Demographic Composition and Economic Development

There is often a causal relationship between a country’s demographic composition and its relative economic performance. Ceteris paribus, the greater proportion of working age individuals in a population, the greater capacity a country has for production of goods and services relative to their commitments in terms of schooling, pensions, healthcare &c to the non-working generations. These factors would be most pronounced within states having a strong institutional framework and also often above a certain economic threshold.

Belonging to a large generational cohort as opposed to a small one brings many economic and political advantages. As a modern welfare state is structured around an ‘inter-generational social-contract’ whereby the working age population provides for the younger and older generations, a linear population development pattern is optimal. However human history has rarely afforded such stability, a fairly recent example disrupting social stability is WW2 resulting inter alia in a post-war ‘baby boom’.

Demographic Composition vs GDP per Capita Growth Norway 1845-2010

Whilst undoubtedly bringing much joy to their parents, the large cohorts born after the war put a substantial economic strain upon the contemporary older and smaller generations financing their (largely in the Western World) substantially free education. Upon reaching working age the so-called baby boomers, through sheer weight of numbers, caused arguably a socio-cultural revolution but also an unprecedented level of economic growth. Combined with the entry of women into the workplace and the smaller generations preceding and succeeding them, they also enjoyed relatively low taxation levels as their short-term social financial commitments were accordingly lower. Adding to this was the economic benefit of steadily rising property prices due in large part to this demographic anomaly.

In failing to produce a correspondingly substantial succeeding generation, the baby boomers, whilst enriching themselves when being in the working age stratum, simultaneously sowed the seeds for a potentially impoverished existence as old-age pensioners. This is due to the structure of national pension schemes which are based on a pay-as-you-go principle, as there will be substantially fewer tax payers to finance social commitments in terms of pensions and healthcare over the coming decades.

Historical and Projected Demographic Composition vs Historical GDP per Capita Growth (Norway, 1845-2060)

The political and economic problems affiliated with this marked rise in pensioners is currently at its very beginning in most Western states, with retirement rates set to increase markedly from 2011 onwards. Luckily for the baby boomers they still constitute such a substantial cohort that they retain the political power to effectuate the political reforms needed to maintain their wealth levels, this will however be reduced in tandem with increased death rates over the next 10 to 15 year period. The ways to mitigate the effects of this demographic transition is increased immigration, increased taxation increased fertility rates and increasing the standard retirement age, the latter two being the only sustainable solutions for the long-run. Increased life-expectancy and technological innovation increasing work efficiency are positive factors in this regard, however the Western welfare states will still face the greatest challenges to their continued existence since their inception.

Sources:

GDP Data: Angus Maddison, University of Groningen http://www.ggdc.net/MADDISON/oriindex.htm

Historical Population Data: Statistics Norway http://statbank.ssb.no/statistikkbanken/Default_FR.asp?PXSid=0&nvl=true&PLanguage=0&tilside=selecttable/MenuSelS.asp&SubjectCode=02

Projected Population Development: Statistics Norway, Medium Scenario http://www.ssb.no/folkfram_en/

 

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About J.F. Gjersø

PhD in International History, LSE. http://etheses.lse.ac.uk/3202/
This entry was posted in Contemporary History, Economic History and tagged , , , , . Bookmark the permalink.

8 Responses to Demographic Composition and Economic Development

  1. Pingback: How world population affects the economy

  2. john says:

    Interessant. Håper vi får endret reglene etter hvert som denne generasjonen går av med pensjon og ut av styrende organ, slik at vi ikke få totalt bråstopp.

    • J.F. Gjersø says:

      Takk for kommentaren, du er faktisk den første til å kommentere på denne bloggen siden den ble startet i april ifjor! Ja det er absolutt en interessant sammenheng mellom demografi og økonomisk utvikling. Trenden blir heldigvis ikke så ille som grafen antyder da blant annet kvinnenes inntog i arbeidsmarkedet etter krigen, teknologisk innovasjon og relativ politisk stabilitet forårsaket mye av den øknonomiske veksten. Altså var det ikke kun de store nye generasjonene som stod for veksttakten. Men det er tydelig at Norge som resten av Vesten og forsåvidt også mange utviklingsland som eksempelvis Kina står foran store utfordringer de neste tiårene. Dette både med tanke på eldreomsorg, pensjoner og helsevesen, men også med tanke på fallende boligpriser, gjeldstyngende økonomier etc. Vi får håpe 68’erne evner å tenke såpass langsiktig at vi yngre ikke sitter igjen med for mye av Svarteper om en ti-tyve års tid. Når dette er sagt burde man kanskje vurdere å reformere det politiske systemet til generelt å bli mer langsiktig, fire års horisonter er åpenbart ikke optimalt for å håndtere slike langsiktige trender.

      • Marco says:

        Hei,jeg lurte pe5 om det er mulig e5 fe5 tak i mailen din maja pe5 noen me5te? Jeg er sdetunt i London og vokalist selv, og skriver en avhandling om stemmen og fri improvisasjon. Er det mulig e5 komme i direkte kontakt med deg via mail? Takk, Marianna

  3. Thank god some bloggers can write. Thanks for this post!!!

    • J.F. Gjersø says:

      Thank you very much, I am glad you found it interesting.

      • Stas says:

        Takk! Fe5 ogse5 med deg mitt svar til kommentator Joacim Lund, Aftenposten har lovet e5 tkryke det pe5 fredag, men man vet vel ikke sikkert hvilken dag det blir. Skal ogse5 publisere det her etterhvert!18, Mai update: Publisert ne5, og kopi av innlegget her pe5 min web.

  4. Jens says:

    Som man ser av fødselsratene vil de europeiske landene møte en demografisk krise i framtiden. Dette er gamle tall, men trenden idag er at den fortsatt er fallende. Et land må ha en fødselsrate på 2.1 for at befolkningen skal kunne holde seg på samme nivå.

    Fødselsrater for 2004:

    Ireland: 1.99
    France: 1.90
    Norway: 1.81
    Sweden 1.75
    UK: 1.74
    Netherlands: 1.73
    Germany: 1.37
    Italy: 1.33
    Spain: 1.32
    Greece: 1.29

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