Many experts predict negative effects based an aging population and the economy. The retirement of the baby boomers, and an increase in the elderly portion of the citizenry, will cause labor force growth to be diminished, and the national public savings rate to drop. To sustain economic growth after the second decade of the twenty-first century, private savings rates will have to increase, and national fiscal policy will have to change.
Before 2030, the growth of the labor force will decline sharply. The elderly will make up twenty-one percent of the total population, as opposed to the twelve percent they make up today. Also, working-age adults will make up just fifty-five percent of the population, instead of the sixty percent they make up today.
A diminished labor force will have certain economic effects. In 1997, the ratio of workers per social security recipient was 3.35; by 2030, that ratio will decline to 2.03 workers per social security recipient. As a consequence, workers will retire later than ever before, and the economic growth will be slower.
Countries with aging populations will have to relax their immigration policy. Countries with a high percentage of elderly citizens will not have enough native workers to fulfill demand. Therefore, many countries will have to look toward outside labor, just to sustain basic needs.
An aging population will have effects on public saving. More people will become dependent on entitlement programs, which will drive up government deficits. Consumption will not decrease, as long as payouts from entitlements continue to be made, but the economic model is unsustainable, over the long term. Public pensions will also be affected, as assets are sold to accommodate the benefit payouts of the baby boomers. Many households will only be able to live off of what they save during their working years, for their retirement.
Financial markets will be affected by the increase in the number of elderly citizens. Demand for securities has grown higher over the past few decades, as baby boomers have been saving for retirement. However, when baby boomers stop acquiring securities, and start selling their securities to the next generation, prices for securities will drop precipitously.
Countries all over the world, particularly in the Western world, and in China and Japan, are facing the demographic realities of an aging population and the economy. However, not every country around the world will see negative effects. Countries like India, whose birth rates are growing, will attract more capital investment, because their labor force will be consistently replenished.
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