News outlets worldwide reacted with concern on Jan. 18 when China acknowledged that its population had shrunk for the first time since 1961. But China is far from alone. The so-called “silver tsunami” will hit most wealthy countries to varying degrees in the next decade or two – among them, Japan, Finland, Italy, Portugal, France, and the United States.
The transition is sure to be accompanied by discomfort and turbulence. Witness, for instance, the millions who took to the streets of France in January and February to protest a proposal to raise the country’s retirement age and ease the burgeoning cost of the nation’s generous pension benefits because of its increasingly large population of older people.
The U.S. population is not shrinking, but it’s heading in that direction. Population growth has slowed since the 1990s. In 2000, the annual rate of population increase was 1.5%. In 2010 it was 0.8%. By 2020, it was basically flat. Consequently, the percentage of working-age Americans is declining as the proportion of retired or elderly Americans increases.
For any aging country, the policy implications are troubling. A large percentage of working-age people is needed to generate a large enough tax base to fund retirement benefits and other government programs.
In addition, a decline in the percentage of working-age people poses challenges to GDP growth. Countries can expect labor shortages, decreased consumer spending, and possibly deflation, which are headwinds to the economy.
Despite the challenges an aging population can pose, it is in some ways an enviable problem. Aging populations are largely the result of rising life expectancies, generally caused by improved living standards and healthcare technology. Another significant cause seems to be rising economic prosperity, which is strongly associated with lower birth/fertility rates.
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