By David Bohl, Barry Hughes & Shelby Johnson

There is a global demographic transition underway—mortality rates and fertility rates are declining in almost every country. Different countries are at different stages of this demographic transition, generally corresponding to their level of economic development, and progressing at different speeds. Declining mortality and fertility, along with migration, determine the changing age structures of countries. There are macro-economic, financial, and social burdens and benefits associated with different age structures. Since demographics is largely determined by relatively well understood factors like fertility and mortality rates, it is possible to forecast how the age structure of countries will change over time. This report will analyze this demographic transition and provide insight on the burdens and benefits each country can expect.

Mortality rates and fertility rates have been declining globally over the past two centuries, with societies moving from a state of high fertility and mortality rates to one of much lower rates. Global life expectancy has increased from 27 in the 1700s to over 70 in 2015. Likewise, fertility rates have declined from 6 births per woman in 1700s to around 2.5 in 2015. But this change has been dramatically more pronounced in the past 60 years (Figure 1).

After World War II and with the spread of modern health care around the world, the speed of the demographic transition, albeit highly variable across societies, accelerated. Illustratively, the number of children per woman in Iran fell from 6.4 in 1980 to 1.9 in 2010, across little more than a generation. And the life expectancy of South Korea rose from 53 in 1960 to 76 by 2000, adding more than 0.5 years of life annually. Furthermore, while it took France’s elderly population 115 years to double its share of total population (from 7 to 14 percent), a third of the world’s countries will likely make this transition in under 30 years.

The demographic transition is a “’bad news, good news, bad news story’” of macro-economic, financial, and social consequences for societies (Cincotta 2013:30). Youthful societies face the “bad news” of the financial challenges associated with educating large cohorts of youthful populations and finding jobs for them. As the country ages, there is the “good news” of a “demographic dividend” during which the size of the working-age population relative to the economically dependent populations offers a substantial boost to economic growth from higher levels of saving and increased labor force participation. As the workforce ages, however, there is more “bad news” as the country must pay for rising retirement and health costs as the workforce declines. Countries unable to create enough formal-sector jobs or adequately invest in human capital can squander the demographic dividend of a large workforce. This could make adapting to the imminent challenges of growing senescence even more exacting.

This report contributes to the second phase of a three-part study supported by Zurich Insurance that addresses the integrating question, “is global risk outpacing global growth?” The particular focus of this report is to explore, understand, and forecast the risks and opportunities associated with the great diversity of demographic patterns globally and the speed of their change. We use the International Futures (IFs) integrated assessment tool to model the demographic dynamics of 186 countries and forecast their change and impacts through the year 2035, often looking somewhat beyond that year to put the change in still broader context. IFs is highly integrated across multiple human, social, and environmental systems and therefore allows us to better understand the impact that aging and demographic change can have on issues such as economic growth, government finance, and social stability.

Using the IFs system, we have explored the changing patterns of demographic risks and opportunities globally and across country-income categories in three general categories: macro-economic, financial, and social (see Table 1). The macro-economic risks and benefits are related to growth, and are driven primarily from changing shares of the working-age population. This share will be increasing for some time in low-income and lower-middle-income countries, though it is now on a steady downward path in high-income and upper-middle-income societies (with China experiencing especially sharp decline).

Source: SSRN