Unlock Editor’s Digest for free
FT editor Roula Khalaf has chosen her favorite stories in this weekly newsletter.
Many of the world’s richest countries will need to at least double productivity growth to maintain historic gains in living standards even as birth rates plummet.
A McKinsey report examining the economic impact of declining birthrates found that Britain, Germany, Japan and the United States all needed 20% in the past 10 years to maintain the growth in living standards seen since the British Empire. It is said that productivity needs to increase at twice the pace. 1990s.
The consultancy’s report released on Wednesday found that productivity growth in France and Italy would need to triple over the next 30 years to match per capita GDP growth from 1997 to 2023. It showed that there is. Spain needs to increase fourfold between now and 2050.
The report highlights that falling birth rates are severely impacting the world’s most prosperous economies, leaving them vulnerable to a decline in the proportion of the working-age population.
Chris Bradley, director of the McKinsey Global Institute, said that without action, “younger generations will inherit lower economic growth and shoulder the costs of more retirees, while traditional “The flow of wealth between generations will be undermined.”
Governments around the world are struggling to stem a demographic crisis, driven by soaring housing and childcare costs as well as social factors such as a decline in the number of young people in romantic relationships.
Currently, two-thirds of the population lives in countries where the birth rate per woman is below the so-called “replacement rate” of 2.1, but there are several OECD countries including Japan, Italy, Greece, China and many core countries. The population is already decreasing. and Eastern European countries.
“Our current economic system and social contract have evolved over decades of population growth, especially the growing working-age population that drives economic growth and supports and sustains people’s longevity,” said Bradley. he said. “This calculation no longer holds true.”
Bradley, co-author of Wednesday’s report, said there is “no single solution” to the demographic challenge.
“We’re going to need a combination of getting more young people into the workforce, extending their tenure and hopefully increasing their productivity,” he said.
The report follows a similar warning by the Paris-based OECD, which last year said falling birth rates were endangering the “prosperity of future generations” and urged governments to “lower birth rates.” He urged them to prepare for a “low future.”
McKinsey estimates that in Western Europe, a decline in the proportion of the working-age population could reduce GDP per capita by an average of $10,000 per person over the next quarter century.
Some economists believe that generative AI and robotics have the potential to improve productivity, but there is still little sign that this will happen in any meaningful way. Productivity across Europe has largely stagnated since the pandemic, widening the gap with the United States that widened after the financial crisis.
The consultancy argued that more countries need to follow Japan’s example and encourage people to work longer hours. In Japan, the labor force participation rate for people aged 65 and over is 26%, compared to 19% in the United States and 4% in 2019. cent in France.
Despite longer working lifespans, Japan’s GDP per capita has grown by just over a third of that in the United States over the past 25 years.
“Demographic impacts are relentless and severe, and when they occur, driving productivity growth becomes even more important,” the report said.
The consultancy says that for living standards to continue to rise at the same rate, German workers will have to work an additional 5.2 hours a week, or their share of the labor force will rise from around 80 percentage points today. We calculated that it would be necessary to increase this by approximately 10 percentage points. Percentage of people aged 15 to 64.
The UK and US had lower levels of additional labor needs due to a more favorable demographic outlook, but Spain and Italy will also need to increase their share of the labor force by double digits.
