Keep Your Eye on Global Demographics

Listen up. This is an important article on why economic developers need to pay closer attention to demographic changes that are sweeping across the global landscape.

It's no secret that demographic trends are working against the U.S., Japan, and Europe. But just how badly the combined effects of slower labor-force growth and aging populations could undermine long-term economic growth is underscored -- to shocking effect -- in a major new study by the World Economic Forum in partnership with consulting firm Watson Wyatt Worldwide.

The report, released at the WEF annual meeting taking place in Davos, Switzerland, Jan. 21-25, raises profound questions about labor participation and productivity, the cross-border flow of capital, the globalization of labor markets, and the financial viability of pensions and other social-insurance programs.

"Economic output is determined by labor-force growth and productivity rates," says Richard Samans, managing director of the WEF's Institute for Partnership & Governance. "In countries with significant projected labor shortages, the supply of goods and services may not meet demand and standards of living could fall."

Among the report's more shocking contentions:

• In Italy, where the total national debt is already more than 105% of GDP, retirees will outnumber active workers by 2030.

• Japan would have to increase immigration elevenfold from its current level to make up for the nation's low fertility rate and rapid decline in its working population.

• And assuming current demographic and economic trends continue, the European Union's share of total global output will shrink from 18% today to 10% in 2050. Japan's share would decline from 8% to 4%.

The U.S.'s outlook is brighter than Europe's and Japan's, largely because the American workforce is expected to increase by 31 million workers by 2030. By contrast, the report projects that Europe will have 24 million fewer workers and Japan 14 million fewer than they have today. Meanwhile, population growth elsewhere continues almost unabated. India will add more people to its workforce in the next 30 years -- 335 million -- than the total working-age populations of the EU and U.S. combined.

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