People are living longer. Birth rates are falling, as are labor participation rates among certain groups. As a result, workforces in much of the world are beginning to decline for the first time in modern history.
Business leaders will need to address what a shrinking workforce means for how they source and train talent, drive productivity, and employ collaborative technologies–not to mention how they respond to shifting patterns of demand from older consumers. Policymakers will similarly have to consider the implications for monetary and fiscal policy, social safety nets, healthcare, immigration, and economic growth.
Some countries are further along this curve than others. Japan has seen its working-age population decline by over 11 million1 people since 2000, although it has offset these losses as more women entered the workforce. The Chinese labor force peaked2 in 2015 at 800 million. As a consequence of its one-child policy, China has gone from 10 workers per retiree in 1990 to four workers per retiree today3, and will likely drop to two workers per retiree by 2030.
Europe and the U.S. are facing similar, if not quite as dramatic, trends. By 2035, the number of retirees in Germany4 is expected to grow by 22% while the working-age population shrinks by between 7% and 11% (even taking into account projections for immigration). For the U.S., the working-age population is projected to grow slowly over the next decade, but labor participation rates for males may constrain this growth, due to higher rates of incarceration, addiction, and disability within this demographic. One bright spot for the U.S. has been a “baby bump”5 during the pandemic, as fertility rates increased for the first time since 2007.
The world has never before experienced a period where the working population shrinks unrelated to war, famine, or disease. What is even more remarkable is that this comes after a 30-year period in which the accessible labor supply in the world effectively doubled, as China and Eastern Europe were integrated into the global economy following the end of the Cold War. It is unclear whether that economic integration will continue.
People are living longer. Birth rates are falling, as are labor participation rates among certain groups. As a result, workforces in much of the world are beginning to decline for the first time in modern history.
Business leaders will need to address what a shrinking workforce means for how they source and train talent, drive productivity, and employ collaborative technologies–not to mention how they respond to shifting patterns of demand from older consumers. Policymakers will similarly have to consider the implications for monetary and fiscal policy, social safety nets, healthcare, immigration, and economic growth.
Some countries are further along this curve than others. Japan has seen its working-age population decline by over 11 million1 people since 2000, although it has offset these losses as more women entered the workforce. The Chinese labor force peaked2 in 2015 at 800 million. As a consequence of its one-child policy, China has gone from 10 workers per retiree in 1990 to four workers per retiree today3, and will likely drop to two workers per retiree by 2030.
Europe and the U.S. are facing similar, if not quite as dramatic, trends. By 2035, the number of retirees in Germany4 is expected to grow by 22% while the working-age population shrinks by between 7% and 11% (even taking into account projections for immigration). For the U.S., the working-age population is projected to grow slowly over the next decade, but labor participation rates for males may constrain this growth, due to higher rates of incarceration, addiction, and disability within this demographic. One bright spot for the U.S. has been a “baby bump”5 during the pandemic, as fertility rates increased for the first time since 2007.
The world has never before experienced a period where the working population shrinks unrelated to war, famine, or disease. What is even more remarkable is that this comes after a 30-year period in which the accessible labor supply in the world effectively doubled, as China and Eastern Europe were integrated into the global economy following the end of the Cold War. It is unclear whether that economic integration will continue.
WHAT DOES THIS MEAN FOR YOUR WORKFORCE?
We are moving from an era of labor abundance to one of scarcity. While the current economic downturn will certainly relieve some of the acute hiring pressures that companies have experienced in recent years, shortages of the most in-demand workers will continue.
In our survey for the AlixPartners Disruption Index this year, executives identified the inability to find enough employees with critical skills as the top workforce issue impacting the growth of their companies, outpacing concerns over hybrid work, technology, and diversity. Companies are increasingly investing in new technologies in order to plug the productivity gaps they’re facing as a result of these shortages. The pandemic shifted thinking on these technology investments by many companies, spurring longer-term investments into deeper tech like computer vision and
machine learning.
Demographic decline affects the demand for goods and services as well as the supply of labor. The aging and shrinking of populations will shrink demand–for baby clothes, automobiles and college educations–and shift it toward health care, emerging markets, and robotics. When the overall market contracts (or fails to expand) there is more “red ocean” competition. Companies in consumer goods industries will have to create more of their growth by innovating, on the one hand, and by taking market share from competitors, on the other. Both are more difficult when not riding on the back of a growing population.
WHAT DOES THIS MEAN FOR YOUR WORKFORCE?
We are moving from an era of labor abundance to one of scarcity. While the current economic downturn will certainly relieve some of the acute hiring pressures that companies have experienced in recent years, shortages of the most in-demand workers will continue.
In our survey for the AlixPartners Disruption Index this year, executives identified the inability to find enough employees with critical skills as the top workforce issue impacting the growth of their companies, outpacing concerns over hybrid work, technology, and diversity. Companies are increasingly investing in new technologies in order to plug the productivity gaps they’re facing as a result of these shortages. The pandemic shifted thinking on these technology investments by many companies, spurring longer-term investments into deeper tech like computer vision and
machine learning.
Demographic decline affects the demand for goods and services as well as the supply of labor. The aging and shrinking of populations will shrink demand–for baby clothes, automobiles and college educations–and shift it toward health care, emerging markets, and robotics. When the overall market contracts (or fails to expand) there is more “red ocean” competition. Companies in consumer goods industries will have to create more of their growth by innovating, on the one hand, and by taking market share from competitors, on the other. Both are more difficult when not riding on the back of a growing population.
Companies will have to radically change how they recruit, train, and retain their workforces. They will need to look for talent in new places. As populations age, the makeup of the workforce will necessarily change, particularly as workers delay retirement. New technologies and ways of working will require higher investments in training and education, and with these investments, the need to incentivize and retain these workers increases.
Demographics may not be destiny, but they will increasingly shape discussions about technology, labor, and the future of work.
BACK TO THE FINDINGS REPORT
AlixPartners Disruption Index 2023
The world keeps getting more complex. Myriad disruptions arise, feed off one another, and cascade around the world at an accelerated pace. The leadership challenge is unprecedented: Amid so many formidable issues—daunting long-term disruptions and difficult short-term demands—how should we focus our all-too-finite resources of capital and time? As leaders focus on rising to the challenge of disruption, AlixPartners believes leaders who seize its opportunities will be positioned for success. View the findings report, here.
Built with Shorthand