Last week, I discussed how government services and budgets could be impacted by a demographic shift towards the elderly, as–for the first time ever–Canada’s over-65 population is larger than the under-15 population. However, governments aren’t the only things that will be impacted. Society itself may change.
Many of the changes in society may be a result of the different priorities of the elderly compared to most of the rest of the population. For instance, health issues are one of the biggest concerns of the elderly. What’s more, the scope of healthcare problems tends to increase as we age. While younger people likely worry mostly about traumatic injuries and disease, the elderly not only have to worry about that, but also chronic illnesses, mental illnesses, and disabilities.
Consequently, I’d expect the resources society dedicates towards healthcare to increase. This is more than just adding more hospital beds, nurses, doctors, and assisted living personnel. As the elderly demographic grows, the rewards for creating successful products targeting this demographic increase, which should lead to increased innovation.
For instance, suppose it costs $100 million to do the research and development to create a new drug, but after the initial upfront cost, you can sell a 25c pill for $10. If you only have a hundred thousand patients a year, it might not be worthwhile developing the drug. But, as the elderly population expands and the market grows to two hundred thousand patients a year, it may become economic to create the drug.
Thus, as entrepreneurs recognize the profitability of this demographic, I’d anticipate they will increasingly focus on innovative life-extension technologies and quality of life enhancers.
This demographic shift will likely impact the job market, though it may be hard to disentangle the effects of the demographics versus automation. As people become older, they can no longer do many tasks that they were able to do when they were younger. Cleaning the gutters, mowing the lawn, driving, or even tidying the house may be beyond the abilities of some of the elderly. In combination with the labor-intensive healthcare space, I would anticipate that this shift will continue the ongoing trend away from manufacturing towards the service industries.
Manufacturing jobs traditionally pays much better than service jobs, and, with the exception of some healthcare jobs, I’d expect this relationship to continue. Though the demand for services will increase, low-income retirees will not be able to pay significantly higher costs for services and employees displaced by automation will likely migrate into service sectors, avoiding a supply crunch.
What’s more, as people retire, they will be the highest paying jobs of their careers, likely being replaced by people making less money. Thus, I’d anticipate that this demographic trend will result in sluggish Gross Domestic Product (GDP) growth, and maybe even negative GDP growth per capita.
While stock and bond markets aren’t directly tied to the GDP, it is much more difficult for companies to increase profits in a slow-growth economy. What’s more, the proportion of elderly hoping to extract money from the market will increase, while the proportion of younger people investing their earnings will fall. So, if you look at investments from a supply-demand perspective, there will be a lot of people looking for yields. Thus, I’d expect interest rates to remain low (because the demand for bonds will be high).
Similarly, the elderly will be downsizing their houses to extract retirement income at a time when there aren’t a lot of young people to buy. Thus, I’d expect this demographic shift to have a bearish impact on the housing market.
Immigration and diversity
Finally, this demographic shift should lead to increased immigration and a more diverse our society. As a group, the elderly are likely more homogeneous than the younger segments of our population. As they die off, it will increase the diversity. Plus, the elderly aren’t having babies, while the younger, more diverse population is.
What’s more, politicians will recognize that one way to mitigate problems caused by low birth rates and the demographic shift (i.e. too few young workers trying to produce enough to take care of the elderly non-workers) is to increase immigration. We’ll attempt to import young, inexpensive, energetic labor to take care of the elderly and continue to grow the GDP. Thus, I’d expect immigration to increase and–since many immigrants today aren’t arriving from the European countries that historically made up most of Canada’s immigration–I’d expect diversity to increase with it.
The problem with predictions
Of course, one of the major failings in these sorts of predictions is the demographic trend might not be as important as other trends. For instance, suppose the rise of ISIS leads to a backlash against Muslims and increasing distrust of outsiders. In that case, immigration may actually fall as politicians reduce the number of people we let in and Canada becomes a less attractive destination for immigrants. I think this is a major problem with most forecasts–they tend to focus on one dimension, ignoring the 300 other factors that impact the outcomes.