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Many of the world's richest economies will need to at least double productivity growth to maintain the historic improvement in living standards amid sharp declines in birth rates.
The McKinsey report examining the economic impact of falling birth rates concluded that the UK, Germany, Japan and the US would all have to see productivity increase at twice the pace they saw over the past decade to maintain the same growth in living standards they have seen since the 1990s.
The consulting firm's report, published on Wednesday, showed that to keep pace with per capita GDP growth between 1997 and 2023, productivity growth in France and Italy will need to triple over the next three decades. In Spain, the number should rise fourfold between now and 2050.
The report highlights the stark impact of low birth rates on the world's most prosperous economies, making them vulnerable to a shrinking proportion of the working-age population.
Chris Bradley, director of the McKinsey Global Institute, said that without action, “young people will inherit less economic growth and bear the costs of more retirees, while the traditional flow of wealth between generations is eroded.”
Governments globally are struggling to contain the demographic crisis amid rising housing and childcare costs, as well as social factors such as a decline in the number of young people entering into relationships.
Two-thirds of people now live in countries where birth rates per woman are below the so-called “replacement rate” of 2.1, while populations are already shrinking in several OECD member states – including Japan, Italy and Greece – along with China and many From the central countries. and Eastern European countries.
“Our current economic systems and social contracts have evolved over decades of growing populations, particularly working-age populations that drive economic growth and support people living longer lives,” Bradley said. “These accounts are no longer valid.”
Bradley, who co-authored Wednesday's report, said there is “no one way to fix” demographic challenges.
“It has to be a combination of putting more young people into work, longer working lives and hopefully productivity,” he said.
The report follows similar warnings from the Paris-based Organization for Economic Co-operation and Development, which said last year that falling birth rates put “the prosperity of future generations at risk” and urged governments to prepare for a “low-fertility future.”
McKinsey calculates that the decline in the proportion of the working-age population in Western Europe could lead to a decline in per capita GDP over the next quarter century by an average of $10,000 per person.
While some economists believe that artificial intelligence and generative robotics can boost productivity, there is little evidence of this happening in a meaningful way yet. Productivity across Europe has remained largely stagnant since the pandemic, widening the gap that has opened with the United States since the financial crisis.
The consultancy said more countries will have to encourage people to work longer, following the example of Japan, where the labor force participation rate among people aged 65 and over is 26 percent, compared to 19 percent in the United States and 4 in The hundred. cent in France.
Despite longer working lives, Japan's per capita GDP has grown at just over a third of levels in the United States over the past 25 years.
“Demographic pressure is acute and unforgiving, and when it occurs, enhancing productivity growth becomes even more important,” the report noted.
The consulting firm calculated that to keep living standards rising at the same rate, a German worker would have to work an additional 5.2 hours per week or the population's share of work would need to increase by about 10 percentage points from its current level of about 80 points. percent among people aged 15 to 64 years.
The UK and US would need less overtime thanks to more favorable demographic projections, but Spain and Italy will also need to increase their population share of the labor force by numbers exceeding 10%.
