Researchers predict that the world's population will decline in the next 40 years due to declining birth rates — and it will cause a massive shortage of workers.
The world has seen a population boom over the past few decades. The globe's 4 billionth person was born in 1975 and now, in about a month, the 8 billionth person will probably be born. This "population bomb" has been cited by experts as an unprecedented challenge to the ecological balance of our planet — when 50 Nobel laureates were asked in 2017 what the greatest threat to humanity is, more than a third of them named the overpopulation of the planet. And there is no doubt that slowing population growth is an important tool to combat the climate crisis.
But what those Nobel laureates overlooked is the fact that the forces leading to a population drop are already in motion. In fact, in 40 years or so, the global population will begin to decline.
It will not be a virus, a war, or a natural disaster that will cause this population decline. Instead, it will be an increase in living standards. Progress in living standards since the birth of the Industrial Revolution has been accompanied not only by rising life expectancy, but also by falling birth rates. People are healthier, richer, better educated, living longer, and having fewer children. As a result, the number of children born in rich countries like the US, in Europe, and China is not sufficient anymore to keep those populations stable. But this decrease in humanity is not a reason to cheer, but rather a looming disaster for our economy. The great labor shortage caused by the declining population will cripple our global economy unless we find innovative ways to keep things running.
The population is going to shrink
The economic and demographic forces that will lead to a global population drop by the end of the 21st century have been at work in major economies for a long time. Year after year, the birth rates of more rich and middle-income countries fall below the critical "replacement level" — the level at which people have enough children to maintain current population levels. A society needs 2.1 children per woman for the population to remain stable. In the US, the current rate is 1.6 children per woman — and it's even lower in most European countries as well as Japan (1.3), China (1.2), and South Korea (0.8). Soon, almost every country in the world will fall below this breakeven point.
Research has shown that across countries and regions, as living standards improve, the number of children per family starts to decline. The reasons are varied — more economic opportunity for women, better access to education for children, lower infant mortality — but eventually, what was once a poor, young country becomes wealthier and must face the challenge of an aging population that does not have enough young workers to support it.
By the end of this century, the global population will have decreased by 1 billion people from its peak, according to a 2020 analysis by researchers at the Gates Foundation, and in the most extreme scenario, the population could decline by almost 2 billion from where it is today, to just over 6 billion. The German working population will have declined by a third, based on the average scenario from the researchers, and in Italy, Spain, and Greece it will have declined by more than half. Poland, Portugal, Romania, Japan, and China will all lose up to two-thirds of their labor force, according to the projections. The looming population decline is a wake-up call: Instead of the "population bomb" that some have feared for decades, we will face a population drop, and it will have enormous consequences for the world's prosperity.
The labor shortage has already started
While a global population drop is good news for the planet, it will be a huge challenge for our economic and social systems. The most important fuel of economic growth in the past several centuries has been people. And with fewer people, less work can get done.
We are already experiencing the beginning of this great labor shortage in industries ranging from airlines to day cares to military service. In the coming years, many more sectors and occupational fields will be affected. With fewer train drivers, teachers, engineers, doctors, care workers, and programmers, many companies will produce or perform less. And as the population drops, the amount of money being spent at these businesses will also shrink. Less consumption leads to fewer sales and fewer sales lead to lower profits and, thus, less economic growth.
Not only will the number of workers decline with the population, but how much each of these workers can produce will slip as well. Global per capita productivity, the formal measure of how much a worker can produce in an hour and the most important indicator of progress, has recently stagnated. The combination of a declining labor force and stagnating productivity is toxic. It could lead to a drop in economic output or, in the worst-case scenario, decades of stagnant growth. Some 250 years after the Industrial Revolution, we could enter an era of stasis.
Our growing economy has also allowed people to retire in their later years, with a social safety net and younger relatives to take care of them. But we could soon see the reverse: The number of people that need to be taken care of will far exceed the number of working people who can support them. In the US, the increase in the number of retirees compared with the working population is already straining the system. In 2020, there were 3.5 people of working age for each retired person. In 2050, this ratio will drop to 2.6. This will put enormous pressure on the working population of the US to become more productive in order to support an increasing number of older people while also sustaining economic growth.
More people or more productivity
There are two solutions to combat labor shortages: We can have more people work, and/or we can work more productively. The US and its effective migration policies are a visible example of how to get more people working despite low birth rates. Japan is a successful example of how to deal with both a shrinking and aging population by becoming more productive through automation and digitization.
To get out of a labor shortage, economies will need a productivity boost on par with the industrialization miracle that led the world out of relative widespread poverty 250 years ago. If fewer working people are going to finance an ever-expanding welfare state, more investment in innovation and progress is needed. This is especially true for the service sector, where a majority of the labor force works in developed countries, and where productivity has been stagnating for almost 20 years now. There is plenty of room for improvement. Business models based on low-skilled labor at minimal wages are not characteristic of a high-tech country. They are a sign of regression. Therefore, it's necessary to create incentives through raising minimum wages to automate simple work wherever possible.More people or more productivity
Change also means letting go of creaky processes, outdated business models, and obsolete industries. That means investing in cutting-edge companies: Among the world's top-10 companies when it comes to market capitalization, eight are tech companies whose success is based on products and business models that have adapted to quickly changing markets and even created markets we never knew existed. That also means making a more dynamic labor market that motivates people to find the right job. The Great Resignation has shown that we can allow workers to more dynamically switch to jobs with higher salaries that better fit their skills. And finally, that means reforming our education system. As long as one-fifth of 15-year-old students cannot read at a basic level, we won't be able to combat the challenges of population decline. The next era of work will require skills other than diligence and obedience — which is what schools primarily teach today. Creativity, resilience, and the ability to solve complex problems will be imperative skills to keep our economy running.
And a new economy will not emerge without the help of immigrants from around the world. As the population declines, countries will shift from trying to keep immigrants out to fighting over the dwindling supply of in-demand workers. To continue to attract people in the future, countries will need to start shifting their immigration strategies now. For instance, a lack of language support excludes many children of immigrants from the labor market, and high real-estate prices lead to increasing segregation, especially in large cities. Countries like Canada have tried to overcome these problems by proactively welcoming refugees and supporting new residents. This rejection of unequal treatment and discrimination will pay off in the long run as the world's most important resource, human beings, becomes scarce.
If history has taught us anything, it's that progress is always accompanied by change and the courage to try something new. To combat the coming population bust, the world will need nothing less than a revolution of our minds. We need innovation and new ideas: robots and artificial intelligence that do our work for us and let everyone get the chance for good education and training. Along the way, we will have to find solutions to make this continued progress climate neutral by investing in sustainable-energy production and low-emission technologies. By doing so, we will make a better world for our children.
Sebastian Dettmers is the CEO of StepStone, which is owned by Axel Springer, the parent company of Insider. He is also the author of a new book on the future of the world's population.
https://www.businessinsider.com/great-labor-shortage-looming-population-decline-disaster-global-economy-2022-10
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