New
demographics
Shaping a
prosperous future
as countries age
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Contacts
About the Authors
Abu Dhabi
Richard Shediac is a senior partner
and managing director of Strategy& in
the Middle East. He has over 15 years of
experience in management consulting.
He has led public- and private-sector
assignments covering strategy,
operations, and organization projects in
the Middle East, Europe, Asia, and the
Indian subcontinent.
Richard Shediac
Senior Partner
+971-2-699-2400
richartd.shediac
@strategyand.pwc.com
Frankfurt
Rainer Bernnat
Partner
+49-69-97167-0
rainer.bernnat
@strategyand.pwc.com
Dr. Rainer Bernnat is a partner with
Strategy& based in Frankfurt. He leads
the European digital business and
technology practice and the German
public-sector business at Strategy&. He
specializes in large IT transformation
programs and supports public and
private institutions in leveraging
innovation and modern IT to improve
efficiency and effectiveness.
Chadi N. Moujaes was a partner with
Booz & Company.
Dr. Mazen Ramsay Najjar was a partner
with Booz & Company.
This report was originally published by Booz & Company in 2011.
2
Eva Kunigk, Rasheed Eltayeb, and
Antoine Nasr also contributed to this
report.
Strategy&
EXECUTIVE
SUMMARY
Demographic trends are always at work within individual
countries, shaping societies, economies, and the environment.
But today the world as a whole is being shaped by a demographic megatrend: increasing aging and dependency. After
decades of accelerating population growth, in which the global
population zoomed from 2 billion to 6 billion in 70 years,
growth is slowing down as fertility rates decline. As a result,
aged citizens will become a larger percentage of populations
and their dependency on slower-growing working populations
will have serious economic consequences. In short, the next
50 years will look much different from the previous 50.
In the second half of the 20th century,
governments, corporations, and
individuals viewed their countries as
forever young and growing. Based on
these assumptions, systems were created
and promises made, such as government
pension schemes in which current workers pay for aging populations. But these
assumptions are proving faulty and,
potentially, economically debilitating.
At present, nations fall along a continuum, with some countries already
beginning to feel the effects of aging,
and others anticipating those effects
in the coming decades. The social,
economic, and environmental impact
of this aging process will be significant. Countries such as the U.S. and
Japan must make their workforces
more productive in order to cover
the costs of social entitlements for an
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increasing number of aged dependents.
Meanwhile, emerging countries such
as India and China must understand
how to harness the benefits of their
relatively younger populations to
create a demographic dividend.
To better understand aging and its
effects, Booz & Company introduces
an approach to understanding this
megatrend that we call new demographics. Through analytical concepts
such as the dependency curve and the
arc of growth, it’s now possible to
see where individual countries are in
their aging and development process; predict the societal, economic,
and environmental challenges that
lie ahead; and develop policies and
actions. Governments and the private
sector must both adapt. Some changes
will be painful, but their importance
cannot be underestimated.
1
KEY HIGHLIGHTS
• A paradigm shift in thinking and
planning is necessary if nations
are to continue economic growth
and maintain standards of living
as their populations grow to an
estimated 9 billion in 2050 and
become more aged.
• By applying a more predictive
approach to demographics,
public policymakers and
corporate strategists can pinpoint
where individual countries are
in their aging and development
process; predict the societal,
economic, and environmental
challenges; and develop policies
and actions accordingly.
• Nascent, momentum, developed,
and advanced developed
countries are all facing different
imperatives, but all will need to
address the gradual aging of
their populations.
DEMOGRAPHICS
SHAPE
OUR WORLD
Demographic trends control all
aspects of our world and are always
at work within countries—shaping
societies, economies, and the
environment. Indeed, much of our
world’s great complexity stems from
a few basic demographic variables:
births, deaths, and migration. Even
small percentage changes in these
components can yield dramatic
results. When the changes are
significant, the results can reverberate
for centuries. The most fundamental
changes to our world over the last
few hundred years—industrialization,
urbanization, global warming—can
all be traced to demographics.
China, for example, wouldn’t
matter nearly as much to the rest
of the world if it didn’t have more
than a billion people turning an
economic engine that is now the
world’s second largest. A bulge in
the youth population has been a
major factor in the recent unrest in
the Middle East, as young people
protest, among other issues, the fact
that national economies have not
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provided them sufficient opportunities
for employment or a voice in the
development of their societies.
Meanwhile Japan, a powerhouse in
the second half of the 20th century, is
grappling with an aging population,
which—combined with low fertility
and immigration rates—is putting
enormous pressure on a working
population that is called upon to
support a relatively higher number
of aged dependents. Even primitive
societies innately understood the
power of demographic components on
their communities and in various ways
tried to control them. In the past, in
some societies—African, Asian, and
European—scarcity of resources and
a preference for boys sometimes led to
the euthanizing of baby girls. In other
cultures, the elderly were expected
to disappear into the wilderness and
die when they became a burden.
And abducting children and women
from neighboring tribes was a form
of forced migration to supplement
a society’s population and ensure its
continued viability.
Despite humans’ long history of
trying to control these basic demographic components, our efforts
often don’t work as planned, and
they almost always yield unintended
consequences. For instance, China’s
one-child policy has, as planned, lowered the fertility rate and prevented
an estimated 250 million births since
1980. This policy has coincided with
huge economic gains that were built
on a large pool of labor born before
the policy began. Now, however, that
pool of labor is rapidly aging, which
will put stress on the relatively less
numerous younger generation that
must support them.
Governments and companies must
take notice of these trends. Only by
studying demographic trends and
trying to grasp their short- and longterm implications can governments
design and implement policies in time
to make a difference; only by doing
so can companies position themselves
properly for growth in their current
and future markets. Taking advantage
of demographic trends will require
better information and a more carefully considered approach.
Despite humans’ long history of
trying to control the basic demo­graphic
components, our efforts often don’t
work as planned.
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The Demographics Cycle
Fundamental to the study of demographics is the demographics cycle,
which is a continuous circle of cause and effect between the basic demographic components (e.g., birth, death, and migration); demographic
characteristics (e.g., split of urban vs. rural populations, gender balances,
ethnic mix, education levels); and impact areas (social, economic, and
environmental). These three dynamics continuously affect and change one
another, creating further effects and changes and propelling the demographics cycle round and round (see Exhibit A).
Societies feel the effects of the demographics cycle through the three impact
areas mentioned above:
The social aspect: Social development is linked to measures of employment, self-sufficiency, health, equality, enfranchisement, accountability, and
social cohesion. In modern Western societies, higher standards of living
and more women in the workforce have resulted in smaller families.
The economic aspect: Human capital drives economic development:
A region’s demographic profile, young or old, growing or shrinking,
directly affects its ability to develop economically. If economies do not
have adequate human capital, or productivity doesn’t increase enough to
compensate for a declining workforce, economic growth will falter. If that
happens, each person’s slice of the economic pie becomes thinner and
thinner, eventually lowering standards of living.
The environmental aspect: Our environment is both natural and man-made
and is directly affected by human activity. For instance, the rapid urbanization
of China has profound implications for the quality of its air and water, and
thus the health of its population.
Exhibit A
The Demographics Cycle
Demographic
Components
The Demographics Cycle
Impact
Areas
Demographic
Characteristics
Impact
Areas
Source: Booz & Company
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A DEMOGRAPHIC
MEGATREND
Today the world is being shaped by
one demographic megatrend: increasing aging and dependency. The next
50 years will look very different from
the previous 50: After decades of
accelerating population growth, as
the global population zoomed from 2
billion to 6 billion between 1930 and
2000, growth is now slowing down
as fertility rates decline. As a result,
aged citizens will make up a larger
percentage of populations and their
dependency on working populations,
which are not growing as quickly, will
have serious economic consequences.
A paradigm shift in thinking and
planning is necessary if nations are to
sustain economic growth and maintain standards of living as their populations grow to an estimated 9 billion
in 2050 and become more aged.
Looking back over the past 50 years,
we can see that the post–World War
II baby boom, as well as significant
strides in healthcare, created a spike
in population growth and reduced the
death rate, respectively. These factors
led to a larger workforce, higher
standards of living, and greater equality. This influenced behavior and the
structure of families. As standards
of living rose, people began to have
fewer children in order to maintain
their standard of living more easily.
Women’s mass entry into the workforce put additional downward pressure on the birthrate. This dynamic
began in Western countries but
has since spread around the world:
Between 1950 and 1980, average
annual population growth globally
was 1.89 percent; from 2010 to 2050,
that rate is expected to fall by nearly
two-thirds to 0.71 percent.
The deceleration means that the
global population will age over the
next 50 years. In 1950, 34.1 percent of the planet’s population was
younger than 15 and 5.2 percent
was older than 64. Today, the young
group has shrunk to 26.9 percent
while the aged group has grown to
7.6 percent. That trend will accelerate sharply as baby boomers retire:
By 2050, the young will slide to 19.6
percent of the population whereas the
aged will more than double, to 16.2
percent (see Exhibit 1).
Exhibit 1
The Dependent Population Is Growing, with the Aged Representing a Greater Majority
WORLD POPULATION PYRAMIDS
(1950–2050F)
1950
Male
2010
Female
100+
95-99
90-94
85-89
80-84
75-79
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
5.2%
60.7%
34.1%
65%
Overall
56% +
Youth
2050F
65.5%
26.9%
53%
64.1%
19.6%
Aged
Overall
41% + 12%
Youth
Aged
Female
100+
95-99
90-94
85-89
80-84
75-79
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
16.2%
Total = 6.9 Billion
9%
Male
Female
100+
95-99
90-94
85-89
80-84
75-79
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
7.6%
Total = 2.5 Billion
Dependency 1
Male
Total = 9.1 Billion
56%
Overall
31% + 25%
Youth
Aged
Overall dependency is defined as the sum of the youth and aged dependencies. Youth dependency is the ratio of youth (0–14) to working-age population (15–64), and aged
dependency is the ratio of aged (65+) to working-age population.
Source: UN Population Division, “World Population Prospects: The 2008 Revision”; Booz & Company analysis
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Today, the population of every country on earth is aging—although they
are aging at different rates. In those
countries categorized as “incipient
aging,” 4 percent of their population
is 65 and above, up from 3 percent
in 1950. Countries with a moderately
aging population have seen their older
citizens grow from 6 percent to 8
percent of the population in that same
period. Moderately advanced aging
countries have seen a jump from 10
percent to 13 percent; while advanced
aging countries have witnessed a rise
from 11 to 17 percent (see Exhibit 2).
strategies, and expectations based
on this faulty belief. For instance,
governments in developed countries
structured pension systems so that
today’s workers pay for today’s
retirees. But many of these plans
won’t work in their current form as
there are fewer workers to support
more retirees, and countries will need
to adjust. In Russia, the number of
workers supporting one retiree will
drop from six today to just two in
2050. In Japan the problem will be
even worse; there will be just one
worker per retiree by 2050.
The social, economic, and environmental impact of this aging process
will be significant. The post–World
War II baby boom created a mind-set
among governments and companies
that populations would be forever
dominated by young, economically
active people and they set policies,
As their populations age, governments
must devise new ways to support their
aging populations and at the same time
stimulate continued wealth creation
with relatively smaller workforces
through innovation and productivity
gains. Companies, for their part, need
to adapt to these new demographic
trends to continue their growth—for
example, by increasing their focus on
products and services to aging populations, and devising strategies for emerging markets with different demographic
profiles. Just as important, companies
must look internally and put in place a
more diverse workforce for maximum
market impact.
Not all countries are yet experiencing
rapid aging. For some countries aging
is part of the future rather than the
present—and they still have the opportunity to plan for it. These countries
are approaching or already enjoying
the demographic “sweet spot” at
which the working population is at
its largest. They should seek to take
advantage of this period with policies that will make this population as
productive as possible, thus propelling
the country into economic growth at
the optimal moment to do so.
Exhibit 2
The Number of Incipient Aging Countries Is Shrinking, While Advanced Aging Countries Are on the Rise
GLOBAL AGING LEVELS
AGE DISTRIBUTION
NUMBER OF COUNTRIES
118
3%
4%
57% 61%
6%
63%
8%
10% 13%
11% 17% 65+
70%
67% 68%
66%
23% 20%
22% 15% 0–14
1950 2010
Moderately
Advanced
Aging
1950 2010
Advanced
Aging
72
40% 35%
31%
1950 2010
Incipient
Aging
1950 2010
Moderately
Aging
22%
61
68% 15–64
60
48
12
1950 2010
Incipient
Aging
1950 2010
Moderately
Aging
10
1950 2010
Moderately
Advanced
Aging
4
1950 2010
Advanced
Aging
Note: A population’s aging level can be classified based on the ratio of aged dependency to youth dependency as Advanced Aging (with a ratio of >0.7), Moderately Advanced
Aging (with a ratio of 0.5–0.7), Moderately Aging (with a ratio of 0.2–0.5), or Incipient Aging (with a ratio of <0.2).
Source: UN Population Division, “World Population Prospects: The 2008 Revision”; Booz & Company analysis
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Booz & Company
NEW
DEMOGRAPHICS
CAN SHAPE
THE FUTURE
Demographics as traditionally
practiced by public and private
policymakers focuses on past trends
and current effects. But given the
magnitude of the changes created by
aging, the different paces at which
individual countries will witness
this aging, and the major challenges
governments and private enterprise
face, this approach to demographics
is too limited. What’s needed is a
more predictive approach, one that
uses past and present demographic
trends to calculate the future
trajectories for each country. We call
this approach new demographics and
it is underpinned by two analytical
concepts: the dependency curve, and
the arc of growth.
By applying a more predictive
approach to demographics, public
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policymakers and corporate
strategists can pinpoint where
individual countries are in their
aging and development process; plot
a trajectory; predict the societal,
economic, and environmental
challenges; and develop policies and
actions to improve that trajectory.
This is an important point. A
country’s current trajectory is not
written in stone; practitioners of new
demographics can make educated
assumptions about the future and
raise critical questions while there
is still time to prepare and perhaps
change course.
The Dependency Curve
The dependency curve is a country’s
dependency ratio—i.e., the percentage
of the population that is dependent
on the working population—plotted
7
over time. Population dependents are
generally considered those younger
than 15 (youth dependents) and those
older than 64 (aged dependents).
(See Exhibit 3.)
The dependency curves illustrated
in Exhibit 4 show us that the world
is at an inflection point; the global
dependency ratio is at a low point
(which is good) and will start to
increase as the global workforce
population ages (which presents a
challenge). From 1950 to 2010, the
global dependency ratio declined
from 65 percent to a low of 53
percent as baby boomers grew up
and joined the workforce. But from
2010 to 2050 that trend will reverse
and the dependency ratio will quickly
start increasing.
Not all countries are in lockstep,
of course. The dependency curve is
a way to characterize a country’s
unique journey from high youth
dependency through high aged dependency. Today, China’s dependency
ratio is expected to begin climbing
in 2015, Brazil’s in 2025, and India’s
in 2040. Japan, by contrast, saw its
dependency ratio turn upward in
1995. For all countries, however, peak
earnings power occurs after youth
dependency has started to decline
but before the aged dependency has
Exhibit 3
The Dependency Curve Shows the Journey from Youth Dependency, to Decreasing Dependency, to Aged Dependency
DEPENDENCY CURVE
Area of Increasing
Aged Dependency
Medium
High
Area of Decreasing
Overall Dependency
Potential Demographic
Dividend
Low
Overall Dependency 1
Area of Increasing
Youth Dependency
Time
Dependency
Driver
+
+
+
Youth +
Age
Working Age
Overall Dependency = (Aged + Youth) / Working-Age Group. Youth = people younger than 15; Aged = people older than 65; Working Age = people between the ages of 15 and 65.
Source: Selected writings of David E. Bloom; Finance and Development, IMF, vol. 43, no. 3 (September 2006); Booz & Company analysis
1
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become too acute. This sweet spot
along the dependency curve allows
countries to reap a demographic
dividend;1 but this can happen only if
policies beforehand have readied the
country’s workforce with the proper
education, infrastructure, and policies
to maximize their economic potential.
Some countries may also try to
prolong their time in this sweet
spot by extending the definition of
the working age by, for instance,
increasing the retirement age past 60,
or 65, or 70. However, recent protests
against raising the retirement age in
western Europe make it clear that
changing retirement benefits won’t
be easy.
The Arc of Growth
A country’s position on the dependency curve determines where it falls
on the aging index. The next step is
to plot a country’s score on the aging
index against its human development.
(At this time, no perfect measure of
human development exists; we have
used prosperity and equality as a
proxy, but expect this metric to evolve
over time—for instance, by taking
into account well-being and environmental sustainability.) By tracking
aging against human development,
it is possible to see the country’s
position on the arc of growth, which
characterizes the journey countries
take as they age and strive to create
prosperity and equality. The arc of
growth also shows a country’s relative position to other countries and,
by inference, the societal, economic,
Exhibit 4
Japan Has Peaked in Its Progress on the Dependency Curve, While Countries in Emerging Markets Have a Way to Go
1965
1965
Japan
1965
China
Medium
1965
India
2010
2010
2010
Brazil
World
2010
Low
Overall Dependency
High
DEPENDENCY CURVE: EXAMPLES
Overall Trend
Time
Source: Selected writings of David E. Bloom; Finance and Development, IMF, vol. 43, no. 3 (September 2006);
UN Population Division, “World Population Prospects: The 2008 Revision”; Booz & Company analysis
ncy
High
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1965
9
1965
1965
Japan
and environmental issues it faces (see
Exhibit 5).
Globally, nations fall into four clusters
on this arc of growth:
• Nascent countries, in which the
dependent population is dominated
by people below the age of 15.
These countries are also characterized by high marginal increases in
prosperity and equality levels.
• Momentum countries, in which the
population is dominated by people
in the working-age group. These
nations also experience diminished
marginal increases in prosperity and
equality. Countries at this stage need
to save and invest efficiently in order
to gain a high development level
before they age.
• Developed countries, in which the
dependent population is dominated
by people above age 65. These
countries also have moderately
high levels of development, but
minimal marginal increases in
prosperity and equality.
• Advanced developed countries, in
which the dependent population
is dominated by people over
10
65. These countries are also
characterized by very high levels
of development and minimal
marginal increases in prosperity
and equality.
Over time, countries travel distinct
paths on this arc of growth and
experience different challenges along
the way; the left side of Exhibit 6
shows the consensus analysis on how
various countries are progressing.2
But as noted, these trajectories are
not set in stone, which makes new
demographics a powerful policy
tool. Governments dissatisfied with
their current arc of growth can use
new demographics analysis to make
policy decisions—such as improving
the quality of the education system,
increasing workforce productivity,
raising the retirement age, or better
integrating immigrants into society—
to propel their countries to higher
arcs of growth. The right side of the
graph shows a few potential arcs
of growth among an infinite number
of possibilities.
The arcs of growth charted in Exhibit
6 make it appear that some countries
are bumping up against maximum
development; however, this is not
actually the case. In fact, the history
of human development is a history
of innovative breakthroughs, some
disruptive and many incremental, that
propel countries to new levels of development and standards of living. These
changes include such major advances
as the industrial revolution, modern
healthcare, and the computer age.
Companies, too, must take demographics into account as they plot
their corporate strategies. They will
have to adjust their products and
services for countries at varying points
on the arc of growth. The challenge
for companies that hope to operate
globally is that different demographic
profiles make for different consumer
priorities: As countries move along the
arc from nascent to momentum, for
instance, households begin to spend
money on goods and services beyond
just the basics; the share of next-level
necessities (i.e., furnishings, transport,
and communication) as a percentage
of consumer spending increases during
this transition, but remains flat thereafter. Meanwhile, the share of housing
and power, as well as luxuries (i.e.,
recreation and culture, restaurants,
and hotels), as a percentage of spending increases continuously as countries
move along the arc from nascent to
advanced developed.
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Exhibit 5
All Countries Are Currently Somewhere Along the Arc of Growth
PROSPERITY AND EQUALITY INDEX VS. AGING INDEX
(2007 FOR PROSPERITY AND EQUALITY INDEX; 2010 FOR AGING INDEX)
Norway
U.S.
GCC
U.K.
ADVANCED
DEVELOPED
West Europe
Germany
Japan
South
America
China
Russia
Brazil
Indonesia
Medium
DEVELOPED
Ex-USSR
South Asia
India
NASCENT
COUNTRIES
Nigeria
Africa
Low
Prosperity and Equality Index
High
MOMENTUM
COUNTRIES
Aging Index
Area of Increasing
Youth Dependency
Area of Decreasing
Overall Dependency
Area of Increasing
Aged Dependency
Note: Countries in sample = 133; y = 0.1912ln(x) + 0.799; R2 = 0.76; the coefficients are significant at a 99% level.
Source: UN Population Division, “World Population Prospects: The 2008 Revision”; UNDP, Human Development Report 2009; Booz & Company analysis
Exhibit 6
Analysis of Numerous Countries’ Arcs of Growth Shows That There Are Several Distinct Paths
1990
1980
1980
2000
1990
1985
1995
2005
2007
2005
2007
Germany
Japan
2007
2005
2007 1995
2005
1990
2000
1985
1995
1980
1990
1985
1980
India
Low
Low
Human Development Index
Medium
1980
China
U.S.
2007 1995
High
High
2005
1990
POTENTIAL PATHS ALONG THE ARC OF GROWTH
Prosperity and Equality Index
Medium
COUNTRY DEVELOPMENT CURVES: EXAMPLES
(1980–2007)
Aging Index
Increasing Youth Dependency
Aging Index
Decreasing Overall Dependency
Increasing Aged Dependency
Note: We have used the Human Development Index and the Prosperity and Equality Index in these analyses as proxies for an ideal measure of human development that does not yet
exist—one that takes into account all areas of human advancement, including well-being and sustainability.
Source: UNDP, Human Development Report 2009; Booz & Company analysis
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As employers, companies must also
make policy adjustments to accommodate changing market dynamics
and needs, developing a more diverse
workforce that draws on the pool
of younger workers in nascent and
momentum countries.
Preparing for Different Challenges
The power of new demographics,
underpinned by the arc of growth,
is that it is a predictive and actionoriented policy tool. By understanding
this arc, decision makers can recognize their current positioning along
its curve, determine where they want
to be, and take the steps necessary to
achieve their goals.
Although each country is unique,
countries in every cluster will face
similar challenges and will need to
address a corresponding set of priorities. Governments and companies
should address the needs determined
by their current stage of development, as well as plan for the new
imperatives that will come with the
incremental progression into more
advanced clusters (see Exhibit 7).
In each stage, a country’s
development agenda will build upon
the steps taken in previous stages.
For example, consider employment
and the labor market as one element
of a country’s overarching growth
strategy. In the nascent stage,
countries will be focused on creating
job opportunities. As a country
progresses into the momentum stage,
it will need to develop a talent base
to ensure that these jobs are filled.
Once it reaches the developed stage,
its focus will be on maximizing the
productivity of these workers; and
finally, in the advanced developed
stage, the country will need to ensure
that it is capitalizing on productivity
gains from game-changing innovation
and R&D.
The following sections provide a
more in-depth overview of each cluster and its challenges and priorities.
Exhibit 7
Each Cluster on the Arc of Growth Must Plan for New Imperatives
Advanced Developed
Developed
Momentum
Nascent
- Invest in basic education and
healthcare infrastructure
- Pursue balanced regional
development
- Develop physical infrastructure
- Create employment opportunities
- Ensure food security and water
access
- Increase labor productivity
- Enhance competitiveness
- Develop skilled human capital
- Introduce pension schemes
- Reduce negative
environmental impacts
- Innovate to boost productivity of
local industries
- Attract investment and improve
business environment
- Upgrade quality of education
- Ensure sustainability of social
security and healthcare systems
- Capture productivity gains from
innovation and R&D
- Modernize social security
systems
- Integrate migrant workforce
- Incentivize private-sector
contribution to development
- Cater to aging consumers
Source: Booz & Company
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NASCENT
COUNTRIES:
LAY THE
GROUNDWORK
FOR GROWTH
Most nascent countries are in
Africa and Southeast Asia and are
characterized by the United Nations
as less developed. There are 55
countries in this group, totaling
2.5 billion people, or 39 percent of
the global population. Most have
experienced exponential population
growth over the past century and had
low levels of development.
Current State
Today these countries have a large
working-age population. By and
large, they are youthful countries
with relatively high fertility, so youth
dependency is high while aged dependency is low. Generally, Southeast
Asian countries have reaped more
prosperity gains from their workers
than African nations. They’ve managed this through better youth education and by reforming their business
environment to encourage private
enterprise. Meanwhile, most African
nations are still struggling to put their
youth to work and capitalize on their
demographic dividend.
Looming Changes
The arc of growth analysis predicts
that by 2020, several nascent
countries, such as India, will be
transitioning into momentum
countries. This demographic trajectory raises an important question:
How can fast-paced countries
provide the infrastructure and
services needed to support increased
urbanization, offer opportunities
for a rapidly increasing working-age
population, and prevent emigration
of talent?
Imperatives
To address these issues, nascent
countries should create an educational infrastructure that will lead
to employment opportunities for
the young and prevent talent emigration. Also, government should
invest in a healthcare infrastructure
that expands basic healthcare and
improves access to family planning
programs. Economic policies should
support rapid economic growth,
balanced regional development,
controlled internal migration, and
a sound physical infrastructure for
urban development—namely roads,
utilities, and telecommunications.
Environmental policies should guarantee food security and water access.
Case Study: India
India is a prime example of a nascent
country on its way up. Thanks to its
huge working-age population, India
is transitioning to a time of high
economic growth and potentially
high demographic dividends.
But managing that growth poses
important policy challenges.
By 2050 India will have more than
one billion working-age people. If the
government sets a target unemployment rate of 5 percent and counts
on a 67 percent labor participation
rate, that means the country needs
to create about 7 million jobs per
year. To pull that off, the government
should boost economic competitiveness by supporting key sectors and
promoting increased labor productivity through innovation. Failure to
absorb such a large labor force poses
important risks, in both lost demographic dividends and social pressures. If India’s unemployment rate
rose to 15 percent and stayed at that
rate through 2050, 110 million people
would be unemployed.
India’s development level is
not optimal at this stage of the
game. Further improvements
in infrastructure, specifically in
urban areas, are needed to support
migration to cities while ensuring
balanced regional development. The
country must also improve the quality
of basic education and access to
higher education so skilled graduates
replenish the workforce as the aging
population retires. Besides these
issues, the government should have an
eye on financial resources to meet the
liabilities of a large aging population,
and tend to its natural resources,
particularly access to clean water.
How can fast-paced countries support
urbanization, offer opportunities
for the working-age population, and
prevent emigration of talent?
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13
MOMENTUM
COUNTRIES:
SEIZE THE
OPPORTUNITIES
Most momentum countries are in
Latin America and East Asia. There
are 33 countries in this group with
a total population of 2.6 billion,
which makes up 41 percent of the
world’s population.
Current State
Most of these countries had a recent
period of high birth rates and enjoy
a young working-age population
that is large relative to the dependent
population. This generation of workers could propel significant growth
if the proper policies are in place. So
far, East Asian countries have enjoyed
stronger economic growth than Latin
American countries. They’ve accomplished this success through a combination of regulatory and judicial
reform that has created transparency,
stamped out corruption, and generally improved the business environment, encouraging investment.
Looming Changes
The arc of growth analysis predicts
that by 2030 several momentum
14
countries, such as China and some
Latin American countries, will start
bridging the development gap. As
with nascent countries, this trajectory
raises important questions for the
future: How can governments ensure
that policies are in place to create
an environment that spurs economic
growth and exploits their demographic dividend? What role does
the private sector play in the demographic dividend equation? Can Latin
American countries emulate the success of their East Asian counterparts?
Imperatives
In momentum countries, social
policies should focus on education,
particularly higher education, and the
development of skilled talent to fulfill
labor market needs. Now is the time
to design pension mechanisms that
can handle a future aging population. Also, as these countries generate
greater wealth, it is important that
income distribution is equitable to
ensure social well-being and cohesion.
Economic policies should promote
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labor productivity by, for instance,
encouraging labor force mobility into
the most productive sectors. Policies
should spur competitiveness and
support emerging high-value sectors,
and encourage the private sector to
satisfy and spur local consumption.
As for environmental policies, these
countries should work to reduce CO2
emissions and promote conservation
of natural resources.
Case Study: China
China is the best example of a
momentum country. Its dependency
curve has hit a historical low, and its
development is at a historical high. In
2010, China’s economy became the
second-largest in the world, surpassing
Japan, and some estimate it will surpass the United States in the coming
few decades. This rapid development
has been due in part to a large generation of young, economically active
people. But troubles loom. In the
medium term, China will begin to feel
the constraints of an aging population
and low fertility—thanks to the onechild policy that has been in place for
the last 30 years. In the long term, the
workforce will age rapidly.
sustain high export levels) and on
the domestic front (e.g., encouraging
local consumption fueled by the aging
consumer). The government should
improve access to higher education
so workers will have the tools to
perform high-value work, and should
carefully manage social services to
maintain them and plan for the large,
aging population.
If not managed correctly, this
combination of low fertility and
rapid aging could keep the country
from achieving high development
levels. The best response is to
implement policies that encourage
technology and innovation to boost
productivity and competitiveness
on both the export front (e.g.,
upgrading production quality to
Other policy considerations should
include ensuring balanced regional
development across China to avoid
urban versus rural tensions and
ethnic divides, and reducing the
negative environmental impact of
high economic growth. The country
is already the number one emitter of
CO2 in the world and its cities suffer
high levels of smog.
Policies in momentum countries
should spur com­petitiveness and
support emerging high-value sectors.
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15
DEVELOPED
COUNTRIES:
FIGHT TO
MAINTAIN
PROSPERITY
The developed category is by far the
smallest. It consists of 19 countries,
mostly eastern European, with about
320 million inhabitants, or 5 percent
of the world’s population. These
countries had a post–World War
II baby boom but the state-driven
economies prevented this large labor
force from translating into robust
economic growth. Although these
nations achieved a certain level of
development, they did not fully
exploit their demographic dividend.
Current State
Today these countries face rapidly
declining fertility rates and rising
mortality rates, particularly since
the collapse of the Soviet Union. The
result is that these economies are
threatened by not just a growth slow-
down, but a decline in population.
Some governments have tried various
schemes to encourage more births,
including housing benefits, stipends,
and lengthy maternity and paternity
paid leaves. Unfortunately, these have
not boosted birth rates significantly
and have weighed heavily on government finances.
Looming Changes
The arc of growth analysis predicts
that by 2040 many of these countries
will, at best, maintain their current
levels of prosperity. However, their
relative prosperity compared to
nascent and momentum countries
may shrink or disappear, making
them feel relatively less prosperous.
Although these projections are not set
in stone, these nations must address
Although these nations achieved
a certain level of development,
they did not fully exploit
their demographic dividend.
16
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some very thorny problems if they are
to escape this fate. Are governments
doing enough to prepare for their
respective demographic challenges?
Is the health sector positioning itself
to ensure delivery of effective medical
care to an aging population?
Imperatives
On the social policy front, these
countries must enhance education to
improve development levels, and they
must transform legacy healthcare and
social security systems to meet the
obligations to an aging population.
Governments should consider
immigration policies to bolster the
workforce, but such policies would
need to include strategies to integrate
immigrants into society without
threatening national identities. On
the economic front, governments
need a growing revenue base. To
generate this, business environments
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need to be generally improved—by
streamlining rules and regulations
and increasing transparency—
to attract domestic and foreign
investment. And policies should
encourage research, development,
and innovation to boost productivity
and competitiveness.
Case Study: Russia
Russia is the poster child for
the developed category. It faces
important problems stemming
from the Soviet Union’s policies
and the promises made to its aging
population. The bulk of Russia’s
baby boom population is hitting
retirement age—55 for women and
60 for men—while fertility has been
well below replacement levels for
years. This will put pressure on
government finances by driving up
pension costs as the ratio of pension
contributors to pension recipients
decreases. In 2010, six workers
supported each retiree. By 2050, just
two workers will be supporting each
retiree. This unfortunate confluence
of factors could significantly impair
Russia’s ability to grow its economy.
Russia must take action quickly.
Before the breakup of the Soviet
Union, Russia was a leader in science
and math. That is no longer the
case, and to compete again on the
world stage it must overhaul its
education system. The government
must also transform legacy labor and
social security systems, and adapt
the healthcare system to provide
care to an aging population. On
the economic front, policies should
encourage innovation, productivity,
and the competitiveness of local
industries and diversify away from its
reliance on natural resources.
17
ADVANCED
DEVELOPED
COUNTRIES:
BOLSTER THE
WORKFORCE
This category consists of developed
and affluent countries, from the U.S.,
with its relatively young population, to Japan, with a relatively older
population. There are 24 countries in
this category, mostly in Europe, with
a total population of 952 million,
representing 15 percent of the world’s
population. Most of these countries
saw their working-age populations
grow from the late 19th to early 20th
centuries, and then surge in the mid20th century as the baby boomers
entered the workforce. But by the
1960s, fertility rates in most of these
nations started dropping quickly.
Current State
By 2010 these countries enjoyed high
development, but their low fertility
rates and slowing population growth
could threaten their continued levels
of prosperity. The notable exception
is the United States, which thanks
to its immigration policies and
relatively higher fertility rates will
continue to grow.
Looming Changes
By 2050, these countries’ populations
may continue to age and see prosper-
18
ity gains dwindle. Like the developed
countries, these countries could feel
relatively less prosperous as many
nascent and momentum countries
make prosperity gains. Policymakers
must wrestle with the reality of an
aging society dependent on a reduced
working-age population. How can
governments provide the support
needed by an increasingly agedependent population? How should
the private sector react to changing
consumer demographics?
Imperatives
First and foremost, governments
must reform social safety nets, as
aging baby boomers take a greater
toll on social security and healthcare
systems. To bolster the workforce,
governments can pursue immigration
reform and gender equality initiatives
that will draw more women into the
workforce. On the economic front,
productivity gains through innovation will be vital.
Case Study: United States and Japan
The advanced developed category
covers a wide spectrum—from the
United States, which is still on the
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young side with an open immigration policy and a growing workforce,
to Japan, which has a quickly aging
population with few immigrants and
a shrinking workforce. In fact, Japan
is the most aged country in the world
and its high level of development
is stagnating. Going forward, the
country must increase productivity 2
percent per year to maintain its historical GDP per capita growth—and
that is no small task. That is double
the current productivity gains in the
United States.
To achieve those productivity gains,
Japan must invest significantly in
R&D. It must provide incentives to
boost private-sector capital investment, and find ways to integrate
other segments of the population—
such as women or older workers—
into the workforce. However, this
approach has its limitations, and fails
to consider some important means of
boosting productivity. For example,
by tightly restricting immigration,
Japan avoids some issues—such as
the questions of national identity that
are raised as immigrants become a
large segment of the population—but
gives up the major productivity gains
that immigration can bring.
Compared to Japan, the U.S. is in relatively better shape, though not without its own challenges. In the U.S.,
the country’s dependency curve is at a
historical low and its development at
a historical high. Although the fertility rates of U.S. boomers are lower
than their parents’ generation, these
rates are higher than other developed nations’; this, coupled with the
country’s unique immigration policy
will keep its population growing.
However, this growth brings with it
debate over immigration policy and
the integration challenges associated
with the new arrivals. Moreover, even
with immigrants flowing in, the U.S.
will still get grayer. The age-dependent population will climb from 13
percent in 2010–11 to 22 percent by
2050, propelling healthcare spending by 6 percent per year, which will
gobble up more and more of GDP. At
this rate, by 2050 national healthcare spending is forecast to reach 23
percent of GDP.
So much spending on healthcare
creates a very unhealthy economic
balance. The U.S. needs to reform
these social security systems while
at the same time push pro-growth
policies that increase productivity through innovations and R&D,
and encourage the private sector to
innovate in this area. On the environmental front, policies should steer
energy consumption into alternative
and renewable energy sources and
promote awareness.
Policymakers must wrestle with the
reality of an aging society dependent
on a reduced working-age population.
Booz & Company
19
CONCLUSION:
THE RELEVANCE
OF NEW
DEMOGRAPHICS
Demographic trends are always at
work within individual countries,
shaping the society, the economy, and
the environment, and these trends are
better understood through the lens of
new demographics. In particular, new
demographics helps governments and
companies to understand the demographic megatrend shaping all nations
today: increased aging and dependency.
Companies must respond to aging
populations by seizing opportunities
and confining risks. They must cope
with changing preferences in current
markets as consumers age, they must
look abroad to develop new target
markets as countries move through the
arc of growth, and adjust to changing
workforce patterns and shifting supply
chains as countries develop. Companies
must look beyond their sometimes
narrow, immediate goals and consider
how demographics are affecting their
industry as a whole.
Meanwhile, governments must select
policies that improve their arc’s
trajectory by encouraging economic
activity and delaying the challenges
related to aging. They must ensure
that public infrastructure keeps up
with demand, that education is highquality and accessible, that immi-
20
grants and women are integrated
into the workforce, and that social
security and healthcare systems are
transformed so large aging populations do not overwhelm the workforce and stifle the economy.
The most important thing for countries to bear in mind, no matter where
they fall on the arc of growth, is that
they are the captains of their destiny.
The general consensus about many
countries is that their future will be
an extension of their present—that
Japan’s hurdles are insurmountable,
for instance, or that China’s trajectory of growth is unending. This is not
the case. Countries that are pleased
with their current circumstances will
need to understand their demographic
profiles and put in place the policies
that will preserve their good fortune.
Countries that wish to improve their
lot will have to work even harder
to formulate the policies that will
change it.
These challenges are daunting and
inspiring at the same time. Through
the lens of new demographics both
governments and companies can
glimpse the future, and influence its
outcome, by addressing key priorities
and seizing opportunities.
Booz & Company
Endnotes
The demographic dividend, a concept introduced by David
Bloom, occurs when societies are able to create sufficient
opportunity for their populations to maximize productivity.
(From selected writings of David E. Bloom; and Finance and
Development, a quarterly magazine from the IMF, vol. 43, no. 3,
September 2006.)
1
All forecasts are the result of consensus analysis. They do
not represent the views of Booz & Company and are not
deterministic.
2
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21
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