The Surprising Implications of an Aging Population

0:00The world's demographics are changing. Across all countries, and particularly developed markets, populations are getting old. So what will global aging mean for our economic future? I'm Alison Nathan, and this is Goldman Sachs Exchanges. Today, I'm sitting down with my colleague, Kevin Daly, co-head of the economics team covering Central and Eastern Europe, the Middle East, and Africa within global macro research. Kevin, welcome back to Exchanges.

0:24Kevin Daly:Thank you very much, Alison. Good to see you. So, Kevin, you've done a lot of work around your Path to 2075 series, looking at what the global economy could look like in 50 years from now. And you recently released a report about global aging. It's no secret that the global population is aging. But first, give us the facts behind that. What measure do you look at to determine this? And what does it show? I mean, Alison, however you measure it, the global population is aging. So if you look at median ages in developed economies, 50 years ago, the median age was 30. Now it's 43. Over the next 50 years, that's expected to rise to 47.

1:06Kevin Daly:For emerging economies, they're significantly younger, but the median age there has also risen from 19 to 30 currently and is projected to rise to 40 over the next 50 years. The other way that economists like to look at it is to look at developments in the working age ratio. So what is the share of the population that is between the ages of 15 to 64? For developed economies, that peaked just before the turn of the century around 67%. It's currently at 63 % and is projected over the next 50 years to fall to 57%. So however you cut it, the global population is aging. So what's driving that process of population aging?

1:50Kevin Daly:So, I mean, there's two developments is increased longevity and declining fertility. I mean, on increased longevity, life expectancy has risen in the what demographers call the longevity frontier. So this is the country with the highest longevity in the world. And it's in 100 years ago, that was Australia and the life expectancy was 63. In 50 years ago, that country was Iceland with a life expectancy of 75. Currently, the country with the highest life expectancy in the world is Hong Kong with 86 years. If you look at that trend over time, that's rising very steadily. And for 150 years, it's been rising steadily at a rate of about a quarter of a year every year.

2:43Kevin Daly:If you look at the global economy as a whole, actually, it's been rising even faster than that because there's been some convergence to the frontier. So countries with the lowest life expectancies have seen the biggest increases. So on average, it's risen by about a third of a year every year. So that's longevity is contributing to population aging. The other factor, as I said, is fertility. So fertility has fallen pretty significantly globally. It peaked at 5.4 in 1963. That's total fertility per woman and has now fallen to 2.1. In developed economies, it's actually significantly lower than that at 1.5.

3:32Kevin Daly:In emerging economies, it's at 2.2. So let's take those in turn. I mean, first of all, longevity. Isn't it a good thing that we are living longer? I mean, we're all striving to live longer. I mean, in some ways, that is, you know, the product of innovation and technological advancement and everything else is to be able to live longer. no i mean it is i mean it's a very basic point but it's a very good one and it's one that i think a lot of economists often miss is that the fact that we're living longer and not only longer but also healthier lives is is a fantastic um testament to the you know the scientific progress that we have made over the last you know couple of centuries um and it's as i say it's not just that we're living longer we're also living healthier lives as well there was a very comprehensive intensive study done by the IMF recently published, which looked at 50-year-olds over the last quarter of a century, and it found that on average, somebody who's 70 today has the same cognitive abilities as somebody who was 53 in the year 2000, 25 years ago.

4:39Kevin Daly:When you look at physical abilities, somebody who is 70 today has the same physical abilities as somebody who was 56 in the year 2000. In a very real and tangible sense, 70 is the new 53. So this is, you know, a fantastic benefit for us. That's really striking, actually, even in the year 2000, which is, you know, very fresh in our memories that we have had such a big improvement. Very interesting. I don't. It's, I mean, it's remarkable. I mean, if you look at, you know, people are sometimes surprised that but if you look at you know tv shows from the 1980s from the 1990s you look at some of these actors or even sports stars from that period and you and you take pictures of these people and go you know that actor was in his 30s when he was doing that role as an and often these people are people who today would pass for somebody you know in their 40s or their 50s so it is you know however you measure it both physically both mentally how people look There has been a, you know, we are living significantly longer and healthier lives.

5:42And so we are seeing a big rise in life expectancy.

5:46Kevin Daly:We are. And actually, the official data, I think, are understating the true increase in life expectancy because the life expectancy data that are commonly quoted are actually not really a measure of life expectancy in a true sense. They're a measure of what are the age of people dying at today. So when we say in an average developed economy, life expectancy is 82 years old, what we're saying in effect is that somebody born 82 years ago in the 1940s would live to 82. Now, the measure, the official life expectancy in the 1940s was actually in the 61, 62. So if somebody born today, their true life expectancy is only 82 if we assume that there isn't some improvement in mortality rates and longevity rates over the coming 82 years.

6:35And in that context, Kevin, when you say mortality rates, how do you define that?

6:41Kevin Daly:So, I mean, mortality rates can be defined many different ways, but it is the average number of people in a population. And often that's defined on a specific age category. So how many 20-year-olds are dying, how many 30-year-olds are dying in any specific year. And what we're seeing, what is driving the increases in life expectancy is that there's been reduced numbers of deaths or mortalities for every age group going up until now into the 80s and 90s. And so the assumption that mortality rates will remain constant is not bearing out. You're actually seeing mortality rates less death. Not only is it not bearing out now, but I mean, it hasn't borne out for the past 150 years.

7:23Let's talk about the other factor you mentioned, declining fertility. How worried should we be about that?

7:28Kevin Daly:No, I mean, it's clear that, you know, this isn't an unambiguous positive in the way that, you know, increased longevity will be. But, you know, I'm long enough in this business to remember, you know, until a few years ago is that people were really worried about exploding population growth and, you know, very excessively rapid population growth. You know, and we have to remind ourselves that even with the falls in fertility we have had is that the global population is still projected to continue to rise. So the UN, on its latest projections, expect global population to rise from 8 billion currently to 10 billion in 50 years, so to peak around 2075 and to gradually decline thereafter.

8:10Kevin Daly:You know, they previously projected it would rise to 11 billion by the end of this century and be continuing to rise. So the projected peak in population has declined, but we're still seeing, you know, quite significant population growth over time. I think one of the other factors that gives rise to some confusion over this is that the magic number of 2.1 of the replacement rate. So this is the rate that demographers typically think of. If fertility falls below 2.1, the population in a country or globally will fall. And importantly, we're at that 2.1 % threshold globally. But actually, that 2.1 % figure isn't set in stone.

8:53Kevin Daly:that is only the replacement rate that stabilizes the population if you have mortality fixed at current levels. If you have life expectancy increasing over time, that replacement rate is significantly lower, around 1.5, 1.6. So actually, we're still at a global level, at a level of fertility that implies increased population growth over time. So if I'm putting this all together, population aging is a consequence, as you said, of increased longevity and declining fertility. Those are the two major factors. But if we think about population aging itself, how big of a problem is that really? I mean, it is a problem.

9:34Kevin Daly:And the reason why economists fret about it so much is because if you have a fall in the share of the population that is of working age, and if that follows one for one to a decline in employment rates, then that will reduce employment in populations, will reduce GDP, and will increase dependency ratios. So the number of dependents in the population dependent on those who are in employment. So if we go back to those figures that we quoted at the start of the podcast, the working age ratio in developed economies falling from 67 at a peak and just before 2000 to 57, that's a 15 % decline. You know, if it is matched one for one for a fall in employment, that will reduce employment and GDP by a similar amount.

10:34Kevin Daly:The only solution really in the long term to that increased longevity, increased aging, is for us also to work longer. I mean, other factors may provide temporary fixes, but the only long-term solution is that if we're living longer, we also have to extend our working lives as well. So do we see any evidence that that's actually happening at this point? Are we working longer as we're getting healthier and staying healthier for longer? We are. That's a good news story to this as well, is that, you know, this is a problem if we weren't also working longer. But the good news is that we are also working longer.

11:13Kevin Daly:So, you know, from 2000 in developed economies, longevity is increased on average from 78 years to 82 years. That's a 5 % increase in longevity, whereas effective working lives. So the amount that, you know, that we're using data that we ourselves have calculated have actually increased by 12 percent of that period from 34 to 38. So much as as economists treat the working age ratio as being from 15 to 64, the reality is that people typically don't enter, you know, the workplace at 15 because they're in education and they in many cases don't leave at the age of 64. And what we're seeing is in their effective work lives, the number of years they actually work, they have increased significantly since 2000.

12:03By the way, I'm not sure everyone would agree that's good news, Kevin. I think we do aspire to not be working for a very lengthy amount of time in our lives and have some enjoyment at the end there. But if you think about why people are working longer, have you done any work in terms of why that is? Yeah, well, I mean, it's good news in the sense that it's an adjustment we have already made.

12:27Kevin Daly:We're already well in the process to making. So it's not an adjustment we have yet to make. And if you look at the factors that have caused the increase in effective working lives, I think they are predominantly good factors or positive factors. So one has been an increase in female participation after childbirth. So there's been a significant increase in women extending their working lives, particularly through improvements in child care provision and so forth, being able to continue in the workforce after they have started having children. And then the second key factor has been the reduced importance of manual labor.

13:08Kevin Daly:So manual labor is, you know, we think of things like construction, but also manufacturing jobs, a lot of, you know, a lot of manufacturing jobs in particular. These are tough jobs that people typically retire from relatively early. As you've seen a reduced share of the workforce in manual jobs, you're seeing an increase in the effect of working hours as a result of that as more and more people are doing office type jobs. So, Kevin, we began talking about this. The underlying concern is that we're in this so-called demographic time bomb, and that's going to ultimately have negative consequences for economic growth.

13:46But what I'm hearing from you is perhaps we don't need to be as concerned about the implications on growth from all of this.

13:53Kevin Daly:I agree. I think one of the factors that contributes to these concerns is that people find it difficult to separate the process of getting older, which we all face, which is inherently worrying, with the process of economic aging, which is actually less of a concern for society as a whole. Economic transitions are always difficult, but this is one that we're managing relatively well. Are there specific investment implications of the work you've done? I think there are. I mean, so a lot of the analysis on aging and the implications of aging makes the, in my mind, mistaken assumption that, you know, as our lives increase, we can hold everything else fixed.

14:37Kevin Daly:And so what that implies in practice is that, you know, we're extending the amount of our lives that we are in quote unquote old age. I don't think that's an accurate description as the IMF worked I mentioned earlier on highlights, actually a more accurate description is that we're extending each of the parts of our lives so we're younger for longer we're middle aged for longer we're older for longer and so one implication of that is that there's not naturally going to be a shift from aging necessarily into increased demand for goods and services that quote-unquote old people desire, because we're extending all stages of our lives in proportion.

15:25Interesting. I think there's a lot of food for thought there, Kevin. Thank you for joining us and sharing your insights. Really interesting work you're doing.

15:33Kevin Daly:Thank you, Alison. This episode of Goldman Sachs Exchanges was recorded on Thursday, May 29th, 2025. I'm Alison Nathan. Thanks for listening. The opinions and views expressed in this program may not necessarily reflect the institutional views of Goldman Sachs or its affiliates. This program should not be copied, distributed, published, or reproduced in whole or in part, or disclosed by any recipient to any other person without the express written consent of Goldman Sachs. Each name of a third-party organization mentioned in this program is the property of the company to which it relates, is used here strictly for informational and identification purposes only and is not used to imply any ownership or license rights between any such company and Goldman Sachs.

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