital Investment per worker. These factors combined give the number of workers, the productivity per worker and hence total GDP (workers multiplied by productivity per worker). They tend to be in line with forecasts produced by the IMF but not identical.
This provides a brief definition of the different variables referred to in this research.
The forecasts produced in this book have been developed using the Global Demographics Ltd.’s proprietary population model. It is essentially an econometric model applied to demographic data. The model has been developed improved over 25 years and has been applied to117 countries which means it can handle a wide range of relationships. While no model is infallible it does have the advantage that demographic variables are relatively consistent in trends. As such population forecasts are within plus or minus 5% over 5 years. Obviously it is less reliable in terms of GDP forecasts and by implication forecasts of household incomes (Mean and distribution) and expenditure patterns. The model tends to be on the conservative side in terms of GDP forecasts, and hence household income. This appendix shows the form of analysis and order of analysis.
D: Data Sources
This provides a listing of the data sources used for the modelling process. Please note that all forecasts are the product of the use of Global Demographics Ltd.’s population model.