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Howard Steven Friedman

Howard Steven Friedman

Posted: August 1, 2010 12:47 PM

In previous articles about BRIC and N-11, the lists of countries identified by Goldman Sachs as being likely to have a major impact on the world economy by 2050, I discussed the importance of population and the limits of accuracy in long-term forecasts. There I noted that population projections are usually much more accurate than projections of GDP per capita and that, barring any changes in national borders or cataclysmic events, China and India will have at least twice the population of any other country in 2050. I also mentioned the importance of the age distribution, but want to expand on this point more.

The age distribution is important because there's an age range where the population is more likely to be employed and producing economic growth. The "support ratio," commonly defined as the percent of a population between ages 15 to 65, is a snapshot of the age distribution of the population. Large support ratios reflect countries where a large percent of the population is available to work. A significant amount of the growth in Asian economies in the last decade is associated with the demographic bonus of having a large support ratio. If a large percent of the population is in school or retired then the support ratio will be low. The age range used for the support ratio is somewhat arbitrary. For this article I am using the age range 15 to 59, which I will call the "narrow support ratio," as it reflects the aspirations of many of my friends to be retired before age 60.

So what can we say about the age distributions in the G7, BRIC and N-11? Currently the majority of the population in all 22 of these countries is between ages 15 to 59 with Japan and Nigeria having the lowest rates (52% and 53%) while China has the highest rate (67%). That is to say, all 22 countries have "narrow support ratios" greater than 50%. Japan is an older society with more than one-third of its population 60 or older, while Nigeria is a young population with more than 40% of its population less than 15.

Over the next 40 years, the declining fertility rates and lengthening life expectancies will likely result in a much older world population. Japan's "narrow support ratio" is expected to fall below 40% by 2050 meaning there will be a huge financial burden on society. The US will see an aging population, though not as extreme as the rest of the G7. In fact, the US is the only G7 country expected to have a "narrow support ratio" greater than 50% in 2050.

Of the BRIC and N-11 countries, China, Russia and South Korea are the only countries expected to have more than one third of their population 60 or older. These three countries stand out in the list of BRIC and N-11 countries as the only ones with "narrow support ratios" projected to be less than 50%. These lower "narrow support ratios" will strain the family's and government's ability to support those elderly needing care.

Countries that are projected to have declining support ratios are well aware of the upcoming economic challenges. For example, Japan has put into place programs to promote fertility and make child-rearing both more convenient and more affordable. Besides government programs such as this, the other obvious solution is expanding the support ratio. If the typical retirement age is raised to 67 or even 70, this will abate some of the burden but expanding the support ratio needs to be more than an academic exercise. That would require meaningful, productive work to be available for people at these advanced ages. I raise this concern knowing that many unemployed people in their 40s and 50s are the victims of explicit or implicit ageism.

As for the BRIC and N-11 countries, those with sharply declining support ratios will be challenged to achieve continuous major growth with China, Russia and South Korea facing more dire prospects than some of the other countries on the two lists.


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