Almost daily, we hear conflicting evidence of population and migration trends across Europe as the Brexit debate heats up. It’s vital that businesses are given clear facts as these trends have important implications for future planning.
Population trends have important implications for business. Changes in the number of people of working age impact the availability of workers, while the shape of future population will affect the profile of future consumers.
Under a declining labour force scenario, expect an increase in skill shortages and a rising number of vacancies forcing companies to raise wages in order to attract and retain staff. The burden of higher wages is likely to be compounded by a rise in labour taxes, required to support a proportionally larger population of pension aged. Companies may opt to increase their investment in labour saving technology, while higher wage increases would lead to higher inflation and possibly higher interest rates, a prospect hard to imagine today. Last but not least, among some of the major impacts, falling working age population will dampen economic growth, business revenue prospects, and subsequently business investment.
How realistic is such a scenario? The latest UN population projections for the UK, Canada and US show a slight increase in the population of 15-64 year olds over the next 25 years. Among the other G7, France’s working age population is expected to remain largely flat over the same period, while Japan, Italy, and Germany are projected to experience drops of circa 15-20%. China is also expected to see a significant drop of around 15% (see chart below).
Just before you take a big sigh of relief, if your country or market are in the growing camp, or start desperately looking for a new home if you’re less lucky, take a look at some of the sensitivities around these forecasts.
For example, future net migration flows can have material impact on trends in working age population for some countries, with UN projections of net migration flows increasing the size of the workforce of all of the G7 countries, and reversing an otherwise decline in working age population in countries like the UK, US and Canada (see chart below).
The UN estimates of net migration are largely based on historic trends and do not capture the size of recent flows as a result of the current European migrant crisis, so the contribution of net migration may actually be higher in some countries. The number of migrants entering Germany in 2015 reached some 1.1 million and forecasts by the interior ministry for 2016 are for another 0.8 million, far higher than the UN estimate of 750,000 net immigration between 2015 and 2020. The inflows for 2015 and 2016 together could represent around 3.6% of Germany’s working age population, which would go some way in mitigating the decline in Germany’s future working age population. Data gathered by Amnesty International in September 2015 suggest there are a further four million Syrian refugees in Turkey, Lebanon, Jordan, Iraq and Egypt, which may reduce the decline in working age population further if some of them settle in Germany.
It is not just a larger number of potential workers, higher net migration could also alter the age structure of Germany’s population considerably if continued, slowing the course of an aging population.
While the proportion of people of working age is expected to dwindle, the legion of retirees is expected to rise, as people live longer thanks to medical advancements and higher quality of life.
Countries like Japan, Italy, and Germany could have more than 30% of their population over 65 by 2040 according to UN forecasts, with the median age rising above 50 in all these countries (see chart below).
Beyond the pressure on the public purse, an aging population could bring some benefits for business. Industries like insurance and private healthcare are obvious winners, while areas that cater for leisure should benefit from the larger customer base of healthier, and often wealthier, pensioners eager to have some good time. Tourism, publishing and media come to mind.
So ignore population trends at your peril, make sure you keep an enquiring mind, and always seek the opportunities!
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