Falling birth rates increase the prospect of a significant decline in living standards

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Many of the world’s rich economies need to at least double their productivity growth to sustain historic gains in living standards amid a sharp decline in their birthrates.

The McKinsey report, which examined the economic impact of declining birth rates, found that the UK, Germany, Japan and the US would all see productivity double from the previous decade. 1990s.

Productivity growth in France and Italy will need to triple over the next three decades to match GDP growth between 1997 and 2023, the consultancy’s report published on Wednesday showed. In Spain, it will need to quadruple between now and 2050.

The report highlights the severe impact of falling fertility rates on the world’s richest economies, leaving them vulnerable to a shrinking working-age population.

If action is not taken, “young people will inherit low economic growth and bear the costs of many retirees, eroding the traditional flow of wealth between generations,” said Chris Bradley, director of the McKinsey Global Institute.

At a time when the costs of housing and child care are increasing, governments are struggling to contain the demographic crisis worldwide, as well as social conditions such as fewer young people in relationships.

Two-thirds now live in countries with a fertility rate below 2.1 per woman, while the population is declining in several OECD member countries – including Japan, Italy and Greece – along with China and many central countries. and Eastern European countries.

“Our economic system and social contracts have allowed decades of population growth, especially the working-age population, to drive economic growth and support people living longer,” Bradley said. “This calculation no longer holds.”

Bradley, who co-authored Wednesday’s report, said there is “no one-size-fits-all solution” to demographic challenges.

“To get more young people into work, there needs to be a mix of longer working lives and productivity,” he said.

The report followed similar warnings from the Paris-based OECD, which said last year’s decline in birth rates “puts the prosperity of future generations at risk” and urged governments to prepare for a “low-fertility future”.

McKinsey calculates that in Western Europe, the decline in the working-age population could reduce GDP per capita by an average of $10,000 over the next quarter century.

While some economists believe that generative AI and robotics could boost productivity, there is still little sign of that happening in a meaningful way. Productivity across Europe has slowed sharply since the outbreak, widening the gap with the US since the financial crisis.

Following the example of Japan, the consultant argued that many countries should encourage people to work longer, the labor force participation rate among people aged 65 and over is 26 percent, 19 percent in the United States and 4 percent in France.

Despite its long working life, Japan’s GDP per capita has grown at slightly more than a third of U.S. levels over the past 25 years.

“Demographic drag is inevitable and severe, and when it hits, boosting productivity growth will be even more important,” the report said.

The consultancy calculated that a German worker would need to work 5.2 more hours per week, or that the share of the population in work would increase by 10 percentage points from its current level of around 80. Percentage of people aged 15 to 64.

The UK and US will need less additional work thanks to more favorable demographic prospects, but Spain and Italy will also need to increase their share of people in the workforce by double digits.