New research by my colleagues at the McKinsey Global Institute shows that as the world becomes youth-scarce, the number of people of working age per senior in advanced economies and China will halve, from about four today to just two by 2050. The fact that people are living longer is good news. Economically, though, there are consequences. People 65 years and older typically consume more than they earn from their own work, a gap covered so far by a combination of savings, asset appreciation, and government transfers underwritten by the taxes of younger people, now a diminishing population cohort. As countries age, bridging that gap becomes more difficult: the math simply doesn’t add up.
The aggregate “senior gap,” or the imbalance between what seniors consume and what they earn from work could rise from 26 percent of total labor income today to 34 percent by 2050 in the United States, and from 30 percent to 50 percent in Europe.
Over the next 25 years, the combination of fewer working-age people and more seniors will result in fewer total hours worked, slowing the growth of GDP per capita by 0.4 percent annually in most advanced economies. That might not seem like much, but the effect is compounded: by 2050, the result could reduce income per capita in countries in Western Europe by an average of $10,000 and by $6,000 in China.
The impact in the United States is more muted, thanks to somewhat higher birth rates and migration. Here, demographic shifts will knock 0.2 percent off GDP per capita growth annually, or $4,000 per capita.
Incentives to increase fertility rates won’t solve the problem, at least not for another couple of decades. So far, no country that has tried to coax families into having more children has succeeded. And even if the impact was immediate, it would take those children more than 20 years to begin working and contributing to the economy.
So what would help? To bend the arc of these strong demographic trends and maintain standards of living would require more workers, longer hours, faster productivity growth, or a combination of the three.
More workers, via increased labor force participation among women, more hours worked by existing workers, or seniors delaying retirement to work longer, could boost output per capita. Consider Spain, where weekly hours worked rose an average 0.5 percent a year from 1997 to 2023, primarily because the share of women in its workforce rose from 61 to 80 percent. Given its current demographic trends, Spain would need to increase its labor force participation rate by 20 percentage points, which is impossible, or add 14 hours to the work week just to maintain GDP per capita growth, which is unlikely.
Increasing productivity could help, but in most advanced economies, sustaining GDP growth as the number of people working declines would require doubling, tripling, or even quadrupling current productivity growth. Considering advanced economies have had difficulty maintaining their productivity levels, that looks unlikely. In the United States, productivity over the past decade grew an average 0.8 percent per year; to offset aging, it would need to be 1.8 percent a year. That is not impossible given that US productivity was 2 percent over the last two years.
Thus, a combination of encouraging more people to work, extending working hours, and boosting productivity will be essential to offset falling fertility rates and longer lives. Countries can rely to a greater or lesser extent on one or the other, but some combination of all three will be necessary, as well as working on longer term solutions like raising birth rates and effective migration. The demographic shifts sweeping the globe also offer opportunities. The global map of workers and consumers will change, becoming older and more heavily centered in the emerging economies of today.
Sub-Saharan Africa is the only region of the world where populations will continue to grow through the end of this century, and so its workforce will contribute an additional 935 million hours of work annually by 2050. Around the world, seniors will account for one-quarter of global consumption by 2050, double their share in 1997—but in different places. Consumption in the traditional advanced economies of North America, Advanced Asia, and Western Europe will drop from 61 percent globally in 1997 to 31 percent in 2050. Companies will want to adapt their strategies, offerings, and global footprint to capitalize on these shifts.
For both policy makers and businesses, doubling down on investment and technology such as generative AI and analytics to boost productivity growth will be critical to address the new demographic reality. Companies will also need to think about how to engage senior consumers and manage an older workforce creatively. Policymakers can work with companies to innovate in areas such as pensions, retirement savings, urban design, and public health to support healthy longevity.
Even as societies grapple with grave long-term implications of changing demographics, businesses and policy makers have many options in the shorter term, such as improved child- and eldercare programs, which can help increase labor force participation, especially women’s workforce participation, while also creating healthy outcomes for children. Governments are working to develop apprenticeship and certification programs for older workers, and legal and effective migration programs can attract workers who have in-demand skills.
Demographics doesn’t have to be destiny—although the shifts in societal and economic calculus that they imply are profound and challenging. We have strategies and tools to offset the impact of demographic shifts, and the time to deploy them is now to avoid a significant drop in the standard of living and support a growing number of retirements.
This article originally appeared in Forbes.
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