Arnott: Demographics And The New Normal

September 10, 2013

The green line in Figure 1 shows the steady-state profile that applies for a population with life expectancy of 80 years. On our current trajectory, once fertility rates return to replacement levels, this is our eventual demographic profile. In the interim, if birth rates remain low, we go through a phase in which senior citizen support ratios soar. The orange line in Figure 1 shows the projected profile for Japan in the United Nations database. Our own Phase III should be considerably less extreme, but this shows what happens when birth rates fall far below replacement levels and remain there. Of the 12 countries in our study, half (Canada, China, Germany, Italy, Japan and Russia) have fertility ratios below 1.6; absent immigration on a large scale, the Japan scenario will be visited on all six nations in the coming century.

What about other countries? Figure 4 shows a summary of their demographic changes over the last 60 years represented by three distinct age groups: children (0-19); working-age adults (20-64); and senior citizens (65+). The first and second rows report the average and standard deviation of each age group size, measured as fractions of the total population, from 1950 through 2010. Each country has its own idiosyncrasies, but shared patterns are clear. These numbers serve as an important reference point, against which we can compare past (1950), current (2010) and future (2050) values.



Find your next ETF

Reset All