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The term 'population pyramid' is fast becoming a misnomer. The meaning of the term is in reference to the traditional shape of a nation's population distribution, with a large base of children, youth and young adults, and smaller and smaller numbers as the distribution moves into the older age group. However, a lack of baby making and better health provision has led much of the developed world (and some less developed nations) to become shaped more uniform, with some also at risk of developing upside-down pyramids.
Overall, trends in demographics have a strong hold over economic progression, with countries with ageing populations at risk of stagnation and collapses in standards of living. This is largely driven by the differences in age cohorts which affects levels of production, spending, saving and wealth transfer. Whilst any individual might act in way that is outside of their cohort's behaviours, generalisations of six age groups are possible to explicate:
- Children - Learners (no productivity, low spenders)
- Young adults - Academics and career finders (low productivity, spenders)
- Middle-aged - Children bearers, career developers (high productivity, high spenders)
- Empty-nesters - Late-stage careers (high productivity, savers, inheritors)
- Early retirees - Holiday-makers (low productivity, spenders)
- Older retirees - Wisdom bearers (no productivity, low spenders, wealth transferers)
As suggested, spending rises as wage and peaks when we have extra mouths to feed and extra-curriculars to fund. High spending swiftly becomes high savings as kids move out and careers mature, but this turns again into net spending as we retire. Productivity initially follows the same pattern, but without the 'empty-nester' reversal. Empty-nesters are also the most likely to be inheritors of wealth as their parents move through their twilight years. As is evident, a large cohort of roughly 50 to 65 years old is a boon for an economy. The problem many economies are starting to face is that the cohorts that are following are smaller, meaning that there is a net loss of this group every year going forward.
Most developed nations now have a population with a median age of over 42 and less than 20% of their populations under the age of 20. This means that big chunks of the highly productive working force is now retiring with less and less replacement being possible with similar skillsets and experience. This large cohort of late-stage career workers has helped economies to thrive over the past couple of decades, but it will continue to make up a smaller and smaller portion of the population over time.
Furthermore, this cohort is also the main source of capital for the global economy. This has been one reason why interest rates have been able to fall over the past few decades, as there existed a surplus of money for businesses and governments to call upon. Marginal increases in available savings and investments is likely to reverse as this cohort retires, meaning that investors will start to regain pricing power (which translates to higher interest rates and higher costs of capital).
The reduction in productive labour and the rise in the cost of capital, which are the main adverse impacts of the impending demographic cliff, will change the economic and financial landscape. However, it should be noted that demographic shifts don't happen overnight and are more likely to be experienced as a slow reversal of long-term trends.
Furthermore, not all countries are exposed to this phenomenon to the same extent. Australia, NZ, USA, UK, and France, for example, have population that are younger (Australia has a median population age of 37.5 and over 25% of the population under the age of 20). Many African countries are much younger still, with children making up more than half of some of these countries' populations.
One final note in this regard is the ray of hope provided by advancing technologies. Along with good demographics, new innovations such as computing and the internet have helped to increase the level of productivity per worker over much of the past 50 years. Ongoing innovations such as automation, renewable energy, and artificial intelligence might likely be revolutionary in nature and could kickstart the next period of human advancement. Thus, while ageing economies are likely to provide a drag on economic growth and wealth generation over the coming decades, there is some hope that we are simply in a transition period to a new world of discovery and economic fortunes.
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