top of page
Writer's pictureYuliia Sivitska

Demographic Trends: Implications for Policy-Making


The relationship between demographic factors, a country’s economy, and policies have been a topic of interest among scholars for many years. Demographic trends such as population size, age structure, and migration patterns, are critical in shaping policies that promote economic growth and stability. Additionally, these variables have far-reaching impacts on the labor market, healthcare, education, and social welfare programs.


This article aims to explore the significant impacts of demographic changes on a country’s economic growth and development. For example, an increase in the working-age population may lead to increased economic output, while population aging may lead to a decline in economic growth due to a decrease in productivity. Furthermore, demographic data is vital in helping policymakers to identify the unique needs of different population groups such as the elderly or children and develop policies that address their challenges. Consequently, this article will discuss how demographic variables influence policy decisions and contribute to more equitable and inclusive policies that benefit all members of society.


Population Growth and Economic Development

The link between population growth and economic development is essential to consider in any economic analysis. An expanding population can translate into a larger workforce, resulting in increased productivity and economic growth. However, population growth can also pose a threat to resources such as food, water, and energy. According to Awdeh and Hamadi (2018), factors such as population size, political turbulence, and corruption ultimately impede Gross Domestic Product (GDP). Thus, it is necessary to establish policies that can manage population growth without hindering economic progress.


According to the United Nations report, the global population is projected to reach 9.7 billion by 2050 (see Chart 1), with Africa and Asia experiencing the most significant increases (UN, 2019). This growth is expected to significantly impact the global economy, presenting both opportunities and challenges. It is essential to note that the relationship between population growth and economic development is complex and depends on various factors. On the one hand, the increase in demand for goods and services could stimulate economic growth, creating fresh opportunities for businesses and investors. On the other hand, intensifying competition for resources and labor could lead to lower wages and higher prices in some sectors.


Chart 1: Global population size and annual growth rate: 1950-2050 (United Nations, 2022).

Population growth is a critical factor in economic development. Policymakers must carefully consider its implications on the economy. It is necessary to develop policies that encourage investment in renewable energy and promote sustainable agricultural practices to address resource constraints. This would enable the realization of the full economic potential of a growing population while preserving resources for future generations.


Population Aging and Social Welfare

Population aging is a significant demographic trend that is impacting both the economy and policy. The increasing lifespan of individuals is leading to a rise in demand for healthcare and social welfare services, creating significant pressure on government budgets. Moreover, the aging workforce may opt for early retirement, which could reduce the workforce size and lower economic output. As per the Organization for Economic Cooperation and Development (OECD), the percentage of people aged 65 and over in OECD countries is expected to surge from 15% in 2015 to 25% by 2050 (OECD, 2019). The aging of the population is expected to exert significant pressure on government budgets due to the increased demand for healthcare and social welfare services. This may lead to reduced funds for other public services, thereby affecting overall economic growth. It is crucial to note that the impact of an aging population on the economy and policy is multifaceted and may have diverse implications. For instance, it may create a demand for services and products targeting elderly individuals, creating new economic aging opportunities. Adversely, it may also lead to increased healthcare costs and reduced economic output.


Figure 1: More births won't solve the ageing problem (Shi Yu, 2019).

The aging of the population will impose higher financial demands on old-age support systems. In countries with generous public transfers, particularly in Europe, it will amplify the fiscal burden on public transfer systems. Particularly if the current taxation and benefit patterns remain unchanged. Furthermore, to optimize the benefits and manage the risks related to population aging, governments should endorse continuous and lifelong education and healthcare for all; foster savings behavior and healthy lifestyles throughout the lifespan; stimulate employment among women, older individuals, and other marginalized groups who have historically been excluded from the labor force, including by gradually raising the official retirement age; and promote family-friendly policies that facilitate work-life balance and increased gender equality in both public and private spheres (Herrera, Sosvilla-Rivera, 2020).


Hartford Funds, which acts as the headquarters for numerous prominent insurance and financial services firms in the United States (Morgan Stanley, 2023) recently introduced the Hartford Longevity Economy. This fund consists of companies that offer support for various aspects related to aging, such as financial freedom, home modification, social connections, mobility, human enhancement, performance health, and entertainment (McCann, 2023). The Hartford Longevity Economy (ETF, HLGE) is designed to provide exposure to US markets that take advantage of the growing importance of the buying power of the aging global population (Hartford Longevity Economy, 2023). Population aging is a critical demographic trend with a complex impact on the economy that policymakers must consider. Hence, lawmakers must develop policies that address the challenges associated with the aging of the population while capitalizing on the opportunities it presents. For example, they could promote laws aimed at increasing workforce participation among older workers or incentivizing investment in the healthcare and social welfare sectors.


Migration and Labour Market

Migration is a crucial demographic trend that significantly impacts both the labor market and the economy. While migration can help fill labor shortages, increase productivity, and fuel economic growth, it can also lead to pressure on wages and working conditions, particularly for low-skilled workers. A study by the International Organization for Migration (IOM) revealed that in 2019, there were around 272 million international migrants, a significant increase from 173 million in 2000 (IOM, 2020). This trend has had a notable impact on the labor market, particularly in developed countries where migrants are often employed in low-skilled jobs. Although migrant workers contribute to the economy by filling labor shortages and boosting productivity, they may also compete with native workers, which could reduce wages and increase inequality. Moreover, while migration can bring many economic benefits, it also raises social and cultural challenges. The integration of immigrants into their new communities may pose challenges such as language barriers, cultural differences, and discrimination, which may further exacerbate social and economic disparities. An interesting pattern was described by Albert (2013): the greater the wage gap between native workers and unemployed migrants, the more job openings become available (Albert, 2013).


Three years after the emergence of Covid-19, a substantial number of workers remain absent from the labor force in the United States (see Chart 1). Economists are grappling with the scale of this shortfall and attempting to discern the whereabouts of these individuals. One estimate suggests that at least 2.1 million people retired sooner than anticipated. Another calculation indicates a deficit of 2 million immigrants during the peak of the pandemic. Additional research points to a million or more people who are out of work due to long Covid. Low-wage service workers, who were among the first to lose their jobs in the pandemic, are among those who have not returned to the workforce (Sasso, 2023).


Chart 2: Missing workers, Federal Bureau of Labor Statistics (Bloomberg, 2023).

Migration is a vital demographic trend that can have significant impacts on the labor market and the economy. Consequently, policymakers must develop comprehensive and effective migration laws that balance the economic benefits with their social and cultural impacts. These policies should aim to promote fair labor conditions and address the social and cultural challenges associated with migration. Such policies must be balanced to promote the integration of migrants and the protection of workers' rights and conditions, leading to an inclusive and sustainable economy.


Education and Human Capital

Education is a crucial demographic factor that has a significant impact on the economy and policy. By developing human capital, education can increase productivity and stimulate economic growth. Furthermore, higher levels of education can contribute to reducing income inequality and promoting social mobility by providing access to better-paying jobs. A study by the World Bank highlights the economic benefits of investing in education, particularly in developing countries (World Bank, 2018). The study shows that increasing the average education level in a country by just one year can lead to a 0,37% increase in GDP per capita. These findings suggest that investing in education can lead to a more prosperous and equitable society.


Figure 2: Study abroad. (2020) Leverageedublog [Illustration]

Investing in measures to improve the health of the population has a positive effect on economic and social development by fostering the development of human capital. Thus, both state and company management must prioritize such investments as they create a basis for professional development and have a positive effect on economic growth. The primary objective of managers and staff is to acquire professional skills that maximize companies’ profits and promote employees’ well-being. As employees develop their competencies and approach the potential level of companies’ efficiency, management shifts focus towards sustainable development by increasing environmental efficiency and reducing pollution (Pürhani et al., 2022). Overall, education is a critical factor in economic development and should be a top priority for policymakers. Investing in education can not only boost economic growth but also promote social mobility and reduce income inequality, leading to a more prosperous and equitable society.


Conclusion

There is a need to consider demographic factors in developing policies that promote economic growth and stability. Population growth, population aging, and migration have a significant impact on the labor market, healthcare, education, and social welfare programs. As such, policymakers should take into account the effects of these trends on the economy and society while formulating policies to manage them effectively. Moreover, investing in education can promote economic growth and development, and education policies must be aligned with demographic trends to create a skilled workforce that can foster productivity and boost economic growth.


Population growth can lead to a larger workforce and boost economic growth. However, it can also put pressure on resources and require policies to manage it. Population aging requires more healthcare and social services, leading to pressure on government budgets. At the same time, older workers may retire earlier, leading to a reduction in the workforce and economic output. Migration can fill labor shortages, boost productivity, and increase economic growth, but it can also put pressure on wages and working conditions, particularly for low-skilled workers. The study of demographic trends is critical in understanding the dynamics of a country's economy and developing policies that facilitate economic growth and stability. Lawmakers and researchers must continue to investigate the impact of demographic variables on the economy and policy to create a more inclusive and prosperous society.


Bibliographical References

Albert, C. (2013). The Labor Market Impact of Immigration: Job Creation vs. Job Competition. Retrieved April 5, 2023, from https://www.aeaweb.org/content/file?id=11157

Awdeh, A., & Hamadi, H. (2018, December 5). Factors hindering economic development: Evidence from the MENA countries. International Journal of Emerging Markets. Retrieved April 8, 2023, from https://www.emerald.com/insight/content/doi/10.1108/IJoEM-12-2017-0555/full/html?utm_campaign=Emerald_Strategy_PPV_November22_RoN


Herrera, M. C., Sosvilla-Rivero, S. (2020). Fiscal Sustainability in Aging Societies: Evidence from Euro Area Countries. Retrieved April 5, 2023, from https://www.researchgate.net/publication/347529813_Fiscal_Sustainability_in_Aging_Societies_Evidence_from_Euro_Area_Countries

International Organization for Migration. (2020). Global Migration Data Portal. Migration data portal. Retrieved April 5, 2023, from https://migrationdataportal.org/

Hartford Longevity Economy ETF. (2023). Retrieved April 6, 2023, from https://www.hartfordfunds.com/funds/hlge.html

McCann, B. (2023, January 6). As the U.S. Gets Older, Some ETFs Bet on Aging in Place. The Wall Street Journal. Retrieved April 6, 2023, from https://www.wsj.com/articles/etfs-old-age-population-us-united-states-11673015029

Morgan Stanley. (2023). Retrieved April 6, 2023, from https://www.morganstanley.com/

Organization for Economic Cooperation and Development. (2014, December 1). Aging and Employment Policies. Retrieved April 5, 2023, from https://www.oecd.org/employment/ageingandemploymentpolicies.htm Pürhani, S., Guliyeva, S., Teymurova, V., Guliyeva, N., Gahramanova, S. (2022). View of Human Capital as a Driver of Sustainable Development in Azerbaijan. Retrieved April 5, 2023, from https://ieeca.org/journal/index.php/JEECAR/article/view/1199/439 Sasso, M. (2023, February 24). Us worker shortage: economists blame retirement, immigration, and covid. Bloomberg.com. Retrieved April 6, 2023, from https://www.bloomberg.com/news/articles/2023-02-24/millions-of-us-workers-are-still-missing-after-the-pandemic-where-did-they-go

World development report 2018: Learning to Realize Education's Promise - World Bank Group. (2018, September). Retrieved April 5, 2023, from https://reliefweb.int/report/world/world-development-report-2018-learning-realize-education-s-promise?gclid=Cj0KCQjwla-hBhD7ARIsAM9tQKtTqMSyfNWf8NMVKwRuy3MUq9bqJLMBgW4JIQb7K--yjhdk4enifIkaAudsEALw_wcB

World population prospects 2019: Highlights Highlights. United Nations Department of Economic and Social Affairs, Population Division. (n.d.). Retrieved April 5, 2023, from https://population.un.org/wpp/Publications/Files/WPP2019_10KeyFindings.pdf

Visual sources:


댓글


Author Photo

Yuliia Sivitska

Arcadia _ Logo.png

Arcadia has an extensive catalog of articles on everything from literature to science — all available for free! If you liked this article and would like to read more, subscribe below and click the “Read More” button to discover a world of unique content.

Let the posts come to you!

Thanks for submitting!

  • Instagram
  • Twitter
  • LinkedIn
bottom of page