This scenario, which previously seemed distant, is now becoming increasingly likely as the world experiences significant demographic changes
Major global economies are already approaching this reality. The total fertility rate of the 38 countries that make up the Organization for Economic Co-operation and Development (OECD) plummeted to just 1.5 children per woman in 2022, a drastic drop from the 3.3 children per woman recorded in 1960. This number is well below the “replacement level” of 2.1 children per woman, which is considered necessary to maintain a stable population without relying on immigration.
This decline in fertility rates has profound implications for the future economic and social landscape of these countries. One of the most immediate consequences is the accelerated reduction in the workforce. With fewer births, the supply of workers is shrinking rapidly, creating challenges for maintaining dynamic and sustainable economies. In the 1960s, for example, there were six working-age individuals for every retiree, according to data from the World Economic Forum. Today, this ratio has already dropped to about three to one. And projections for 2035 are even more alarming: it is estimated that there will be only two working-age individuals for every retiree.
Top executives of publicly traded U.S. companies have highlighted the issue of labor scarcity nearly 7,000 times in their profit forecasts over the past decade. This statistic was revealed by a recent analysis from the Federal Reserve Bank of St. Louis. The growing concern over labor shortages reflects a problem that has been worsening in various economies, particularly in developed countries.
Simona Paravani-Mellinghoff, managing director at BlackRock, discussed the implications of this trend in an analysis published last year. According to Paravani-Mellinghoff, “a reduction in the proportion of workers can lead to labor shortages, which in turn can increase employees’ bargaining power and raise wages. This increase in costs can be inflationary.” In other words, fewer available workers may mean higher wages but also a general rise in prices, impacting inflation.
Historically, immigration has been a solution to mitigate demographic problems faced by wealthy countries, helping to meet labor demand. However, the current decline in birth rates and aging populations are no longer just isolated issues for developed nations. These demographic challenges are becoming a global phenomenon. Paravani-Mellinghoff also noted that “this is crucial because it implies that advanced economies may begin to struggle with ‘importing’ labor from other countries, either through migration or through the provision of goods.”
Future projections paint an even more concerning picture. According to research published by the medical journal The Lancet, by 2100, only six countries will have birth rates sufficient to maintain their populations: Chad, Niger, and Somalia in Africa, the Pacific Islands of Samoa and Tonga, and Tajikistan. These countries represent exceptions in a world increasingly facing the challenge of population decline. The implications of this global shift could be vast and require new approaches to economic and social management in the coming decades.
BlackRock’s specialist recommends that clients consider investments in assets that can offer protection against inflation, such as inflation-indexed bonds and commodities that have historically benefited in inflationary scenarios. Among these commodities are energy, industrial metals, and agricultural and livestock products. This advice reflects a growing concern among investors regarding the economic impact of demographic changes and the potential future labor shortage.
Companies like Procter & Gamble (P&G) and Kimberly-Clark, which dominate more than half of the diaper market in the United States, have observed a decline in baby diaper sales in recent years, reflecting the decrease in birth rates. However, these companies have found a new growing market: adult diapers. This segment has shown an increase in sales, partially offsetting the decline in baby product sales and highlighting the shift in consumer demographics.
In addition to these companies, others are also adjusting their strategies to adapt to this new demographic reality. As the population ages and birth rates continue to fall, it is likely that we will see an increase in demand for products and services aimed at the elderly, from healthcare to assistive technologies and hygiene products. These demographic changes are forcing companies to reevaluate their offerings and adapt to a transforming market where longevity and aging populations become dominant factors.
Nestlé’s CEO, Mark Schneider, recently announced a significant shift in the company’s priorities, reflecting the new global demographic realities. Instead of focusing on infant formulas, Nestlé is now turning its attention to developing products that meet the nutritional needs of the population over 50 years old. This decision highlights how companies are adapting to an aging population by adjusting their strategies to cater to a transforming market.
In the United States, former President Donald Trump has also recognized the importance of addressing declining birth rates. Recently, he promised that if re-elected, he would support the implementation of “baby bonuses,” an initiative aimed at encouraging a new “baby boom” in the country. This type of proposal seeks to reverse the trend of declining birth rates by offering financial incentives for families who wish to have children.
Concerns about declining birth rates are supported by recent data. The U.S. Centers for Disease Control and Prevention (CDC) reported that in 2023, the country’s birth rate fell to a record low, reversing the slight increase observed during the Covid-19 pandemic. This continued decline in birth rates underscores the challenges many countries face in maintaining a young and economically active population.
The Congressional Budget Office (CBO), the U.S. Congress’s budget analysis office, forecasts that the number of deaths will surpass the number of births in just over 15 years. These projections reflect demographic trends indicating accelerated population aging and declining birth rates, which could have profound consequences for the economy and public finances.
These projections underscore the urgent need for reforms and policies that can ensure the sustainability of social benefit programs while addressing the challenge of an aging population. Unless measures are taken to strengthen Social Security and Medicare funding, the economic future of many older Americans may be at risk.
With declining birth rates and an aging population, some business leaders and technologists see artificial intelligence (AI) as a potential solution to boost productivity and mitigate future demographic challenges. At the Wall Street Journal CEO Summit in London last year, former Google CEO and executive chairman Eric Schmidt highlighted the severity of the situation: “Here are the facts. We don’t have enough children, and we haven’t had enough children for long enough to have a demographic crisis.”
A recent Goldman Sachs report supports this view, predicting that generative AI could boost global GDP by up to 7% over the next ten years. Despite these optimistic forecasts, some experts remain cautious, arguing that it is too early to determine the full impact of AI on the global economy.
However, AI is not the only solution being considered to address the decline in fertility rates. Stefano Scarpetta, director of employment, labor, and social affairs at the OECD, advocates for an approach that promotes greater gender equality and a more equitable distribution of work and child-rearing responsibilities. This would include policies such as more paid parental leave and financial support for families.
Scarpetta emphasizes that “this is not just a temporary problem.” Businesses and governments need to prepare now for what he calls a “low-fertility future.” This preparation should include both investments in technologies like artificial intelligence to improve productivity and social policies that encourage population growth and support long-term sustainability. Combining these approaches may be essential to addressing the upcoming demographic challenges.
