The world’s labor force is rapidly aging. This is especially true among developed nations. In the US, for instance, the baby boom phenomena of post WWII is rapidly morphing into a baby bust. The demographics of Europe, Japan and most notably, China, are in an even worse situation than the US’.
Ironically, although quite understandably, most —if not all— of the poorest nations on earth are still experiencing vigorous rates of population growth. Granted, the poorest nations’ vigorous birth rates are coupled with horrible high levels of poverty, poor health and extremely deficient education, and so on.
To state the obvious, there is a minimum acceptable level to maintain a healthy balance between the young population and the elderly. Most, if not all of the developed nations already have broken that extremely delicate balance. That’s a big threat. Fortunately, the other side of the coin is a monumental opportunity for growth and overall well being.
There are only three ways to reverse the aging demographic threat:
- Sustainable and sizable increase in the birth rate.
- Importing workforce from other countries.
- A combination of 1 and 2.
Option 1, however, presents its own set of challenges and realities. Probably the most important among them is the many years (between 18 and 22) it takes for the newborns to grow up and incorporate themselves into the workforce. Moreover, even if the correct incentives are implemented to promote new births, there are no guarantees of success, given that there are very powerful cultural and practical factors working against this effort. Hence, option 2 seems to be the only alternative with effective and almost immediate results.
The shrinking labor force of the developed world presents us
with the greatest arbitrage opportunity of our generation.
In order to compensate any surplus or deficit of any sort, countries export and import goods and services according to their needs; the workforce should not be the exception. Countries with an aging population problem should start importing young and able people into their workforce from countries with a surplus in young population.
Yes, it will be a monumental challenge to successfully assimilate droves of immigrants from the poor and poorest nations into the developed world. Nonetheless, the alternative to essentially maintain the status quo is too costly to even deserve consideration. More on the opportunity cost concept.
Is there any better long-term solution to the most menacing population shrinkage of the developed world than importing workforce from other countries?
Take Japan as an example. How in the world can anybody reasonably expect relatively robust economic growth rates in Japan with its overall population shrinking? It’s simply an utter impossibility. We all know of the great reticence that Japan has historically shown towards immigration. The choices, however are crystal clear: either Japan reinvigorates itself with an agile, solid and consistent long-term immigration policy to fulfill the severe demographic shortfall, or it will have to continue facing unnecessarily costly consequences in economic vitality.
Though far from being a developed nation, the case of China is also very illustrative. In most likelihood, one of the major reasons for the relatively recent deceleration in the economic growth rate from low double digits to the current 7% or so rate of growth, has to do with demographics. The Chinese workforce is also aging, without the corresponding counterbalance with new entrants. China, as well as Japan and so many more countries are extremely rigid in their immigration policies and practices. According to a document leaked from the Chinese Communist Party’s Third Plenum meeting last week, the government plans to relax its “one child” policy; a clear sign that the Chinese Politburo is also concerned about China’s demographic threat.
If the current status quo —essentially inaction— prevails, the demographic challenge in the developed nations poses increasingly troublesome outcomes, with a catastrophic potential. One of the most relevant and terrifying is the unfunded pension liabilities quagmire. Without a proper replacement of young entrants into the labor force, as the population ages, a great deal of the pension liabilities end up being insufficiently funded. This becomes a highly explosive time bomb as the labor force reaches retirement age. Another related terrible reality is the escalating health costs, which tend to increase exponentially as the average age of the population rises.
Deteriorating demographics is essentially a developed nation’s problem. For completely different and opposite reasons it is also a big challenge for the world’s poorest nations still experiencing high birth rates.
Countries like the US, Canada, and Australia have consistently shown the world how to successfully assimilate massive immigration through globalization. Continuous immigration has been a consistent policy and practice in these nations since their inception. The melting pot concept is one of the most fundamental components behind the great success story of these thriving nations. That superlative success cannot be conceived otherwise. Thus, it can be done! Let us take advantage of what globalization has to offer.
If appropriately implemented, the solution discussed will generate healthy economic growth rates for years to come wherever set in motion.