Demography and its Consequences

One of the consequences of the age transition in many countries is that at some point the working age population shrinks in comparison to the other age groups. These changes require a response and therein lies the linkage between demography and everything else going on in society. Last week's Economist had a story in the print edition that addressed this issue with the heading "Demography and its Consequences: Small Isn't Beautiful." The geographic focus is on Eastern Europe and the way in which its labor force has been decimated both by emigration and a low birth rate, keeping in mind that emigration exacerbates the birth rate issue because it is typically adults of reproductive age that are moving out. 

So, we get back to the questions of how to keep the economy going and how to pay for the retirements of the elderly if there are fewer workers than there used to be? The Economist puts forth some suggestions: (1) increase the labor force productivity of women; (2) increase the retirement age; and (3) let immigrants replace the "missing" workers. These are not new ideas, but they obviously bear repeating, and I appreciated the fact that this article quoted a Past President of the Population Association of America, Ron Lee of UC, Berkeley:

The levers for governments to pull are well known: they can remove financial incentives (tax or benefits) to retire early and increase those to keep working. Raising the state retirement age is a prerequisite almost everywhere; if the average retirement age were increased by 2-2.5 years per decade between 2010 and 2050, this would be enough to offset demographic changes faced by “old” countries such as Germany and Japan, found Andrew Mason of the University of Hawaii and Ronald Lee of the University of California, Berkeley.

So, if countries chose only this one option of delaying retirement, much of the demographic angst would go away. And keep in mind that none of the options laid out require a push for a higher birth rate.