Many of the world's richest economies will need to at least double productivity to maintain historic gains in living standards amid sharp declines in birth rates.
A McKinsey report examining the economic impact of falling birth rates found that productivity in Britain, Germany, Japan and the United States would all have to grow at twice the rate of the past decade to maintain the same growth in living standards since the 1990s. . 1990s.
A report released by the consultancy on Wednesday showed that productivity growth in France and Italy would need to triple over the next three decades to match per capita GDP growth between 1997 and 2023. In Spain, this number needs to increase fourfold between now and 2050.
The report highlights the serious impact of falling birth rates on the world's most prosperous economies, leaving them vulnerable to a decline in the share of working-age people.
Chris Bradley, director of the McKinsey Global Institute, said that if no action is taken, “younger people will suffer lower economic growth and bear more of the costs for retirees, while traditional intergenerational wealth flows will be affected. erosion."
Governments around the world are struggling to stem the demographic crisis due to rising housing and childcare costs and social factors such as fewer romantic relationships among young people.
Currently, two-thirds of people live in countries with per capita fertility rates below the so-called “replacement rate” of 2.1, while the populations of several OECD members, including Japan, Italy and Greece, as well as China and many central countries, have Shrinking. and Eastern European countries.
Bradley said: "Our current economic system and social contract developed over decades of population growth, particularly in the working-age population, which drove economic growth and supported and sustained people living longer. "This calculation no longer holds true."
Bradley, a co-author of Wednesday's report, said there is "no one solution" to the demographic challenge.
"It's got to get more young people into work, extending working lives and hopefully increasing productivity," he said.
The report follows a similar warning from the Paris-based OECD, which said last year that falling birth rates put "the prosperity of future generations at risk" and urged governments to prepare for a "low-fertility future" Prepare.
McKinsey calculates that in Western Europe, a decline in the proportion of the working-age population could reduce GDP per capita by an average of $10,000 over the next 25 years.
While some economists believe that generative AI and robotics can boost productivity, there are currently no signs that this will happen in a meaningful way. Productivity across Europe has largely stagnated since the pandemic began, widening the gap with the United States since the financial crisis.
The consultancy believes that more countries must follow Japan's example and encourage people to work longer. Japan's labor force participation rate for people aged 65 and over is 26%, compared with 19% in the United States and 4% in Japan. divided in France.
Despite Japan's longer working life, Japan's per capita GDP growth over the past 25 years has been only slightly more than one-third of the US level.
"The demographic drag is inevitable and severe, and when it hits, it becomes even more important to boost productivity growth," the report states.
The consultancy calculated that to keep living standards rising at the same rate, German workers would have to work 5.2 hours more per week, or the working-population ratio would need to increase by nearly 10 percentage points from its current level of nearly 80. Percent of people ages 15 to 64.
The UK and US will need lower levels of additional work due to more favorable demographic prospects, but Spain and Italy will also need double-digit increases in their labor-to-population ratios.