global perspectives

From labour abundance to labour scarcity

From labor abundance to labor scarcity
Henk Grootveld - Head of Trends Investing

Henk Grootveld

Head of Trends Investing
Pascal Menges - CLIC Equities, CIO Office

Pascal Menges

CLIC Equities, CIO Office

For the last 60 years, most countries have enjoyed an unprecedented economic tailwind: the demographic dividend. The drivers of this unprecedented boom to the labour market are now reversing, which will impact GDP growth, inflation and the way people work in the coming decades.


A demographic dividend ….

The post-WWII baby boom, which saw 3.4-4 million babies born in the US each year from 1946-1964, has been described as the largest disruptor of the normal demographic composition of society1. The baby-boomer generation has significantly influenced economic activity: driving urbanisation, diversifying consumer markets and coming to typify the wealth effect. It has shaped culture through the feminist, civil rights, and anti-war activism of the 1970s and 1980s. Next to a growing overall population, the percentage of people aged 20-64 also grew. Between 1970 and 2020, for example, the working age population of the US rose from 53% of the total population to reach 59%. In Europe, the workforce grew from 56% of the total population to 60% over the same period, again as part of a growing overall population.


….boosted by female participation…

A key workforce trend during the boomer era has been the rising number of working women. In the US, female participation in the workforce increased from about 35% in the 1950s to a peak of 60% in 2000. Across Europe, the surge of women in work came later and mostly occurred in the mid-1980s and plateaued at about 50%. We found that factoring in female participation increased the estimated global workforce by an annual 5% in in the mid-1980s.


…. and globalisation….

The rise of the West’s boomers coincided with another economic dawn in the east: globalisation. US and European businesses took advantage of improved global transportation, communication, cross-border trade arrangements and – crucially – plentiful and cheaper labour in other nations to boost profits. They built supply chains drawing on workers in Eastern Europe and China, effectively expanding the sources of employees available to them while providing new lines of work for locals.

In the 1990s, Eastern Europe provided workers as the Soviet Union disintegrated, allowing east-to-west migration and for production sites to be relocated to areas where labour was cheaper.  On average, this added 1-2% to annual workforce growth in the US and Europe in the 1990s. The integration of China to the global economy provided an even bigger boost to the global working population. Both the sheer size of the Chinese population and rising working age population , provided a strong tail wind for Western economies.


…… provided a decade long fantastic labour boon to developed market economies and companies…

By tracking the global 20-64-year cohort and factoring in female participation, plus the opening up of Eastern Europe and China, we illustrate that the availability of labour has been far greater than what would otherwise be inferred. Greater participation by women provided a strong boost in the 1980s. The integration of Eastern European workers drove further workforce expansion in the mid-1990s. The economic liberalisation of China and its formal integration to the world economy in 2001 generated a massive surge in labour availability from the early 1990s to the mid-2000s.


….now it is over, our future will be very different and we should brace ourselves for labour scarcity

When the combined working-age populations of North America, Europe, Japan and China are combined with IMF data, we can see that these countries are home to a workforce representing up to 70% of world GDP. From 2000-2020, these countries benefitted from an average of almost 10% growth of this estimated global workforce. However, this flood of workers entering the workforce is starting to dry up. The number of people aged 20-64 years in North America, Europe, Japan and China have stopped or will soon stop. Japan’s working-age population began to shrink in 2000, followed by Europe’s in 2015 and China’s in 2020, while North America’s is forecast to start declining in 2025. We are likely to be living through the end of the global demographic dividend and the beginning of an annually shrinking workforce or a demographic deficit.

The largest economies of this world will not continue to benefit from growth in the labour pool, as they have done for decades. From now onwards, this pool of workers will contract at an average rate of 4-5% each year. The demographic dividend that has provided the foundation for so much economic advancement over the past six decades has been lost and will be replaced by a demographic deficit that will last the next sixty years. The baby boom party for our economy is clearly over and we need to prepare ourselves for the unavoidable hangover.


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1“Boom, Bust & Echo: How to profit from the coming demographic shift” by David K. Foot, 1996


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