Demographic change has well and truly dug its claws into industrialized nations. By 2035, the number of people in work in Germany, the UK, the US and Japan will have plummeted by up to 20 percent. As a result, overall wealth could also drop by up to 15 percent, in terms of pro capita income. These are the findings of experts from Allianz International Pensions. "We could prevent wealth from being lost if we draw the right conclusions now," says Brigitte Miksa, head of the expert team.
Reduce the threat of wealth loss
Germany will be the worst affected
This alarming trend is nowhere more visible than in Germany. Over the next 20 years, seven million people will drop out of the workforce: a fifth of all people in work. The consequences of demographic change will barely be less keenly felt in Japan. By 2035, the number of people in work there will have tumbled by 15 percent. Even industrialized nations with a comparatively young average population won't be spared, including the US. By 2035, the States will lose seven million workers, amounting to five percent of the workforce. In the UK, by comparison, the decline will be slightly less marked, at two percent, as women, on average, give birth to more children.
Germany, aging faster than almost any other country in the world, will have forfeited 15 percent of its wealth by 2035, whilst the US and the UK will each have lost around ten percent. Japan is likely to suffer similar losses of wealth to Germany, but at a slightly slower pace, with effects being felt from 2045.
Three areas where adjustments can be made: working longer, working in a more flexible way, immigration
According to Miksa, an expert in demography, the countries affected have three options for reducing the effects of the aging process on income: "People could keep working for longer, or we could manage to increase their productivity. Japan, for example, has managed to do this already by making increased use of robots. Thirdly, incentives could be offered to encourage particular groups of people to take up work again, or work longer hours, such as women, senior citizens, and immigrants. We could introduce a flexible retirement age, instead of doggedly adhering to a fixed one."
International Pensions, among others, calculated what the effect on the economy would be if, by 2030, the same proportion of women were in work as men. According to their findings, the working population would grow by two million people by 2022. This could decrease a loss of wealth caused by demographic changes. Gross domestic product per capita would continue to drop on a long-term scale, but this would not start happening until 2024. This figure could start to tumble as soon as next year if more women do not take up gainful employment.
Society needs to have a rethink
Miksa thinks that it is important for societies to rethink their approach: "We have laid a strong foundation upon which we can prepare the labor market, social security systems and educational institutions for a rapidly aging population. But we're not making the best possible use of them. In addition, many companies still focus almost exclusively on young, highly qualified individuals. To date, career profiles including systematic further development for people aged 50+ only exist in areas where there is already a lack of up-and-coming young talent."
And time is running out. Even in Germany today, there is one person aged over 65 for every three people of working age. By 2035, there will be fewer than two people in employment providing for one pensioner. Other countries are faced with similar problems. In the US, the number of people in work is dropping particularly rapidly at the moment because the baby boomer generation of the 50s is coming up to retirement ( Baby, it’s Over: The Last Boomer Turns 50 ).
The International Monetary Fund is also concerned about the economic consequences of aging. In its "World Economic Outlook", the IMF warns that growth in developed nations could drop between 2015 and 2020 from 2.25 percent to 1.6 percent, as a result of demographic changes.
Brigitte Miksa, head of the expert team Download photo: Brigitte Miksa (© Allianz) – printed free of charge
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