A New ‘New Normal’ In Demography And Economic Growth

August 27, 2013

Phases II And III: From Tail Wind (The Calm Before The Storm) To Head Wind
Phases II and III represent temporary periods in the transition from a steady state with very low life expectancies (Phase I) to an unknown future that we represent as a steady state with high life expectancies (Phase IV). Each phase spans multiple generations, with Phase II enjoying a demographic tail wind with light support ratios, and Phase III struggling with abnormally high support ratios. As we show below, both temporary periods are much more complex than a simple and gradual transition in terms of life expectancy.

We start with two of the main drivers of demographic changes: fertility rates and life expectancies. If we can understand the evolution of these two variables, we can better evaluate the magnitude of the demographic forces behind and ahead of us. We focus on countries of the G-8 (Australia, Canada, France, Germany, Italy, Japan, the United Kingdom and the United States) and on the BRICs (Brazil, Russia, India and China), given their importance in both economic and demographic terms. The first group of countries provides a clear example of how fast demographic changes have occurred in the developed world, and what later stages of demographic evolution look like. The second group shows the current and somewhat-diverse demographic state of emerging countries.

Figure 2 plots the fertility rate, measured as the average number of children per woman, over the last six decades. Two features are striking in this figure. First, it shows a drastic reduction in the number of newborns experienced by Brazil, China and India, which had fertility rates close to six in 1950-1955 but lower than two (Brazil 1.90, and China 1.64) over the last five years (2005-2010). These changes might look extreme, but we should recall that developed countries went through the same process only a few decades earlier.

Second, 11 of the 12 countries in our sample—the exception is India—currently have fertility rates below replacement rates; in some cases, far below. This sets the stage for a shrinking population once the boomers are out of the way, absent any large-scale immigration.11 In the interest of space, we leave an analysis of these inflection points for a future study. We focus, instead, on demographic profiles, based on age groups as a fraction of total population.

Figure 3 shows the life expectancy at birth over the same time horizon, 1950-2010. We observe a steady and substantial improvement in life expectancies across all countries, with the sole, sorry exception of Russia. Brazil, China and India start the second half of the 20th century with lower life expectancies of 50, 44 and 37, respectively, and are catching up with other more developed countries, but not as fast as birth rates are falling (see Figure 2). Today a baby born in one of the developed countries is expected to reach the age of 80, on average, whereas he or she would be expected to reach the age of 64 in India or age 72 in China and Brazil.



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