The Curse Of Age And A Dwindling Workforce
The global workforce is ageing rapidly and it is affecting countries that account for more than half of the world's growth, according to a Morgan Stanley report on global workforce.
The global age dependency ratio started rising since 2011 after decreasing for 45 years. Additions to the global workforce has slowed down to 1 percent versus the 1.6 percent annual growth rate maintained in the last two decades. Morgan Stanley expects the dependency ratio growth to increase to 15 percent in the next 10 years from 13 percent registered in 2015.
With the number of dependent people increasing, global production and growth is expected to take a hit. A 10 percent increase in the number of dependent people in U.S., pulls the country's growth by 5.5 percent, as per the report.
Japan's unemployment rate is the lowest in 21 years, not due to new jobs but a shrinking workforce, according to Bloomberg. In fact, its construction industry is struggling to find workers, creating a problem for the country hosting the 2020 Olympics.
The last time Japan’s dependency ratio started increasing the country’s GDP growth fell to an average of 3.4 percent per annum in 1973-80 from an average of 9.3 percent per annum during 1950-73, according to the Morgan Stanley report.
Projections by the United Nations show that global workforce will decelerate further, impacting economies that contribute 64 percent of the world's gross domestic product in terms of purchasing power parity and 78 percent in terms of nominal GDP.
Can Productivity Counter Ageing?
To compensate the loss from a diminishing workforce, productivity and efficiency needs to be stepped up just to maintain the global growth rate.
But with productivity taking centre stage, the report suggests that global productivity growth has been "systematically weak" since the 2008 recession. Moreover, increasing dependency also adversely affects labour productivity. According to the report, a 1 percent rise in the dependency ratio in Europe, leads to a 0.2-0.6 percent decline of labour productivity per annum.
Central banks are facing constraints in providing adequate monetary stimulus, and also a related challenge in that they might not have enough policy space to ease in the event of a future recession.
The Anti-Ageing Solution
Increased government measures that boost technological innovation will help the world from falling into the age trap, according to the report. Investment in research and development for technological innovation, automation, re-training of employees and trade librelaisation will help maintaining or even increasing productivity growth. This, matched with incentives for a stronger labour participation might be the answer.