Demographics and social change

Changes in global demographics will bring significant challenges and opportunities for societies and businesses. The forces that underpin this megatrend include ageing populations in advanced economies and China, the outlook for future jobs, immigration pressure, skills imbalance and the radically different priorities of younger generations.

Learn more about the megatrends shaping our future of economies, business and society.

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Most advanced economies are ageing rapidly

Italy and Germany lead the way in Europe, with the median age of their populations at 47.9 and 46.6 years (only behind Japan at 48.2).1 In Western Europe, 1 in 5 people are older than 65 and this is expected to rise to 1 in 4 in the next decade.2 These trends are likely to slowly, but steadily change the outlook for household spending (towards older consumers), inflation rates, economic growth and government policy (the US already spends over 18% of GDP on healthcare).3 Ageing and the resulting decline in the labour force will hence require dramatic social and technological changes.

Japan's ageing problem

Consider the case of Japan; the combination of ageing (about one-third of its population is over 65yrs4) and low immigration has led to very tight labour markets; the jobs-to-applicant ratio in Japan stands at 1.63x, the highest level in 17 years.5 A counter to this has been more Japanese women entering the workforce; between 2000-17, female workforce participation rose from <60% to 69.4%.6 At the same time, Japan has been one of the largest buyers (and makers) of robotics; it employs 308 robots for every 10,000 human workers compared to 200 for the US.7

Sources: 1 United Nations World Population Prospects: The 2018 Revision. 2 United Nations World Population Prospects: The 2018 Revision. 3 OECD, 2018. 4 Japan Welfare Ministry, Sep 2018. 5 The Japan Institute for Labour Policy and Training, 2019. 6 OECD, 2018. 7 International Federation of Robotics, World Robotics Report 2018.

Female labour participation rate

Graph showing Female labour participation rate

Source: OECD, 2018.

Automation a solution or a problem?

Smarter machines are a solution for countries with shrinking labour forces; but they are likely to trigger challenges for younger economies, by disrupting jobs and limiting wage growth. Automation and greater use of tech will require tomorrow’s workforce to develop new and more advanced skills; take the case of the UK, where less than 20% of the population had a university degree in 1990, but in 2000 that rose to 33% and reached 42% in 2017.8 As the competition for highly skilled labour heats up, companies will need to spend more resources to attract, train and retain talent.

Source: 8 Attracting and retaining the right talent, McKinsey - Nov 2017.

What are the investment opportunities?

As economies age, healthcare is likely to become a bigger share of household and government spending. We expect firms that address age-related diseases to benefit, along with innovative companies that provide technologies and new solutions to provide better care at lower costs.

Shifts in consumer spending

Secondly, demographics will be a key driver of structural shifts in consumer spending. For example, people over 60 account for about half of all household spending in Japan versus approximately 13% for people under 40.9 As spending power shifts to older households in western economies, companies seeking growth will need to cater to their unique demands.

On the other hand, younger consumers are growing up with distinctly different spending priorities versus their parents and grandparents. This will be reflected in what they eat (healthier, fresher) and how they spend time (streaming, gaming) to how they save money (sharing, low cost travel) and how they invest (sustainability).

Source: 9 Japan National Statistics, Dec 2018.

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