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Many of the world’s richest economies will need to at least double their productivity growth to maintain historic improvements in their living standards amid sharp declines in their birth rates.
A McKinsey report studying the economic impact of falling birth rates found that the UK, Germany, Japan and the US are all expected to see their productivity rise twice as fast as in the last decade to maintain the same growth in living standards observed since the beginning of the decade. 1990s.
The consultancy’s report, released on Wednesday, shows that to match GDP per capita growth between 1997 and 2023, productivity growth in France and Italy would need to triple over the next three decades. In Spain, it should be multiplied by four by 2050.
The report highlights the brutal impact of falling birth rates on the world’s most prosperous economies, leaving them vulnerable to a shrinking proportion of the working-age population.
Without action, “young people will inherit lower economic growth and bear the cost of rising numbers of retirees, while the traditional flow of wealth between generations erodes,” said McKinsey director Chris Bradley. Global Institute.
Governments around the world are struggling to contain a demographic crisis in the face of rising housing and childcare costs, as well as social factors such as fewer young people in couples.
Two-thirds of the population now live in countries where the birth rate per woman is below the “replacement rate” of 2.1, while the population is already declining in several OECD member states – including Japan, Italy and Greece – as well as in China and many central countries. and Eastern European countries.
“Our current economic systems and social contracts have developed over decades of growing populations, particularly working-age populations that drive economic growth and support people living longer,” Bradley said. “This calculation no longer holds.”
Bradley, co-author of Wednesday’s report, said there was “no leverage to solve” demographic challenges.
“It will take a mix of injecting more young people into work, longer working lives and, hopefully, productivity,” he said.
The report follows similar warnings from the Paris-based OECD, which said last year that falling birth rates were putting the “prosperity of future generations” at risk and urged governments to prepare to a “low fertility future”.
McKinsey has calculated that in Western Europe, the decline in the proportion of working-age people could reduce GDP per capita over the next quarter century by an average of $10,000 per person.
Although some economists believe that generative AI and robotics could improve productivity, there is still little sign that this will happen in any meaningful way. Productivity in Europe has largely stagnated since the pandemic, widening the gap that has widened with the United States since the financial crisis.
The consultancy argued that more countries will need to encourage people to work longer, following the example of Japan, where the labor force participation rate for people aged 65 and over is 26 percent, up from 19 percent in the United States and 4 percent. centimes in France.
Despite longer working lives, Japan’s GDP per capita has grown by just over a third of the U.S. level over the past 25 years.
“The demographic drag is inexorable and severe, and when it occurs, it becomes even more relevant to stimulate productivity growth,” notes the report.
The consultancy calculated that to keep living standards rising at the same rate, a German worker would have to work an additional 5.2 hours per week or the share of the labor force would have to increase by almost 10 percentage points compared to its current level of almost 80. percent among people aged 15 to 64.
The UK and US need lower levels of additional work thanks to a more favorable demographic outlook, but Spain and Italy would also need double-digit increases in the share of labor force.
