More robots and geriatric baristas, OR ELSE…

Happened upon this piece about age dependency ratio, which is (people under 15 + people over 65)/the rest, highlighting the challenges ahead for countries with an increasingly upside down population pyramid. This includes all of the West and then some. This is related to employment population ratio and specifically the increase in old people participating in the labor force in ever larger numbers.

So we have: fewer young people, less (desirable) work available for them (as evidenced by fewer young people participating in the labor force), more old people and more old people looking for work and working.

The general conclusion drawn is, that this increase in dependency ratio will lead to lower future economic growth and house prices. This is backed up by historical data:

/…/Sure enough, the authors find that, since 1960, the median increase in real house prices when the dependency ratio was decreasing (ie, when there were relatively more workers) was 2.7% a year. However, when the dependency ratio was increasing (ie, relatively fewer workers), real house prices fell by 0.2% a year./…/
/…/real GDP per person tends to grow faster (2.6%) in years when the dependency ratio is falling than in years when it is rising (1.9%). Having more workers makes it easier for the economy to grow. Inflation also tends to be higher (4.1%) in years when the dependency ratio is falling and lower (2.7%) when the ratio is increasing./…/

Source: the Economist.

The problem is with the possible solutions: increase productivity (which basically means more robots, more software and better organization) or increase elderly LFPR (which is already happening on a large scale).

Increase productivity
The problem with this is, that increased productivity has a high likelyhood of killing jobs in the short and medium term. Long term, the economy will find a new equilibrium and most of the people losing their jobs will find some other form of employment, but short term, it’s gain for the employer and statisticians, but pain for the obsolete workers involved. An anecdotal factory with 10 workers producing 10 units in an hour, that increases it’s productivity 10X, is much more likely to end up with less workers doing the same amount of units, than the same amount of workers doing more units.

Increase elderly labor force participation
This is already in full swing and probably part of the reason young people are increasingly leaving the labor force. “The good jobs” are being held on to by ever older people for longer.

So the possible solutions are less jobs (higher productivity) and more old people hogging the jobs that are left. Smells like a revolution brewing, unless there’s a decent wealth transfer between generations, in the form of high inflation and fixed income asset destruction or a comprehensive tax reform/basic income solution which will keep people outside the labor force consuming instead of rebelling.

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