This scenario, which once seemed distant, is now becoming increasingly likely as the world experiences significant demographic changes.
Major global economies are already nearing this reality. The total fertility rate of the 38 countries that make up the Organization for Economic Co-operation and Development (OECD) plummeted to just 1.5 children per woman in 2022, a drastic drop compared to 3.3 children per woman recorded in 1960. This figure is well below the “replacement level” of 2.1 children per woman, which is considered necessary to maintain a stable population without relying on immigration.
This decline in fertility rates has profound implications for the economic and social future of these countries. One of the most immediate consequences is the accelerated reduction of the labor force. With fewer births, the supply of workers is shrinking rapidly, creating challenges for maintaining dynamic and sustainable economies. In the 1960s, for example, there were six people of working age for every retiree, according to data from the World Economic Forum. Today, that ratio has already fallen to about three to one. And the forecasts for 2035 are even more concerning: it is estimated there will be only two working-age people for every retiree.
Top executives of publicly traded U.S. companies have highlighted the issue of labor shortages nearly 7,000 times in their earnings forecasts over the past decade. This statistic was revealed by a recent analysis from the Federal Reserve (Fed) of St. Louis. The growing concern about labor shortages reflects a worsening problem in various economies, especially in developed countries.
Simona Paravani-Mellinghoff, Managing Director at BlackRock, discussed the implications of this trend in an analysis published last year. According to Paravani-Mellinghoff, “a reduction in the proportion of workers can lead to labor shortages, which in turn can increase employees’ bargaining power and raise wages. This cost increase can be inflationary.” In other words, fewer available workers could mean higher wages but also a general rise in prices, impacting inflation.
Historically, immigration has been a solution to mitigate the demographic challenges faced by wealthy countries, helping to meet labor demands. However, the current decline in birth rates and population aging are no longer isolated problems for developed nations. These demographic challenges are becoming a global phenomenon. Paravani-Mellinghoff also pointed out that “this is critical because it implies that advanced economies may begin to struggle to ‘import’ labor from other countries, whether through migration or goods supply.”
Future projections present an even more troubling scenario. According to a study published by the medical journal The Lancet, by 2100, only six countries will have birth rates sufficient to maintain stable populations: Chad, Niger, and Somalia in Africa; the Pacific islands of Samoa and Tonga; and Tajikistan. These countries are exceptions in a world increasingly facing the challenge of population decline. The implications of this global shift could be vast, requiring new approaches to economic and social management in the coming decades.
The BlackRock expert recommends that clients consider investments in assets that may offer protection against inflation, such as inflation-indexed bonds and commodities that historically perform well in inflationary scenarios. These commodities include energy, industrial metals, and agricultural and livestock products. This advice reflects a growing concern among investors about the economic impact of demographic changes and potential future labor shortages.
Companies like Procter & Gamble (P&G) and Kimberly-Clark, which dominate more than half of the diaper market in the United States, have observed a decline in sales of baby diapers in recent years, reflecting the drop in birth rates. However, these companies have found a growing market in adult diapers. This segment has shown increased sales, partially offsetting the decline in baby product sales and highlighting the changing demographic profile of consumers.
In addition to these companies, others are also adjusting their strategies to adapt to this new demographic reality. As populations age and birth rates continue to fall, we are likely to see increased demand for products and services tailored to seniors, from healthcare to assistive technologies and hygiene products. These demographic shifts are forcing companies to reevaluate their offerings and adapt to a transforming market where longevity and population aging become predominant factors.
Nestlé CEO Mark Schneider recently announced a significant shift in the company’s priorities, reflecting the new global demographic realities. Instead of focusing on producing infant formulas, Nestlé is now turning its attention to developing products that meet the nutritional needs of the population over 50 years old. This decision highlights how companies are adapting to population aging, adjusting their strategies to address a transforming market.
In the United States, former President Donald Trump has also recognized the importance of addressing the decline in birth rates. Recently, he promised that, if re-elected, he would support the implementation of “baby bonuses,” an initiative aimed at encouraging a new “baby boom” in the country. Such proposals seek to reverse the trend of falling birth rates by offering financial incentives to families who wish to have children.
Concerns about declining birth rates are corroborated by recent data. The U.S. Centers for Disease Control and Prevention (CDC) reported that in 2023, the country’s birth rate fell to a record low, reversing the slight increase that had been observed during the Covid-19 pandemic. This continuous decline in birth rates underscores the challenges many countries face in maintaining a young and economically active population.
The U.S. Congressional Budget Office (CBO) predicts that the number of deaths will surpass the number of births in just over 15 years. These projections reflect demographic trends indicating an accelerated aging population and declining birth rates, which could have profound consequences for the economy and public budgets.
These projections underscore the urgent need for reforms and policies that can ensure the sustainability of social benefit programs while addressing the challenges of an aging population. Unless measures are taken to bolster funding for Social Security and Medicare, the economic future of many older Americans could be at risk.
With declining birth rates and an aging population, some business leaders and technologists see artificial intelligence (AI) as a potential solution to increase productivity and mitigate future demographic challenges. During the Wall Street Journal’s CEO Council Summit in London last year, former Google CEO and executive chairman Eric Schmidt highlighted the severity of the situation: “Here are the facts. We don’t have enough children, and we haven’t had enough children for long enough that there’s a demographic crisis.”
A recent report by Goldman Sachs supports this view, predicting that generative AI could boost global Gross Domestic Product (GDP) by up to 7% over the next decade. Despite these optimistic forecasts, some experts remain cautious, arguing that it is too early to determine the full impact of AI on the global economy.
However, AI is not the only solution being considered to address declining fertility rates. Stefano Scarpetta, director of employment, labor, and social affairs at the OECD, advocates for an approach that promotes greater gender equality and a more equitable distribution of work and child-rearing. This would include policies such as extended paid parental leave and financial support for families.
Scarpetta emphasizes that “this is not just a temporary problem.” Businesses and governments need to prepare now for what he calls a “low-fertility future.” This preparation should include both investments in technologies such as artificial intelligence to improve productivity and social policies that encourage population growth and support long-term sustainability. The combination of these approaches may be essential to addressing the demographic challenges ahead.
