So what should investors expect going forward? Since the decline in the participation rate began well ahead of the financial crisis and has coincided with the general aging of the population, I believe the participation rate drop likely has more to do with demographics than with frustrated job seekers leaving the work force.
Market Realist – An aging population can adversely impact the economy.
The graph above shows the estimated percentage change in populations. It’s sorted by age group from 2010 to 2050 for the US and the world.
According to a report by Pew Research Center, the number of people in the world above 65 years is expected to triple from 531 million in 2010 to 1.54 billion in 2050. The population of the same age group in the US (SPY)(IVV) is expected to more than double. It’s expected to increase from 41 to 86 million during the same period.
An aging population is often linked to lower labor force productivity and an economic slowdown. Since the most productive class in the workforce is from the age group of 15–64 years, a shrinking proportion of this age group in the overall population could put a strain on the economy’s economic growth. The smaller working age population also needs to support the growing older dependents. This could mean increased financial stress for the countries with entitlement and social security programs.
The prospect of a graying population is prevalent Japan (EWJ), Germany (EWG), and South Korea (EWY). According to 2010 data from the World Bank, Europe (EZU) is currently the oldest region in the world. This may not change even by 2050. In response to concerns about an aging population, China (FXI) relaxed its one child policy in November 2013.
In the next part of the series, we’ll discuss the median age in the emerging markets and how a young population can help them.