Foresight memo

Demographic trends
Nicolas Rolland
December 2010

Source: UN, The Economist, ASEAN Economic Bulletin, IFO, OECD

Undoubtedly one of the challenges facing economic growth in mature and emerging countries will be their
capacity to support this growth with local labour resources as they become scarcer. Indeed, population ageing
will affect our economies in many different ways from a macroeconomic point of view (employment of seniors,
health and welfare systems, pensions), and will have direct and major consequences for companies
(organization of work, productivity and companies’ ability to attract talents).

First of all, population growth will not cease (at least before 2030) and should reach almost 8.5 billion
inhabitants worldwide. This growth will primarily be in Africa, the Middle East and India. At the same time, the
OECD population will continue to age (nothing new here) but more importantly this ageing process will become
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drastically more marked. Indeed, compared to 20 century trends when developed countries aged on average
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one year per decade, in the 21 century we are at the moment running at a rate of 2 years per decade.
Demographic projections show that Europe, which today has 117 million inhabitants over 65 years of age, will
have 160 million in 2030. However, the migratory contribution, particularly from countries of the East and the
African continent, should help maintain population levels without ageing. Indeed, over the past 8 years, 4 new
people out of 5 within the OECD have been from immigration.

A recent Eurostat study would suggest that in 2030, countries like Japan, Italy and Spain will have up to 890
people over 65 years for every 1,000 people aged between 20 and 59 (almost 700 for France and Germany). As
an illustration, in France a child is born every 42 seconds, whilst someone turns 50 every 32 seconds.

From a more short-termist perspective, the young active population is likely to contract. Only the US, and to a
far greater extent India, show positive trends in this respect.

Comparative Change in 15 – 35 Population

2007 - 2015
-20.3% Spain
-14.8% Japan
-13.7% Italy
-3.0% China
-2.15% UK
-1.5% France
-1.5% Germany
U.S. +5.15%

India +11.2%

Whilst these figures paint a pretty clear picture, two cases remain worrying: China and Russia.
In China, the single child policy and the development of the economy and of society overall should lead to a
very high rate of population ageing. Within 20 years the proportion of the population aged over 50 should
double. As a matter of reference, it took 145 years for France to reach this balance. This phenomenon is
accentuated by a highly destabilised population structure, particularly on account of the lack of girls aged
between 0 and 6, and therefore would suggest that this trend is not likely to be reversed in the near future. The
impact on the workforce and talent is immediate. Indeed, from 2010 to 2020, the number of people under 25
entering the job market will fall from 227 million to 150 million.
The impact on employment is even greater since the knock-on effects of the recent recession (beginning of
2009) are still in the system. At that time, the Chinese government indicated that 20 million migrant workers
had lost their jobs. Having returned home, those same people no longer wish to leave again and are becoming
more demanding. It means that some companies had to review their factory location strategy (in particular in
the Chinese hinterlands). The workers, understanding that they are in shorter supply, are increasingly
vociferous in demanding their rights. For example, in the province of Guangdong there were (at least) 36
strikes in the space of 48 days.
At the same time, since 1998, the number of qualified people has tripled in number but today more than a
quarter of the 6.3 million Chinese graduates have no work and this in spite of an increasing demand in
manufacturing and operations. In order to fill this labour force shortfall, Chinese companies are starting to set
up in North Africa, South East Asia and Africa.

In Russia, the statistics are even more disturbing. The country, with 141 million inhabitants, is losing around
800,000 inhabitants per year. And this population decline is mechanical. It comes from the disequilibrium
(around 1 million) between high mortality and a very low birth rate (in spite of an 18% increase since 2006).
The mortality rate is explained particularly by record cardiovascular and road accidents. They affect primarily
men (there are 10 million more women than men). The low birth rate is explained by the world record for
abortions (almost two-thirds of pregnancies). In 2009, the number of abortions exceeded that of births (1.7 vs.
1.2 million). Today, Russia has a positive migratory balance but this is still fragile since the major source of
immigration from CIS countries is not regulated and the second biggest, from China, is slowing.

Even though the US is going through an ageing phase, America’s is less radical, although workforce growth is
slowing down. The source of this growth is also an interesting societal issue. At the beginning of the 2000s, the
average number of children born to white women was 1.2 compared to 2 for Asian Americans, 2.2 for Afro-
Americans and 3.2 for Hispanics. The minorities today represent 42% of births on American territory and over
36% of the total population.

The Consequences:

Consequences in terms of health and welfare:

One of the major challenges is first of all to provide a high level of health to ageing populations in an
environment where public finance is tending towards restrictions. This brings a new challenge for companies.
The same applies to the sharing of revenues between workers and the retired, and the funding of growing costs
(health, retirement, dependency, transport, etc.). On the other hand, massive retirement will involve massive
cashing-in of retirement savings, freeing up large sums for long-term investments. The health challenges are
also exacerbated by risks linked to the possible growth in the cost of food.

Consequences in terms of organisation:

The large workforces in India and Africa will probably create a deflationist cycle on manufactured products,
whilst in industrialised countries the decline in the workforce will probably lead to a major decline in
production. As a result, the seniors’ work and the search for productivity will be key issues in the years ahead.
Indeed, maintaining production per capita requires major efforts in productivity gains and high immigration. In
the medium term, it is also possible to imagine longer working lives which for the moment are fairly short,
particularly in countries in the south of Europe (less than 40% of the population between 55 and 64 years is
working) compared to Germany, the UK, Japan or USA (where the average is 60% for this age group).

Consequences in terms of development:

Of course there is a problem in terms of talent and attracting, developing and retaining talent them. In other
words, the attractiveness of companies will be a real competitive advantage in the future. But this is nothing
compared to the challenge of developing non-skilled workers. Indeed, one of the consequences of this
demographic crisis is the education that will be required for workers who will be massively sourced in emerging
countries.
When we look at where today’s job creations are situated (cf. below), it is important to understand that
companies need to start to think about a real educational system. This means both helping local educational
systems to develop local populations and, as in the hotel industry, creating real internal universities to train
that workforce.