An Aging World | Population Age 65+ in 2015 and 2050

Source: US Census

The social and economic implications of an aging population are becoming increasingly apparent in many industrialized nations around the globe. With populations in places such as North America, Western Europe and Japan aging more rapidly than ever before, policymakers are confronted with several interrelated issues, including a decline in the working-age population, increased health care costs, unsustainable pension commitments and changing demand drivers within the economy. These issues could significantly undermine the high living standard enjoyed in many advanced economies. 

As of December 2015, people 65 or older account for more than 20% of the total population in only three countries: Germany, Italy and Japan. This figure is expected to rise to 13 countries by 2020. A rapidly aging population means there are fewer working-age people in the economy. This leads to a supply shortage of qualified workers, making it more difficult for businesses to fill in-demand roles. An economy that cannot fill in-demand occupations faces adverse consequences, including declining productivity, higher labor costs, delayed business expansion and reduced international competitiveness. In some instances, a supply shortage may push up wages, thereby causing wage inflation and creating a vicious cycle of price/wage spiral.

Japan is home to the oldest citizenry in the world, with 26.3%
of its population being 65 years of age or older. The population
aged 15 to 64 fell by 4% between 2000 and 2010 (World Bank).

To compensate, many countries look to immigration to keep their labor forces well supplied. While countries such as Australia, Canada and the United Kingdom are attracting more highly skilled immigrants, integrating them into the workforce can be a challenge because domestic employers may not recognize immigrant credentials and work experience, especially if they were obtained in countries outside of North America, Western Europe and Australia.

Given that demand for health care rises with age, countries with rapidly aging populations must allocate more money and resources to their health care systems. With health care spending as a share of gross domestic product (GDP) already high in most advanced economies, it is difficult to increase spending while ensuring care improves and other social needs do not deteriorate in the case of publicly funded or government-administered health care systems. Additionally, the health care sector in many advanced economies faces similar issues, including labor and skills shortages, increased demand for home care and the need to invest in new technologies. All of these cost escalators make it more difficult for existing systems to handle the increased prevalence of chronic diseases, let alone sufficiently address the needs of large and growing senior populations. 

Countries with large elderly populations depend on smaller pools of workers in which to collect taxes to pay for higher health costs, pension benefits and other publicly funded programs. This is becoming more common in advanced economies where retirees live on fixed incomes with much smaller tax brackets than workers. The combination of lower tax revenue and higher spending commitments on health care, pension and other benefits is a major concern for advanced industrialized nations. Source: Investopedia. See also HERE