Infinite variety: why we need to take a broader look at the social challenges caused by our aging populations
by Blair Sheppard and Nadia Kubis
“Life’s tragedy is that we get old too soon and wise too late.” — Benjamin Franklin
Most of us grudgingly accept that we’re not getting any younger. And this is true for societies as well as individuals. There is a general understanding that our populations are aging — especially in the developed world — and that this demographic timebomb is likely to cause significant challenges for tax, pensions and healthcare systems in the years ahead.
While this is undoubtedly something we should all be concerned about, it is only part of the problem. There is actually a broader set of challenges that our aging populations are beginning to create for social structures across the world. In fact, the narrow focus of the current debate is not only overly simplistic, but also dangerous. It distracts us from gaining a deeper understanding of the full complexity of the issues. And we cannot afford to wait to address the many complex social challenges that arise from an aging population. By the very nature of the issue, with the passing of time, these challenges become increasingly acute.
But to mitigate the worst potential outcomes we must first fully understand the problem. The purpose of this article is to take a step back and take a more holistic view.
Aging populations are not just a phenomenon in the developed world. In fact, almost all countries’ populations are growing older, but they are doing so from very different starting points, and at very different rates. In 2019 the United Nations conducted extensive demographic research for their UN World Population Prospects report. Of the 200+ countries included, every single one was found to have populations that were aging. However, given the wide variety of median ages, and rates of aging, this trend is arguably much more immediately visible in Japan (with a median age of 48) than it is in Niger (with a median age of 15).
Broadly speaking, the world is aging in two clusters: one in which many people are moving close to retirement age; and one in which a huge part of the population is getting ready to enter the workforce.
The primary focus of this article is on implications of demographic shifts for older countries. However, please also be sure to check out this excellent article by our PwC colleagues on how youth and natural resources can drive Africa’s global economic and social leadership.
Dependency Ratios and the Strain on Welfare
As we mentioned in the introduction, the current demographic debate tends to focus on the strain on welfare systems. This is the topic that seems to spring to mind first when discussing aging populations, and is undoubtedly a critical issue that will have an enormous impact on our societies. The old age dependency ratio is a proxy for the number of people in retirement in relation to the number of people of working age. The higher that number, the more people are drawing on the social system without producing in the economy, and the fewer people are paying into the system. Welfare systems are designed as a triangle, with a greater number of productive citizens at the bottom paying into the system and fewer dependent citizens at the top claiming from the system. But what happens when our triangle becomes a square? Social welfare systems can cope with old age dependency ratios of 1:4 or 1:3, but those ratios are increasing rapidly in many countries and by 2050 will get much closer to 1:1 in countries like Italy, Spain, South Korea, or Japan.
With social welfare systems increasingly unable to deal with the strains put on them by demographic changes, governments in most developed economies have started to enact pension reforms, including increases to the retirement age and contribution rates, and some changes in benefits. Individuals are also called upon to ramp up their private provision. But it seems likely that these efforts will only partially address the issue. If we look at the US, for example, 20% of baby boomer households (those born 1946–1964, i.e., who are in or near retirement) have less than 50k USD in retirement savings (according to a report by the Transamerica Center for Retirement Studies). In what many people consider to be one of the most successful developed economies in the world, we have a large fraction of the population that is about to retire broke.
Shift in Consumption Patterns
As we broaden our view of the impact of aging populations, another important factor to consider is the significant shift that will take place in consumption patterns. As people grow older, what they tend to spend money on changes significantly. Businesses and governments will need to work differently to ensure that they are providing what people actually need. For example, as the graphic below illustrates, younger people spend a larger share of their expenditures on food away from home, whereas older people spend more on food at home. The younger generations spend more on housing, clothes, transport and education, whereas older ones spend more on insurance and healthcare. How does our economy have to change to adapt to the needs of a quickly aging population? Do we have too many universities? Are we producing too many whitegoods? Are we building the right number — and the right kind — of houses? Do we have enough healthcare providers?
There is a significant opportunity for companies that can foresee this shift and move to provide what people will actually need.
Challenges and opportunities vary by industry. The healthcare industry, for example, will have to cater to increased demand from a rapidly growing senior population, as well as changes to the nature of the disease categories. There are a whole new set of diseases associated with accelerated urbanization and our sedentary lifestyle. It will have to figure out how to deliver a much larger portion of healthcare to home, how to re-think hospitals and clinics to be more aligned with the needs of tomorrow’s patients, and what labor force model will allow it to deliver those services in the future, all while keeping cost under control. That’s no small task!
Growing Social Polarization
As young people move to cities to pursue job opportunities, they leave behind rural areas that are increasingly hollowed out: villages and towns with shops just covering basic needs, limited entertainment and recreation options, and inhabitants who are retired, whose wealth is tied in houses that have lost their value and therefore have no option but to stay. This is especially noticeable in Greece, South Korea, Finland, Bulgaria, Australia, Belarus, Japan, Portugal, Turkey, and the UK.
One consequence of this asymmetry is massive disparity in the world views and political beliefs of young versus old, almost as if there are two countries, within the same country. In the UK’s EU referendum in June 2016, for example, 73% of people aged 18–24 voted to remain in the EU, whereas 60% of those aged 65 and above voted to leave. With populations growing older we will probably see more such situations where the older generation wins the vote and decides on the future of the younger generation that holds the opposing view.
Some of that is to be expected and has always existed — but polarization is exacerbated by a lack of common ground among generations that now live in different parts of the country, have access to different experiences and people. Just as social media drives polarization by creating “echo chambers”, connecting like-minded people in the virtual world and feeding them with information that reinforce their views, age segregation can have a similar effect in the physical world and can lead to the same kind of unhealthy polarization.
Adoption of remote working practices may help the situation as people are now increasingly able to work outside major cities. This isn’t going to happen everywhere to the same degree, though. Countries or regions with a strong knowledge economy are more likely to experience such benefits compared to economies that heavily depend on physical work.
Critical Shortage of Workers
As more baby boomers near retirement age, a significant portion of workers will soon drop out of the workforce. Germany’s workforce is expected to peak as early as 2023 and then shrink by up to five million people by 2030. In the US, where an average of 10,000 baby boomers turn 65 every day, the resulting labor force exodus can still be compensated by youngsters, for now — but by 2030 that trend is going to reverse in the US as well.
Furthermore, while we’re about to reach an overall tipping point in many countries, the shortage of workers is already very real in some parts of the economy. It is particularly problematic in two areas:
1). In professions that don’t have a large influx of new talent. With young people in many countries having been encouraged to go to college or university, they are less likely to choose jobs that build or maintain the fundamentals that make life work, for example, in construction, plumbing, equipment repair, etc.
2). In professions that are in higher demand because society is aging, for example, in home health care services or public transportation.
It is interesting to note that both these areas involve work that cannot be done remotely. This compounds the effect of social polarization we discussed previously, and makes the situation even more challenging. The result is a critical shortage of workers that is especially acute in some geographic regions. In most cases, it is very hard to see how this can be resolved with native populations, and it is likely that immigration will be part of the solution. It will be important that this immigration is done right, without depriving home countries of their best and brightest talent that is needed to build vibrant local economies — and provide jobs to the millions of people entering the workforce in younger countries.
A Divided Workforce
There now are five generations in the workforce — traditionalists (born 1925–1945), baby boomers (born 1946–1964), generation X (born 1965–1980), millennials (born 1981–2000), and generation Z (born 2001–2020).
What may sound at first like an interesting piece of trivia is actually becoming a real challenge in the workplace. Every generation has different perspectives, motivations, and communication styles, and this creates challenges in aligning the workforce around a shared endeavor. How can a 61 year old who can just about manage Pac Man build rapport with a 19 year old who spends most of their free time on multiplayer Battle Royale games in the Metaverse? Many in the older population have expectations of their junior colleagues, and a point of view on what they should be doing, whether it relates to working remotely versus meeting in the office, sticking to strict working hours, or the channels they use to communicate. But the youngsters often don’t agree; they just don’t see the world in the same way, politically, philosophically, and in terms of their career paths.
For organizations to be effective, they will increasingly need to understand the different lenses through which these five generations see the world, and use them to tackle workforce issues.
Take the great resignation as an example: there isn’t just one reason for it or one solution. Leaders will need to study the issue in a much more granular way to understand who’s in need of more flexibility (be it time or work location), who’s attracted by self-employment, who’s going back to school to earn another degree, who’s looking for more purpose at work, and who wants to enjoy early retirement. And they need to be prepared for some unexpected findings about which generation is looking for what — and be creative aligning the organization’s needs with the individual. Organizations will also have to be agile in responding to these issues and adapt their response over time as the focus shifts to younger generations. As the entrepreneur and internet personality Gary Vaynerchuk recently said: “If you’re worried about the great resignation, you have no idea what the great ‘never applying in the first place’ is going to look like.” A one-size fits-all approach just doesn’t work anymore.
Age is actually only one of the five urgent global issues that the world is facing today. PwC has mapped all five on the ADAPT framework — a system of issues that have been impacting societies and changing the way that millions of us live and work.
These issues do not conveniently exist in isolation. They often combine and reinforce each other to create even more complexity and urgency. We have already explored how aging populations can contribute to increasing polarization, and there is similar cross-fertilization between many of the issues. There are no easy answers. Yet we must act on the issues now or they may lead to tipping points with devastating consequences in the near future.
When it comes to aging populations, specifically, kicking the can down the road is not a good strategy. We need to be open to the full picture of what is awaiting us. Many of the challenges previously discussed can only be tackled if governments, organizations and individuals actively and honestly engage with these issues — and work together in concert. For example:
1). Governments must undertake pension reform, but organizations must create employment — and the kind of jobs that pay a decent wage and allow contributions to social security. In turn, individuals need to save more, and increase their private pension provisions.
2). Organizations in areas with critical worker shortages need to ramp up their recruiting and upskilling efforts. However, these won’t succeed unless society fully appreciates the value of these professions and rewards them accordingly. Schools and professional education centers must encourage and prepare people to pursue these much needed career paths.
3). Governments must lay the foundations for the right kind of immigration, but organizations and individuals also need to play their part welcoming and integrating the individuals that come to play a vital role in their economies.
We opened this article with Benjamin Franklin’s astute observation from more than two centuries ago that “we get old too soon and wise too late. Today, it is vital that as a society we start getting wiser — and quickly — before we get much older. This means having the conversations about the full implications of our aging populations, even if they are difficult. And it means working together to mitigate the worst possible consequences of our aging populations, and creating solutions that will sustain over time.
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- Blair Sheppard is PwC’s Global Leader, Strategy and Leadership. He is also Professor Emeritus and Dean Emeritus of Duke University’s Fuqua School of Business. He is based in Durham, N.C.
- Nadia Kubis is a member of the Global Strategy and Leadership team at PwC. Based in Zurich, she is a director with PwC Switzerland.