The social and economic implications of an aging population are becoming increasingly apparent in many industrialized nations around the globe. With populations in places such as North America, Western Europe, and Japan aging more rapidly than ever before, policymakers are confronted with several interrelated issues, including a decline in the working-age population, increased health care costs, unsustainable pension commitments, and changing demand drivers within the economy. These issues could significantly undermine the high living standard enjoyed in many advanced economies.
- Many industrialized nations are realizing the effects of an aging population, such as a decline in the working-age population and a surge in health care costs.
- Over 20% of the population of 17 countries consists of persons 65 years or older.
- The decline in the working-age population results in a supply shortage of qualified workers.
- Nations with a large senior population depend on a smaller group of people to pay for higher health costs, pension benefits, and other publicly funded programs.
In 2020, there were 727 million people aged 65 or older. This number is expected to more than double by 2050.
A rapidly aging population means there are fewer working-age people in the economy. This leads to a supply shortage of qualified workers, making it more difficult for businesses to fill in-demand roles. An economy that cannot fill in-demand occupations faces adverse consequences, including declining productivity, higher labor costs, delayed business expansion, and reduced international competitiveness. In some instances, a supply shortage may push up wages, thereby causing wage inflation and creating a vicious cycle of price/wage spiral.
To compensate, many countries look to immigration to keep their labor forces well supplied. While countries such as Australia, Canada, and the United Kingdom are attracting more highly skilled immigrants, integrating them into the workforce can be a challenge because domestic employers may not recognize immigrant credentials and work experience, especially if they were obtained in countries outside of North America, Western Europe, and Australia.
Given that demand for healthcare rises with age, countries with rapidly aging populations must allocate more money and resources to their health care systems. Healthcare spending as a share of gross domestic product (GDP) is already high in most advanced economies; one challenge that advanced economies face is to ensure that when they increase spending, healthcare outcomes actually improve.
Additionally, the healthcare sector in many advanced economies faces similar issues, including labor and skills shortages and increased demand for at-home care. All of these cost escalators can make it more difficult for existing systems to handle the increased prevalence of chronic diseases, while also addressing the needs of large and growing senior populations.
Countries with large elderly populations depend on smaller pools of workers in which to collect taxes to pay for higher health costs, pension benefits, and other publicly funded programs. This is becoming more common in advanced economies where retirees live on fixed incomes with much smaller tax brackets than workers. The combination of lower tax revenue and higher spending commitments on health care, pension. and other benefits is a major concern for advanced industrialized nations.
An economy with a significant share of seniors and retirees has different demand drivers than an economy with a higher birth rate and a larger working-age population. For example, rapidly aging populations tend to have greater demands for health care services and retirement homes. Although this is not necessarily negative, economies may face challenges transitioning to markets that are increasingly driven by goods and services linked to older people. As advanced economies become older over the next 15 years, it remains to be seen whether immigration will fill the voids in sectors left by aging populations or whether the broader economies will have to adjust to changing demographics.
By Paul Irving, Next Avenue Contributor
The global population age 60-and-over will encompass more than one in five human beings by mid-century, rising from 900 million in 2015 to 2.1 billion in 2050, according to the World Health Organization.
As demography shifts, spiraling health costs and questions about the adequacy of public and private pension programs and retirement funds rightly stir concerns. Those issues must be addressed, of course, but there is a silver lining.
Increasing longevity has spurred unprecedented economic growth and new opportunities for personal fulfillment. Older individuals are generally healthier than their counterparts in generations past, and they seek to remain engaged and relevant as long as possible. Advances in bioscience offer the prospect of even longer, healthier and more active lives.
Aging Populations: A Dynamic Emerging Market
With growing numbers, older adults represent a dynamic emerging market and human capital resource. As markets evolve to meet their needs and aspirations, opportunities abound.
Charles Darwin recognized that survival is about adaptation to changing environments, a quality that is as imperative for businesses as it is for species. The private sector has been at the forefront of industrialization and scientific innovation, developing new markets and opening pathways for diverse stakeholders. Aging is their next frontier.
With consumption habits and service needs distinct from those of younger adults, Americans over 50 already account for $7.6 trillion in direct spending and related economic activity annually and control more than 80% of household wealth, according to Oxford Economics.
Global Spending Power of 60+: $15 Trillion by 2020
“The Longevity Economy is redrawing economic lines, changing the face of the workforce, advancing technology and innovations, and busting perceptions of what it means to age,” states an AARP publication. And this market crosses borders. Bank of America Merrill Lynch projects that the global spending power of those age 60-plus will reach $15 trillion annually by 2020. The opportunities are only beginning.
In the health sector alone, “gray is the new black,” a Reuters piece observed. A stream of new offerings in biotechnology, devices, pharmaceuticals and care services target older consumers. In Japan, robot caregivers, or “carebots,” have made a splash.
When it comes to housing, transportation, entertainment, food and alcohol, older people already have their checkbooks out. Americans 60-plus are expected to account for at least 40% of consumption growth in those areas between 2015 and 2030.
A golden age for financial services is ahead, driven by an enormous increase in household financial assets predominantly controlled by older investors. From smart homes to innovative services, from lifelong learning on campus and online to new offerings in food, transit and travel, a vast and lucrative market for new products, services and innovations awaits.
Also on Forbes:
A Powerful Talent Pool for Business
But there’s more.
Aging adults are not only consumers — they are our only increasing natural resource — a talent pool that can power the businesses and enhance the communities of the future. And they are ready, willing and able to be deployed.
Today’s older adults seek meaning and purpose, disrupting retirement norms and expressing increasing interest in lifelong work and volunteering.
This profile defies outmoded stereotypes of geriatric citizens weighing down the economy. In fact, when older people actively participate, the benefits flow in all directions.
They contribute experience and stability to their workplaces and civic endeavors; financial security helps them bolster the economy as taxpayers and consumers; engagement enhances their own health and wellness.
Older employees provide emotional stability, complex problem-solving skills, nuanced thinking and institutional know-how. Their talents complement those of younger counterparts.
As a widely recognized BMW experiment showed, productivity improves when work teams are intergenerational. Older workers can be mentors and serve as role models to younger colleagues. Age-diverse teams do better at problem-solving and generating ideas than same-age groups.
The Scourge of Ageism
Unfortunately, ageism continues to devalue older workers and older adults across society. They too often find themselves shut out of hiring, promotions and even volunteer opportunities due to bias.
In the same way that other movements have changed hearts, minds and the culture itself, there’s a spreading sense that it’s time for age diversity to take its place on center stage. Businesses can take the lead, setting examples and making positive impacts even as they focus on improving productivity and performance.
Businesses are uniquely positioned to advance smart policies and change attitudes — to champion the needs and wants, as well as the potential, of older adults.
Testing the Leadership of CEOs
The aging megatrend will test the leadership of every CEO in the 21st century. Each corporate board should prioritize a “longevity strategy” to address the growing impact of the demographic shift. Awareness of the issues should spread to every corner of their companies. The issues are too big — the numbers too compelling — to ignore.
In 2018, the Milken Institute Center for the Future of Aging plans to launch a Business Council, composed of senior executives in major national and multigenerational companies, to mobilize efforts and address opportunities presented by population aging, develop shared principles, elevate best practices and advance commitments across sectors to improve the lives of the current generation of older adults and of generations to come.
The aging population can be a blessing for business. With awareness and a new approach, businesses across the U.S. and the world can enjoy a brighter future offering benefits both to the bottom line and the broader society.