Imagine for a moment 3 groups of countries, each with a different population pyramid. The first has a huge bulge at the bottom, the second is wider in the middle and the third is relatively broad at top.
If this represents the world in 2025, what can we expect?
This Congressional Budget Office (CBO) report tells some of the story:
3 Groups: We can start by dividing the world into the more developed, less developed and least developed nations. The more developed world would include most of Western and Eastern Europe, New Zealand, Canada, Japan. In the middle group, we could list many Latin American countries like Brazil and Argentina and then traveling to Africa, Kenya would be one, in Asia, India of course, and in the Pacific, Indonesia. For the least developed countries, Ethiopia, Uganda, many other African nations, and Haiti and Samoa are examples. (In the CBO report, the U.S. and China were presented separately.)
3 Demographic Stages: Next, we can assume that each group undergoes 3 demographic stages after centuries of high mortality and fertility rates. 1) Benefiting from modern technology and health care advances, at first, they experience higher birth rates and more children survive. 2) Then, as these larger numbers of children become young adults, they have fewer children than the previous generation. 3) Finally, as the larger cohort ages, they inflate the elderly population. Here, depending on the country, you can see how timing might vary.
3 Population Pyramids: This takes us to 3 population pyramids. For stage 1, the population bulge is at the bottom of the pyramid, stage 2, in the bottom and middle, and stage 3 at the top. Illustrated in this World Economic Forum report (p. 29), you can see the projected placement of the bulge for the 3 groups during 2025.
The Economic Lesson
3 Economic Implications: During Stage 1, countries experience less economic growth because more resources are used for their children. They are concerned with “youth dependency.” When those children survive, during Stage 2, they compose a larger group that works, saves and contributes to economic growth. Stage 3, though, creates new challenges when the bulge in the population no longer is in the labor force, consumes more than they produce, lives longer, and has to be sustained by a relatively smaller labor force. We could say that countries at the third stage have an elevated “old age dependency” rate to manage.
An Economic Question: For the United States, as the baby boomers age and rise to the top of the population pyramid, how will Social Security, Medicare and Medicaid be affected?