Population Trends May Mean Broad Policy Changes

Why does this matter? Because there is symmetry between working-age population growth and potential economic growth. In other words, monetary and fiscal policy in places like Germany and Japan is going to have to work hard to offset the negative secular population trends in those countries. (It should be noted that Germany, unlike Japan, has benefited greatly from a surge in younger immigrants.) But in the U.S. and other countries where the working-age population is growing, there should be more policy flexibility and better prospects for solid economic growth.

Population Trends May Mean Broad Policy Changes

Market Realist: Population trends suggest that the labor force participation rate is likely to fall for people aged below 55 years in the US (VOO), while it is set to rise for older age groups. This can be seen in the previous graph.

The Bureau of Labor Statistics (or BLS) has estimated that 20.4% of those aged between 65–74 years were working in 2002, while 26.8% of the age group was working in 2012. This figure is projected to increase to 31.9% in 2022 by BLS. Broad policy changes would need to be implemented to negate the consequences of an aging workforce.

Population Trends May Mean Broad Policy Changes

Silver assets

If capitalized on properly by broad economic and policy changes, aging populations could actually prove to be assets in the long term. The older population has amassed experience and wealth, which—if harnessed properly—could even stimulate economic growth.

Some companies are already adjusting to the demographic shifts by making workplaces more suited to the aging workforce. In a recent report, Harvard Business Review observed that productivity at BMW (BMW) increased by 7% after the auto giant introduced older worker–friendly initiatives like custom shoes and more lucid computer screens. Harvard Business Review has also observed that companies like Xerox (XRX) and Marriott (MAR) have experienced enhanced productivity and better employee retention after introducing transition programs that enable older employees to shift seamlessly from taxing job responsibilities to those more suited to their needs.

The average retirement age for the US has climbed to 62 years, according to the results of a recent survey by Gallup. Non-retirees on an average expect to retire at 66 years. An increasing number of senior Americans are opting to stay within the workforce.

The US government has also recognized the need to better the lives of its aging population in the recent White House Conference on Aging. The government is trying to ensure that the senior population has sufficient care-giving programs in the future. The government has enlisted the help of technology companies like Hewlett-Packard (HPQ) for improving the quality of life of senior citizens through innovation and tech tools. Other initiatives by Walgreens and Honor would aim to connect individuals with tele-health service providers.

Read on to the next part of this series to explore how changing demographics can affect investors.