The end of the population pyramid (scheme)

In a case of l’esprit de l’escalier, I just worked out the perfect parenthetical addition to this piece that was published in Inside Story, responding to a string of pro-natalist pieces in the New York Times and elsewhere. The central point is that the economic model in which strong young workers support elderly retirees is outdated and will only become more so.

A sharp fall in births during 2020 has provoked a wave of handwringingabout the implications of an ageing population. The decline can’t be attributed solely to the pandemic, since most of the babies born in 2020 were conceived before the pandemic began. However, it appears to have accelerated as the impact of the pandemic has been felt.

Some of the complaints reflect old-fashioned, not to say primitive, concerns about birth rates as an indicator of national ‘vitality’. But the main focus of concerns reflects a 20th century understanding of the economy that is deeply embedded in our ways of thinking and economic measurement, even though it is now almost completely obsolete.

The central assumption underlying these concerns is based on economic model in which “societies are organized around the notion that a surplus of young people will drive economies and help pay for the old”.

The model in which the young supported the old emerged in the 20th century, and ended with the 21st. For most of human history, old people were expected to work as long as they could, just as children were put to work as soon as they were able. The very young and the very old depended on their families to support them.

The welfare state which emerged at the end of the 19th century changed this radically. On the one hand, children were excluded from the workforce and required to attend school until the official leaving age, typically around 14. Governments paid for the schools, but, for the most part, required parents to support their children as in the past.

On the other hand, the introduction of old age pensions meant that old people (most commonly those over 65) were now entitled to public support, sometimes though not always, subject to a means test. Pensions were paid out of taxes or contributions to social security schemes. Either way, the cost was borne by the population of ‘working age’, defined as 15-64. With a high birth rate, the age distribution of the population appeared as a pyramid, with a large working age population supporting a small group of retirees.

The model underlying the desire for a population pyramid is one in which physical work predominates. Young and strong, needing only on-the-job training, workers leave school at 14 and immediately start contributing to the economy. By 65, they are worn out and ready for retirement. In this model, the more young people, the better.

To see that this assumption is problematic, we need only to look at US data on employment by age. At the turn of the century, the assumption described above looked reasonable enough. Around 60 per cent of young people aged 16-24 were employed compared to barely 30 per cent those aged 55 and over.

But by 2019, before the pandemic, the gap had mostly closed. Just over 50 per cent of people 16-24 were employed, compared to 39 per cent of those over 55. Many of the jobs held by young people are part-time and low-waged. By contrast, older workers are, on average, just below their peak lifetime earnings, reached around age 50.

Taking these facts into account, it seems likely that mean earnings per person are already higher for the old than for the young.

The reality of a modern economy is quite different from that underlying the population pyramic. To become a productive member of the community, young people need post-school education, whether academic or vocational. That implies a large expenditure of resources, which may be paid for by government, parents or through loan schemes like HECS. Taking all these together, the proportion of national income allocated to education is stable or increasing in developed countries like Australia and the US, even as the proportion of young people in the population declines.

A return to high birth rates over the next few years would imply the need for a large increase in education spending. The payoff in terms of a more productive workforce would not be fully realised until the second half of this century, when the expanded age cohort entered the prime-age workforce in their late twenties and early thirties.

At the other end of the age distribution, official retirement ages have been abolished, and the eligibility age for the pension has been pushed to 67, with further increases in prospect. There is still a substantial group of manual workers for whom physical exhaustion makes retirement a relief. Attitudes that under-value older workers are still prevalent, with the result that many are pushed into retirement whether they like it or not. But for a large group of white collar workers, working past 65 is an increasingly attractive economic option.

A realistic model of the future workforce is one in which productive workers are mostly aged between 25 and 70. It’s unlikely that life expectancy will ever be much above 95. On that basis the typical person will spend about half their life in the working age population and the other 50 years evenly divided between education and retirement.

In all of this, I’ve focused on the age distribution of the population. Despite the concerns that have been expressed, the age distribution associated with a lower birthrate is unlikely to cause major problem.

By contrast, the implications of a lower birth rate for the the size of the world’s population are unambiguously beneficial. The world is already overcrowded, and the needs of a growing population are straining the capacity of the planet to support us. Even with falling birth rates, the worlds population is certain to rise between now and 2050.

By 2100, population might return to the current level of eight billion or perhaps a little fewer. The idea that we should push people to have more children in order this number, rather than making marginal adjustments to the economic institutions we have inherited from the 20th century, is simply nonsensical.

20 thoughts on “The end of the population pyramid (scheme)

  1. Excellent article. Unlikely to convince the “big Australia” advocates unfortunately.

  2. I agree and a corollary of your global view is that we should welcome ZPG or negativePG in Australia. We should end the preoccupation with the intergenerational Ponzi scheme to import more young migrants to “finance” our elderly population. Compared to our major trading partners in Asia, Australia is an environmental/worker paradise and we should keep it that way.

    The major obstacles in the short-term are a purely transitional deflationary impact through a decline in the demand for new housing and the political economy arguments, by our lazy businesspeople, that we need to augment our captive local market rather than gaining more international markets. We should emphasise the benefits of trade rather than factor migrations (both capital and labour) as a way of growing. Labour migrations mainly benefit those arriving (externalities mean these gains are at the expense of locals and migration moves the distribution of income toward property at the expense of labour) and capital flows result in streams of profit being transfer priced out of the country. Foreign capitalists outbid locals for much of our mining industry because they know they can transfer price away part of their purchase price. Trade is a substitute for such factor movements that does not rely on beggar-thy-neighbour effects that “immiserize” developing countries eand which allow for higher local wages in Australia without profit tax theft.

    The argument for increased population as a means to secure our defence (recently revived by Kevin Rudd) (memories of the “yellow peril”) are even less relevant today than they were in the 1960s. Australia will not be significantly more secure against a militant China if Australia’s population is 100 million rather than 30 million. And we don’t want our capital cities to look like Asian capitals as an ineffective means of expanding our defence capabilities.

    The key to having a strong defence capability is access to the best technology, not extra cannon fodder. This is best achieved with a high wage economy based on strong export markets.

  3. It appears China wants more births and more people. See items on China’s new three child policy. Apparently having 1.4 billion people is not enough. Apparently having the world’s largest middle class and the most overweight people of any nation, are also not enough. Chine needs to get even bigger! How that will work out for climate change and limits to growth should be obvious to all. More seriously, given that China has the lowest retirement age in the world, it is clear that China has the room to employ more older people if necessary to meet any labor shortage. In any case, will middle class China, and the rest of its classes. really obey the Emperor’s birth edicts?

  4. VG piece.

    There’s a sting in the tail for cultural conservatives. You can keep your nice flat pyramid going for a few decades more through immigration of young foreigners, typically the favoured policy of capitalists and liberal élites. In country after country, we have seen a backlash from working-class cultural conservatives, as they see the streets and bars filling up with distressingly youthful and assertive Others. This is a huge political problem for the liberal élites, as they lose their former allies in the WWC. But it’s also an existential dilemma for the WWC themselves: either they accept the immigrants, or they work to 70 or 75.

  5. IKO: I may be wrong, but IIRC the Chinese welfare state does not really extend to old age: there is still a Confucian presumption that the old will be looked after by their children (or, more commonly, child). This explains the astronomical household savings rate. If Beijing really wants more children, it should try a national state pension. Either you have a child care problem, or an elder care problem.

  6. JW,

    China appears to have an official retirement age policy.

    “The retirement age in China is currently 60 for men and 55 for women.” – ageddiscrimination dot info

    I haven’t time to check more sources at the moment. Whether that policy is followed in practice and how it might be followed in practice I have no idea at this stage.

    The age pension system in China is apparently complicated, tiered and maybe far from universal. Hard to tell on a quick scan,

    I worked in Centrelink (previously Dept of Social Security) in Australia in 1990s and 2000s. Chinese study groups came to study our system at that time. China sent huge cadres of its young students and officials around the world at that time to learn everything the West did. In our naivete we gave them full access and every piece of our knowledge and experience. China now thanks us by extreme bullying and war talk. However, given the 100 years humiliation we inflicted on China, we probably deserve what’s coming.

  7. The idea of raising the retirement age in China has been raised and while, as far as I know, there is no official commitment to raise it, the suggestion has raised significant opposition. The problem is similar to here in Australia. Those doing physical labour get screwed over by an increase in retirement age while people who sit on their arses are sitting pretty. But there’s a lot more people doing body destroying physical labour in China. (Especially in certain regions.)

  8. On having large populations:

    Some current thinking is analogous to that of the Mercantilists. They saw the ability of limited resources to support a large population as indicating social efficiency. Hence they aimed for as large a population as possible. A side benefit was the standard defence/attack one – a large population, they claimed, is better able to repel attack and to seize the property/lands of other nations. It was Malthus, Mill (and others) who first recognised environmental issues and the utility for humans of being able to enjoy environments free from people.

    Bruce Davidson traced the obsession with intensive irrigated agriculture in Australia to British-inspired guilt felt at the “underutilised” land in broad acre extensive agriculture. There was something felt to be wrong about having vast lands used by only a few. Modern economics takes a different more neutral view that focuses on the factor-proportions advantages of having land-intensive agriculture.

    Some modern environmental philosophy (specifically, deep ecology) tends to see humans as only part of the world and recognises more general “ecocentrist” virtues of sharing the earth with other life forms rather than viewing the environment purely as a factor of production for humans. Hence nature has intrinsic value that goes beyond its ability to service humans. It is difficult to translate the latter view into a quantitative human population viewpoint because it involves the idea of sharing but populations should, according to this viewpoint, be well below the levels that will optimise human living standards.

  9. An excellent article.

    The major determinant of birth and fertility rates is the life choices (in aggregate) of women of reproductive age. However the environment of choice in which young(er) women make those choices tends to be determined by policies made by old(er) men who are too often clueless about the aspirations of women in general, and young(er) women in particular. This is why policy interventions intended to increase birthrates (especially those that try to do so by reinforcing traditional family structures and gender norms) generally backfire, a phenomenon that demographers noticed and began drawing our attention to from the 1990s onwards.

    As for the changes in the nature of the economy, and what this means for the atavistic preference for younger workers, my father was better at his job in his 30s than he was in his 60s, because he was a builders’ labourer. I find that I am better in my job now, when I am aged over 60, than I was when I was in my 30s. I teach in universities, an occupation in which an accumulation of experience makes a difference, whereas muscle tone and bulk does not.

  10. A couple of bits and pieces, directed more at some comments than the post:

    “We should end the preoccupation with the intergenerational Ponzi scheme to import more young migrants to “finance” our elderly population.” – Harry
    Economic migration REDUCES worldwide birth rates because migrants tend to adopt the fertility habits of the society they migrated to. Put concretely, a Somalian migrant to Australia may have more children than a native Australian, but considerably less than if they’d stayed in Somalia – so birth rates in Somalia drop by more than they rise in Australia.

    But high migration does little to reduce age dependency ratios. If you do the maths you find high immigration can temporarily defer population aging (though you need a lot to make much difference), but to permanently defer it you need high and PERMANENTLY INCREASING migration.

    “the environment of choice in which young(er) women make those choices tends to be determined by policies made by old(er) men” – Paul

    Call me an old fashioned Marxist, but I think you’ve got the cart before the horse. Economics influences culture more than the reverse. All experience is that once women become ECONOMICALLY valuable the old men’s attitudes change pretty quickly (as well as old men becoming less infuential than they were). That’s why aid strategies for poorer countries focus so much on women.

    The first-wave feminists were dead right to focus on mothers’ workforce participation (and I say that as a someone who at the time was a young bloke who disagreed with the strategy).

  11. What happens to government economic policy when the ruling party has so many retired voters that it doesn’t really need the votes of working-age people any more, or at least it doesn’t need the votes of those young enough to have dependent children? No democratic regime like this was even possible before the 21st century, and probably nowhere is quite there yet, but a few have gone quite a long way in this direction. For example, the “democratic gerontocracy” tendency has long been noted in Japan. The UK has been getting close too in the last couple of elections through a combination of low youth turnout, an extreme age gradient in party preference among those who do vote (Johnson’s Conservatives got 67% of all votes of over-70s in 2019, which is a level of unanimity that AFAIK has never been achieved before by any cohort in British general election history), and an efficient distribution of the pensioner bloc for winning first-past-the-post elections.

    Such a regime could turn the screws on students and working-age people in order to pay the spiralling pensions and healthcare bill, and still survive politically. This would if anything tend to accelerate the demographic predicament (e.g. because women of childbearing age are too overworked to have children, and young adults are effectively encouraged to emigrate to a more friendly regime), thus entrenching the gerontocracy, until there is a more spectacular collapse later due to the economic unsustainability of the model. If the critical swing voters are close to but slightly below retirement age, that also creates distorted incentives around pension reforms such as raising the retirement age or reducing pension privileges for new claimants.

  12. I expect life expectancy will continue to increase. We can boost the lifespans of fruit flies and rats through selective breeding so there should be no reason why we can’t do the same for humans. (Lack of human genetic diversity — we’re basically clones of each other compared to rats — leaves less room for this, but there should still be room.) I just expect we’ll figure out how to get some of the benefits without the actual selective breeding part. Simply replacing gene alleles we know are likely to result in poor health will help.

    A low birth rate will make it easier to cope with a lower death rate if life expectancy continues to increase.

  13. The odds of any significant improvements in life expectancy over the next 30 years, beyond the diminishing returns from what we are already doing, is like the odds of other technologically advanced life in the galaxy existing. We know so little it’s impossible to arrive at any meaningful figure. I assume, barring disaster, lifespans will be significantly extended at some point, but arguments over when that will happen can be for entertainment purposes only.

  14. I just think it would be funny if the people currently complaining about falling birth rates are still alive in 100 years time. (Note: This is in no way a comment on how likely or unlikely that is.)

  15. Update on further update update.

    I’m in the ‘I want to live to 150’ set for “Is the process of ageing inevitable?”

    JQ says “… So, if medical progress continues, people born today may live, on average, well past 80/84.
    “But how much more Unfortunately, on past indications, not much more…”

    Ronald says “… I assume, barring disaster, lifespans will be significantly extended at some point, but arguments over when that will happen can be for entertainment purposes only.”

    Future Tense last night. The four experts listed below may alter your opinions on lifespan. [Oh for a transcript!] Ala molerats. Turtles.

    The topic “Is the process of ageing inevitable?”, revealed 3 biomarkers genes for epigenetics to turn back on ala childhood ‘repair / growth’ – my paraphrase – and now demonstrated with blind mice [no puns please] not only regaining vision, but rewinding ‘age’ of eyes.

    One suggests that “within ten years” we will have a genetic therapy which will do this for humans.

    Caveats were that “healthspan” will be great, lifespan longer, yet random death is still a feature. And they do not assume the switch/es, to repair and decrease body systems age will last. Telemeres? So just get epigenetic therapy every ten years or so.

    Yet as with an unequal society,  don’t discout Elysium – the movie not the afterlife.

    And the 150yrs lifespan economy? You tell me.

    “Is the process of ageing inevitable?

    “Some animals, like sea sponges, can live for hundreds, perhaps thousands of years. They also never get cancer.

    “Understanding why that’s the case has led scientists to question conventional notions of ageing.

    “The idea that future humans may never grow old now seems theoretically possible.

    Dr Francesca Minerva – Research fellow, Bioethics, University of Milan
    Dr David Sinclair – Professor of Genetics, Harvard Medical School
    Dr Andrew Steele – Computational biologist and author
    Dr Sven Brodmerkel – Assistant Professor, Integrated Marketing Communications, Bond University

    I agree with the director of Elysium,  Neill Blomkamp
    ” I still think the satirical idea of a ring, filled with rich people, hovering above the impoverished Earth, is an awesome idea. I love it so much, I almost want to go back and do it correctly.”  (I hope he does)

    I’d bet on Elon Musk having plans already developed for “a ring, filled with rich people, hovering above the impoverished Earth”. “Toroidal Tesla-ville” or “Essence of Entitlement”. Each with own “RNA micro-factories for CureVac”. 120+yrs on Elysium – no problem. I’d be signing “Don’t fence me in”, just before Elysium Elites (Jody Foster) shuttling me back to impoverished earth for “singing of yearnings” – a major crime on Elysium. 

    “Android Medic:
    “Please sign this to receive medication. Miporol, extremely potent, will keep you functioning normally until your death. Please take one pill with each meal. Thank you for your service.”. 

  16. Fingers crossed we can get some sort of anti-aging treatment working over the next generation, KT2. But rather than tweaking genes I think we may need to get rid of them. That is, get rid of our original set and replace them with something better with at least three copies of genetic information for proper error correcting. Thank goodness there is enough room in nuclei for it once we par it down to the essentials.

    Unfortunately, this isn’t considered something that’s easy to do. It’s been over 10 years since Craig Venter claimed he had made artificial cellular life and he still hasn’t done it for realsies yet.

  17. A critique of the population pyramid model and its corollary, the aging population policies, within its own conceptual framework – as done by JQ – is perhaps the most stringent critique. The conceptual framework is to limit the analysis to the age distribution of people in a particular society or world-wide.

    I believe it is more than an exercise of whataboutery, when asking the question of technological progress, linked as it is to a large extent to physical capital. Are there no benefits from technological progress and the substitution of capital for labour? Alternatively put, if the argument in favour of technological progress and the often associated substitution of capital for labour (eg internet banking, self-serve this and self-serve the other and just about everything and machinery), isn’t a completely vacuous promise of improved living standards, then limiting the analysis to the age distribution is wrong in line one. It is ‘wrong’ in the sense of artificially limiting the source of payments for both, the young and the old, to the incomes of the working population.

  18. Cantillion on Population…

    “Specifically, Cantillon cited three determining variables for population size:
    – natural resources,
    – technology, and
    – culture. [93]
    Therefore, populations grow only as far as the three aforementioned variables allowed.[94] Furthermore, Cantillon’s population theory was more modern than that of Malthus in the sense that Cantillon recognised a much broader category of factors which affect population growth, including the tendency for population growth to fall to zero as a society becomes more industrialised.[95]

    “The concept of relative inflation, or a disproportionate rise in prices among different goods in an economy, is now known as the Cantillon Effect.”…

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