Ageing population is not a threat for productive economies

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Yes, it’s time again to talk about productivity!

Let’s see its importance from another angle…

We have already underlined why productivity matters on a company level and on a macro level. Now we would like to explore something else.

 

Europe and the western world are ageing and our country is not exempt.

The UK is not the “oldest” country in Europe, countries such as Italy and Germany have a higher median age, however the trend clearly points toward an ageing population and this should not surprise considering the low fertility rate and the higher life expectancy (don’t get me wrong! This second thing is clearly a great one).

 

old_age_ratio 

In the graph we can appreciate not only a growing median age, but also the so called “old dependency ratio”. This metric measures the ratio between older people and working age population and in this case two different ratios have been calculated:

  • a “classic” definition with old age defined as 65 and over and workforce as population between 15 and 64;

  • a narrower one with population over 60 and workforce as between 20 and 59.

In both cases, it’s extremely clear how the ratio is trending up and accelerating in the last decades thanks to the “baby boomer” generation (so those born just after WWII) moving into the old age population group.

To make it simple, the first variant is telling us that there is roughly one retired person for every three people in working age (so we are also counting unemployed and inactives), whereas in the 1960s the ratio was almost twice as much.

 

Wait, were we not talking about productivity?

Yes, we definitely are.

The connection between what is showed above and productivity is the following: an ageing population means a reduction in the labour supply. To face this problem there are few options, but only one is really effective in the medium- and long-run.

The first is letting more working age people moving into the country from abroad. However, the Brexit process has already put a break to migration in an indirect way (Sterling devaluation and uncertainty) and it may put a further direct break stopping free movement of people within the EU.

The second is letting people work for more years. It is clear that a longer life expectancy means that people are able to work more, however we must accept that we cannot work forever, in particular in some physically demanding jobs.

The third, and most effective, solution is higher productivity. As repeated a few times, we need to do more with less. In this way a reduced share of population can provide for those too old to work (and also for those too young and still in training). The benefit will be for everyone: those working will get higher salaries which will translate to higher tax revenues and so public spending for those not able to work.

 

That’s why we need to get productivity back on trend

 doughnut 

 

As we said in our analysis, manufacturing has always been the engine of productivity growth in the UK and it can be again.

 

 contribution_uk_prod 

 

As the chart shows, the important positive contributions made by manufacturing before the Great Recession have quite disappeared after that and replaced by weak (and sometimes negatives) contributions. Notably, this trend was also shared with financial services.

Our aim is to investigate why and how we can help to let productivity raise again.

 

We focussed our attention on five factors but we would like to hear from you

Our analysis focussed on five potential factors:

  • Capital investment

  • Labour content

  • Management practises

  • Complex business operations

  • Company size

However we know that there might be more out there and maybe some of these are actually not important for productivity growth. That’s why we would like to hear your comments.

These are our 11 questions for you. You still have time to answer these and you can also do it online.

 

CALL-FOR-EVIDENCE-Qs

Let’s fix productivity together!

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