The pace of change will vary substantially across different regions. Africa’s population – the fastest growing – is set to double by 2050. Europe’s is projected to shrink. Fertility in Latin America will remain higher than mortality. The average age in Japan in 2050 will be 53 – in Nigeria it will be 23.
These developments have profound implications both locally and globally. All countries will need to implement bold policies to cope with these demographic changes. In North America and Europe, as well as much of Asia and Latin America, supporting an ageing population will require greater participation in the labour force from women and the elderly, and possibly also higher levels of immigration. Africa’s younger population is a major opportunity, but will require the right policy conditions to maximize the benefits of this demographic dividend: more young people is only an advantage if you can generate enough jobs for them.
All regions will see an ageing population. However, the impacts will be more immediately felt in Europe, Asia and Latin America. Asia, for example, has nine people of working age to support each elderly person on average (although trends vary considerably by country). By 2050 that number will more than halve to four people. In Europe, the decline in the working age population will be particularly acute. For every four working age people per elderly person in 2015 there’ll be just two by 2050. Addressing that shortfall will require greater workforce participation by two groups: women and the elderly themselves.
The world is currently facing demographic and social changes at a pace that may pose significant challenges for governments and businesses. We think that empowering young people will be critical to meeting these key social challenges.
Firstly, the global population is growing fast, primarily in developing regions. Africa will add 850 million new workers to its workforce by 2050. Yet in many advanced countries, working age population growth is slowing down. By 2050, there will be 1.5 working age people for every one elderly person in Japan – in Nigeria there will be 15.
The second trend is rapidly rising inequality. The world’s 8 richest people now own as much wealth as the poorest half of the world’s population. Our Young Workers Index reveals how maximising the economic potential of today’s youth has never been more important and explores how governments and businesses can unlock a $1 trillion prize in practice.
The increase in the ageing population potentially places a strain on economies. But it may also offer a solution. Greater participation in the workforce by people in their late 50s, 60s and 70s could have a significant impact on GDP. Our Golden Age index combines a range of measures – including employment, earnings and training - that show the relative performance of how well 34 OECD economies are harnessing the power of older workers. The results indicate that if the G7 economies could achieve the same level of full-time equivalent employment rates among the over 55s as Sweden (the best performing EU country in the index and ranked third behind Iceland and New Zealand) the G7’s GDP could increase by as much as $1.8 trillion in the long-term. Some countries that are relatively low performing in the index today could achieve a substantial benefit by matching Sweden’s employment rates. Greece for example could see a long-term increase in the region of 19% GDP.
Not only will the demands of supporting an ageing population call for more women to join the workforce, as highlighted by our Women in Work index, but there is an increasing recognition that a more diverse workforce is a major source of strength for a business. For example, Fortune 500 companies with a higher representation of female board members outperformed those with none across key indicators including: return on invested capital (4%+), return on equity (5%+) and return on sales (6%+). Peterson Institute for International Economics found that firms with more women in the C-Suite are 15% more profitable. Social and demographic changes also favour greater female participation. Mothers having fewer children and having them later in life (for example, by 2020 the majority of births in North America and Europe will be to women aged over 30) will expand the number of women in the workforce.
The challenges of an ageing, shrinking population necessitates the effective use of all our economic resources, including women. Girls and women are getting better grades in school and are becoming increasingly well-educated, even relative to their male peers. However, the reality is that the pay gap still exists, not because women are getting paid less for the same jobs, but because they go into lower-paying occupations and industry sectors, or don't climb as far up the career ladder as their male peers. Our latest Women in Work Index shows that it could take almost a century on average for the gender pay gap to close in the OECD. There is therefore a lot of scope for women to become more productive and to make better use of their qualifications. The prize for closing the pay gap is tremendous: our research highlights that the boost to OECD GDP could be as high as US$2 trillion.
Women already control two thirds of the household budget in G7 countries, and as the wage gap with men continues to narrow, their purchasing power will continue to rise. 70% of household budgets in the G7 are controlled by women and 40% of US households with children now have a woman as the principal ‘breadwinner’.Globally 85% of consumer purchases are made by women, equivalent to a worldwide spend of $20 trillion. Improving the gender pay gap in emerging economies (for example India’s disparity is more than 70%) to the same average levels in the G7 (average 20%) would create an even more significant increase in female purchasing power.
The next generation of workers - the millennials (born between 1980 and 1995) – have far greater expectations of working internationally than their older counterparts. It’s a globally consistent trend with, for example, 93% in Africa, 81% in Latin America and 74% in the Middle East all saying that they would like to work outside their home country at some point in their career. In the last decade, the number of mobile employees increased by 25% and is likely to accelerate by 50% by 2020. Whereas in the past, the talent has tended to flow from east to west, by 2020 a more globally interconnected market will see global talent moving in all directions and working in new ways including freelancers, extended business travel, virtual working, and short-term assignments. Migration flows may continue to account for a large proportion of developed countries’ population growth. By 2030 85% of population growth in the G7 economies could be from net migration, which could be beneficial to these economies but could also lead to increased social and political tensions (as indicated by the UK vote to leave the EU in June 2016, where migration was one of the key issues in the debate).
An ageing population will require greater spending on healthcare – a challenge and an opportunity. In the US alone, already the world’s largest spender, healthcare spending is set to rise annually between 2013 and 2040 by $3,400 billion, based on the 8 percentage points projected healthcare expenditure growth as share of GDP. Other G7 economies will see substantial increases including the UK, Japan and Canada – all set to increase by $200 billion each year. The role of technology and scientific breakthroughs to meet rising healthcare demand at lower cost will become increasingly imperative, but at the same time new medical technologies may also increase the demand for healthcare, adding to costs unless this demand is rationed in some way.
More broadly, an ageing population and lower asset returns (as bond yields have fallen, pushing down annuity rates) could double the annual cost of maintaining retirement standards. Today’s 35-year-olds need a pension pot of at least £666,000 by age 65 to secure the same standard of living of today’s pensioners in the UK. That means 35-year-olds need to save 40% of their salaries for at least 40 years to be able to afford retirement. And as the demographic profile shifts, the traditional linear lifecycle of education, work and employment will become increasingly disrupted. Business models will need to change as someone’s age – with many people predicted to live beyond a hundred years old – no longer dictates their stage of life.
To encourage older workers to remain in the workforce, both government and business have a key role to play. That may mean creating more flexibility around retirement, as Germany for example already does, or creating financial incentives and reforming pension rules to encourage workers to stay on in employment after the official retirement age. Age discrimination also needs to be more strongly outlawed, for example in recruitment policies.
In addition to financial incentives, re-training and the development of new skills for older workers will also be critical. There’s a joint role here for government and business to develop the lifelong learning that can help people to acquire new skills throughout their working lives, including (for example) reverse mentoring so that older people can learn digital skills from their younger colleagues.
Businesses will also need to change their approach and policies if they want to benefit from an older workforce. Some already allow phased retirement, for example. Others have opened training and apprenticeships that are normally the preserve of younger recruits and some, like BMW, have even redesigned their factories for older workers.
In the UK and other OECD countries, the lack of access to affordable childcare is a key barrier holding back women from returning to work following motherhood, in contrast to the better regimes in some Scandinavian countries in particular. There is therefore a strong economic case for policymakers in the UK and elsewhere to improve access to affordable and quality childcare.
Other policies to support women returning to work and equality in the workplace include improving tax incentives for women to return to work, introducing stronger incentives to encourage take-up of shared parental leave and promoting pay transparency. Businesses should ensure that all employees are fairly remunerated by ensuring that pay and promotion decisions are fair, and to support women’s career advancement to develop a pipeline of female leaders. Promoting flexible working options is also an opportunity for businesses to fully leverage the talent of its female employees by ensuring that they undertake roles suited to their skills and experience.
 UN Population Division, World Population Prospects 2015,  PWC Golden Age Index,  Gender performance data from Catalyst,  Peterson Institute for International Economics (2016), https://piie.com/search/30%25%20female%20share%20in%20corporate%20leadership%20is%20associated%20with%2015%25%20increase%20in%20profitability%20for%20a%20typical%20firm,  UN, The World’s Women,  Bloomberg,  Silverstein and Sayre “The Female Economy”,  PwC Women in Work Index,  PwC analysis (NextGen: A Global Generational Study),  PwC Talent Mobility 2020, PwC International Mobility database,  UN Population Division, World Population Prospects 2015,  PwC analysis(World Bank Development Indicators, “The Financial Sustainability of Health Systems”, World Economic Forum and GDP data from the OECD (2013)),  Royallondon.com
Yong Jing Teow
Economist, PwC United Kingdom
Tel: +44 (0)20 7804 4257
Economics & Policy Consultant, PwC United Kingdom
Tel: +44 (0)207 804 3991