Monday, August 13, 2007

Asian Economies on a "Demographic Cliff"?

The International Labour Organisation has a new report out today, entitled "Visions for Asia’s Decent Work Decade: Sustainable Growth and Jobs to 2015". You can download the report in pdf here).

The report uses comparatively strong langauge, warning that - due to comparatively rapid `population ageing - the “demographic dividend” process is likely be limited in many parts of Asia, with the proportion of children aged 0 to 15 and youth aged 15 to 24 set to decline rapidly across the whole of the region. In fact they point out that the more developed parts of Asia - such as Singapore, South Korea and parts of China - are likely to hit the “demographic cliff” much earlier than the rest.

As they point out, more than a quarter of the population in several of the more “developed economies” are expected to be older than 65 by 2015, and in China, largely as a result of short sighted family planning policies, there has beem an “accelerated" demographic transition process. As a result, China is “ageing faster than any other nation in history”.

In spite of high average annual GDP growth rates - 6.3 per cent between 2000 and 2006, which are more than double the rates experienced in the rest of the world – many people in the region still suffering from serious poverty. More than 1bn people - representing almost 62 per cent of the region’s labour force - are still estimated to be working in the “informal economy”. Some 900m are living on less than US$2 a day and “308m of these are living in extreme poverty" with incomes of less than US$1 per day”.

In fact Asia is caught in a kind of switchback vice. To drag so many millions out of poverty economies need to be erected which are capable of creating large numbers of jobs quickly, but once these are built and running the region can run short of the labour needed to feed the machine.

Basically, the ILO only confirm my impression that Asian migration ten years from now will be largely a zero sum game vis-a-vis the rest of the world. This means that if Western Europe cannot continue to rely on workers from Eastern Europe, and if the United States cannot continue to rely on Latina America, and if neither Western Europe, nor Eastern Europe, nor the United States can rely on Asia............


Unknown said...

"...are expected to be older than 65 by 2015, and in China, largely as a result of short sighted family planning policies..."

indeed, Chinese one-child policy is showing its consequences

Will Baird said...

indeed, Chinese one-child policy is showing its consequences

The interesting thing is that there was a Usenet discussion albeit a short one where someone from China was quite proud of the One Child Policy and mocked India for their demographic issues, inveretd as they are compared to China.

It's going to be...interesting...over the next 10 years. Out of curiosity, are there some demographic projections for China's population in 2050 that DM would consider reliable or at least within plausibility error bars?

Scott said...

The fact that Chinese parents tend to be biased toward male children will exacerbate the negative effects of the one-child policy. There is and will be a large number of men who will not be able to find a Chinese wife. Therefore the loss of potential fertility will be greater than predicted by a standard fertility model.

Anonymous said...

Indeed. How many *daughters* is the average Chinese woman now expected to have in her lifetime? Somewhere around 0.5? I think this would qualify as a demographic cliff looming ahead, and it's one that China is going to hit come what may, short of importing young people on a vast scale. The total Chinese population is not about to plummet, but that's only because of high life expectancy; the number of young adults, and young women especially, is going to drop very rapidly indeed over the next couple of decades, and we have no idea how or even if China is going to cope.

will baird: You could try looking at the UN's projections. (Medium variant: 1.4 billion in 2050, compared to 1.3 billion now. By contrast, India is projected to go from 1.1 to 1.6.) However, I gather that until recently, projections tended to assume that all countries would gradually converge to some 'natural' fertility level, ie treating ultra-low fertility as some temporary blip. This isn't quite the case any more, but there's still an assumption that the really low fertility countries will trend upwards, which the DM crowd would probably regard as optimistic. (I notice, for example, that Europe's projected population is higher under the 'medium' variant than the 'constant fertility' variant, meaning they actually expect European fertility to rise.)

Still, some interesting numbers here:

As an example, if you project out 'constant fertility' for Russia, you get a population in 2050 of just 98 million, in other words, about as big as Turkey is expected to be by then.

Edward Hugh said...

Hi Will,

"are there some demographic projections for China's population in 2050 that DM would consider reliable or at least within plausibility error bars?"

This is a really tricky question.

Basically, even if there is no specific DM "in house" view, you may notice that we try to steer clear of these kind of projections, due to the high levels of uncertainty attached. Also, you tend to find that this kind of debate gets stuck in the grove of repeating the obvious, with very little that is really concrete or interesting added.

Also economists tend to run the numbers these projections offer, make their own very limiting assumptions, and come up with outcomes that say there is nothing at all to worry about.

Claus and I kind of reject this whole approach. Either the demographic changes wwe are talking about will have real and evident consequences, or they won't (this is the debate I think). If there are (or aren't) going to be consequences, then we should be able to observe some of this NOW, and not have to wait another 40 years to get an answer (by which time it will be effectively to late to do anything for 2050).

We should already be able to observe some interesting trends since we have societies currently strung out over a whole range of median ages. Therefore we ought to be able to TEST our theories against what we can see now.

I mean, Italy, Japan and Germany are effectively 20 years on down the line from the US, the UK and France in that these latter three will only be where the former ones are in the mid 2020s at the earliest.

So can we notice anything interesting already in the comparison? Well we argue you can, and are trying to document this by using a "that's funny" based profile comparison. But this is a work in progress, and it does need time (but not 40 years I hope).

This post is really a sort of pot boiler (August being the silly season and all). But it is interesting to see how the discourse is moving on. 5 years ago everyone was surprised to look at population pyramids for 2050. Now if you notice the critical horizon (in the discourse) is moving down. Both the recent world bank Eastern Europe study (from Red to Grey, reviewed on this site), and now the ILO one, mark a significant shortening of horizons (the 2015 to 2025 period) for when real labour market consequences will be noted.

Personally I would go even further. I think (he says, sticking his neck out) that the 2012-2015 window will be very important for the debt sustainability issue in Japan and Italy, and in general for the getting rich before you get old issue in Eastern Europe.

That is assuming that the "factoring-in", bring-on-the-future-now, tendency in the financial markets discourse doesn't draw the underlying reality thundering forward to a much earlier date.

China's difficulties would only seem to mount after 2020 (assuming again that we get through to 2020 without major issues elsewhere which will affect how we perceive the situation).

What amazes me, as I think I have said to you before, is how so many people can get so worked up about what is, really, the "puny" problem of China's current surplus, without stopping to think about what will be the - at least comparatively - "enormous" problem which will arise in global product markets if China is forced by age structural components down the Japan path after 2020. ie producing high value products for export at very cheap prices, and in seemingly unlimited quantities (including by that time the sort of sophisticated machinery and equipment that the US, Japan and Germany specialise in).

So I am frankly in awe of the way in which Paulson and company can go to Beijing, and never apparently mention this looming problem, simply getting bogged down in local details about whether or not the yuan should float across a broader band or something.

The thing is, I am not preaching gloom and doom here. I am convinced that these problems are treatable, but the sooner we wake up and start treating them the better. I think a big part of the issue is how we perceive things, and what our expectations for the future are. Once we move the discourse on a bit here, then things can change (not necessarily only on the fertility front, but in terms of our economic and other aspirations and expectations) and this in itself will change things.

In this sense I am an "idealist" in both senses of the term - ie I believe we can improve things, and I believe that ideas (how we see things) matter.

On the question of forecasts, I go with what Colin says. I would add the following provisos:

a) In most countries the large "indeterminate" is immigration. Look at Spain (or Ireland). Who could have foreseen a 5 million increase in Spain's population back in 2000?

Obviously globally migrant flows are more or less zero sum,although migration from higher to lower fertility countries would seem to increase the rate of fertility decline in the higher fertility societies via behavioural transmission channels. So it might in fact be a negative sum game.

b) the principal motivation for migrants these days is the economic one. Mainly irregular migrants need work, so they tend to follow growth and jobs - this is why those countries with more of these tend to get more migrants - Spain, Ireland, the Uk, the US etc - and again this only increases the differential in the various dynamics of the developed economies.

c) the other big variable, apart from fertility and immigration, is life expectancy, and again we really don't know how this can alter between now and 2050, especially with the arrival of lifestyle-related risk factors like the metabolic syndrome (obesity, diabetes etc).

d) Size does matter. So given its relative size it is unlikely that China can do much to offset rapid ageing in the way that - eg - Singapore can, by attracting migrants.

On data.

Claus posted recently on a couple of papers on Chinese fertility. My "favourite demographer" Wolfgang Lutz does offer some quite sophistocated attempts at probabilistic projections for population summarized here, and if you want to play around yourself the US census bureau has a data base and population pyramid generator here.

Lastly, amen to what Colin says about fertility. I mean NOONE has any really accurate idea about how this is going to evolve in the developed economy context. As he says, taking on board the low fertility trap idea (which of course is still only a hypothesis) and also given that we don't know just how high median age at first birth can sustainably rise, I would be tending to emphasise the downside risk attached to the UN median projection and the like.

But what I am saying - in bottom line terms - is that this really doesn't matter so much, if the whole game-play is going to be over the now-to-2020 horizon, since in this context the numbers are going to be effectively what they are now. Again I don't think we should anticipate dramatic changes one way or another, and the only real vulnerability would seem to come from the possibility of a negative shock, like the one which took place in Eastern Europe in 1990, and from which those societies have never really recovered.

Scott said...

A site run by an outfit called Population Research Bureau has a link to a set of population projections for all countries through 2050. As Edward says,it is essentially buyer beware with projections that far out but I have found the PRB's data worthwhile as a baseline for thinking about the issues.

Aslak said...

If I remember correctly, something like 60% of the Chinese population are still peasants, which means they still have a significant domestic labor reserve. Coupled with increased productivity and more capital (Chinese factories tend to be very labor-intensive), I'd reckon that China still has a couple of decades before they really feel the demographic pinch.

But yes, sooner or later, they'll be in real trouble. You have to wonder how much potential China has to attract immigration, given the pollution, political system and relative poverty compared to the West. I would imagine that we'd actually see continued emigration. China could very well end up as a giant version of Poland or Ukraine, especially if they have to compete with the West for labor resources

Edward Hugh said...

"If I remember correctly, something like 60% of the Chinese population are still peasants,"

Well I don't have any data to offer Aslak, but I'm sure you are more or less right. But I would make two points:

a) the age distribution of this rural population is not "normal", especially after the heavy internal migration of the last decade. There will be a large proportion of these people in the over 40s age range, with every time less probability of them moving as we move up the age registers, and a significant part of the younger people needing to stay and care for them from somewhere in the vicinity.

b) If we think of Southern Europe - and I tend to take Spain as a case example here - we will observe that at one stage there is very rapid internal migration (in Spain's case this was in the 1950s and 1960s) and then internal migration of the less educated virtually stops. Insofar as people continue to move they move to the regional capital or whatever. Movements of educated people tend to follow a rather different pattern, being drawn to the large "national" cities like Barcelona, Madrid or Valencia.

I mean these days there just aren't that many farmers sons who up and leave Andalusia for Madrid, or London or the United States of America etc, and I don't see why the case of China, as China closes the income gap, should be that different. If anything the Chinese are more nationalistic and attached to their country than the Spanish are.

"I'd reckon that China still has a couple of decades before they really feel the demographic pinch."

OK. But we are arguing about a difference of five years or so here, and who really knows who is right since we are both just guessing. The big point is that the crunch will come, and if China becomes a richish (remember the longer we are talking about the more the income gap will close, and remember that at some point the yuan will float, and if it rises far enough and fast enough this in and of itself will close down a big chunk of the gap), so if China becomes richish then having a China which in any way demographically turns into a Ukraine or a Russia, then the headache is going to be a big one. That is my main, and only point here really. It's the lack of internal consumer demand they will have, coupled with a huge export dependency (Japan a lo grande) that is going to be the issue afaiac.

Aslak said...

a) This is a good point and that I hadn't thought of, even though it really should have, considering the fact that I'm originally from the Norwegian countryside which has a a similarly skewed age distribution. (not that i would make any other parallels between Norway and China, far from it) It would be interesting to see any data on what the age distribution in rural China really is, although I imagine that it would be hard to find.

b) I don't think we really disagree on much here. There definitely will be a demographic crunch sooner or later. The question here, as you point out, is whether China will be more like Spain or more like certain Eastern European states. I think this largely depends on much of the income gap they will manage to close. China is still a poor country and they cannot possibly find enough immigrants to have any significant impact in the long run. All of which leads me to think that Eastern Europe might be the best parallel to make.

I would add one point which is somewhat off-topic, and that is that the horrid population in China does leave me wonder whether continued economic growth is sustainable environmentally with such a large population in a relatively small area. I realize that the West has in many ways become cleaner recently, but I'm not sure China can do that easily. It's certainly outside my area of expertise but I think it's intriguing question.

Anonymous said...

Why shouldn't China manage to become rich on it's land when South Korea, Japan and Taiwan has done it? They are even more crammed than China.

Regarding "old before you get rich", which is frequently used regarding China. Bulgaria is one of the oldest countries in the world and almost as poor as China. Old before rich? China will take 15-20 years before getting as old as Bulgaria, but by then China will be as rich as Spain and Italy is today, at least. Will China be classified as rich then?

Regarding China's farmer population. Far from everybody who is classified as rural in China is really rural. Many have lived in the city for decades and even been born and raised in the city, yet are still classified as rural. This is the result of the hukou-system. And far from the ones that actually is living in rural areas are farmers. My guess is that there are about 300 million people living as farmers in China, out of a population of 1,32 billion people.

Anonymous said...

*It should say:

China will take at least 15-20 years before getting as old as Bulgaria IS TODAY.


Far from EVERYBODY that is actually living in rural areas are farmers.

Anonymous said...

Population growth by net migration in Europe 2006:

Cyprus: 2,9%
Iceland: 1,7%
Ireland: 1,6%
Spain: 0,7%
Luxembourg: 0,6%
Sweden: 0,6%
Portugal: 0,5%
Switzerland: 0,5%
Norway: 0,5%
Italy: 0,4%

The UK is not even among the top 10 net migration countries in Europe in 2006.

Edward Hugh said...

Hi anonymous;

Thank you for your informed contribution about the actual situation on the ground in China.

"Why shouldn't China manage to become rich on it's land when South Korea, Japan and Taiwan has done it? They are even more crammed than China."

I think we may be talking at cross purposes here. The issue has nothing to do with population size or density (Aslak's point about pollution is a quite separate one, and I am being totally agnostic on that, not because I don't think ecological and environmental issues are important, but because I don't know enough about the case in point). Our focus here on demography matters is on AGE STRUCTURE and this does seem to be very important for economic growth, and in determining the structural drivers of economic growth in any given society. Median age seems to have something to do with this.

You mention Japan, and I do think this is very much to the point, since Japan's median age is now in the 44 range, and Japan is currently the oldest country on the planet. Japan also exhibits a number of macro economic structural characteristics - persistent price deflation, large government debt to GDP ratio, falling wages and salaries, declining internal demand share, significant dependence on exports - which might be thought to be some of the stylised characteristics of a society with a median age in the mid 40s range.

As you point out, China still has twenty years to go before getting there. So incidentally (more or less) do South Korea and Taiwan).

But Japan got rich in the process (it remains to be seen whether Japan can stay rich as she ages further, this is basically an unknown at this point) since it had a rapid but fairly normal demographic transition from the 1950s onwards: The same is true of South Korea and Taiwan, only a couple of decades or so later.

The thing about China is that she has artificially put herself in a population structure straight jacket, and due to her size immigration into China is going to be difficult on the scale which will be necessary.

But even in the shorter term, say 10 years from now (and this I think is the point about the ILO report) China can have labour supply problems. This has nothing to do with absolute size, and everything to do with structure.

The US, as we know, is a lot larger than Iceland, but still needs between one and two million people a year to feed the labour market when there is economic growth. China will be no different here, and the issue is pretty simple. As the large generations retire, were will the people come from to replace them?

This is the issue we are already - right now - seeing in Eastern Europe. Take a look back through some of the recent posts on this blog.

"My guess is that there are about 300 million people living as farmers in China, out of a population of 1,32 billion people."

Well this would be the whole point. Assuming this is anywhere near the actual situation, the rural reserve of labour has been pretty much exhausted already. After thirty years of one child per family policy the number of young people arriving in the labour market to feed economic expansions is considerable reduced. Of course there can be recycling as job-churn takes place, but again, as we are already seeing in Eastern Europe the rate at which you can do this is limited, and after a certain point if you want more than 2% to 3% economic growth per annum you satrt to get significant wage inflation.

"China will take 15-20 years before getting as old as Bulgaria"

Bulgaria will unfortunately never get rich, assuming "rich" to be a relative term. Bulgaria is a living tragedy, and is most likely to be one of those countries which, unfortunately, simply "whithers on the vine".

Basically Bulgaria's age structure is no so distorted by both massive out migration and low fertility from 1990 that it is hard to see her ever recovering. I hope I am wrong.

Edward Hugh said...

Incidentally, I'm not sure if the "anonymous" who posted on UK immigration is the same "anonymous" who posted on China.

Basically, I don't understand the point which is being made here. I can imagine what the point might be, but I am not sure. A bit of clarification might help.

Edward Hugh said...

Also, incidentally, I imagine there is a typo in Aslak's last post.

When he says "the horrid population in China", I imagine from the context that he means to say "the horrid pollution in China"

Although it could be a sort of Freudian slip, and he might mean "the horrid population PROBLEM in China" :).

Aslak said...

Yes, I did mean pollution. I have Chinese friends so I know the population in China is not horrid, although their population problems might be :)

I'm not saying China can't become rich. I'm just saying that there is an enormous difference in scale between the other countries you mentioned and the likes of China and India. We just don't know what the environmental effects of having a wealthy population of such an enormous size will be. China's population is after all bigger than that of all the developed countries combined.

georgesdelatour said...


I have no technical grounding on this subject, but hopefully I can ask some interesting stupid questions.

Suppose country X has a lowest low birth rate of, say, 1.3 children. Do we know whether than means most adults have just one child? Or does it mean that a significant sector of society is completely childless, while those who do procreate still have at least two children.

I know it's very bad to generalize from my own personal experience in the UK. But among my friends there's a clear division between those who are completely childless and those who have at least two children. I don't know anyone who's got just one child.

If it's really a division between two tribes - one childless, the other with at least two children - that's going to play out very differently from a situation where most adults are parents, albeit to just one child.

At the last UK election, for instance, I cast my vote purely based on which education policy I wanted. I don't imagine any of my childless friends would have even considered education in casting their vote.

Is there any research on this?

Edward Hugh said...

Hi Georges,

You ask an interesting question, and basically I don't know the answer. I mean I do know that in some key low fertility societies - Germany and Japan,for example - a steadily growing proportion of women never marry, and don't have any children. So this phenomenon is important. But how typical is this? I am not sure.

In another society I looked at recently - Ukraine - there did seem to be a pattern of a lot of women having one child, and then that was it. But then Eastern European fertility may be a case apart. It is hard to say.

There is also evidence from some European societies - especially Southern Europe, Spain and Italy for example - that a lot of women want to have more children, but leave it too late, and have biologically related infertility problems, so a lot of the emphasis in research from these countries has tended to be placed on postponement-related issues.

But there is a growing amount of research on the topic of "wanted childlessness" and I will try to keep my eye out for something interesting.

The implications of this phenomenon are partly political, but also for fertility itself. If you have a secular trend towards a growing number of people wanting NO children then it is very unlikely that fertility will rebound. That is why it is hard to be optimistic about either Germany or Japan. People in Japan got very excited in 2006, since live births went up a touch, arguing that with the economic recovery births would recover, only to find those hopes dashed when live births were down yet one more time in the first six months of this year, something similar seems to have happened in Dusseldorf, Germany earlier this year, till the Federal Statistics Office came out and denied there had been any significant upward movement in births. I think in such cases peoples need to believe things will improve outweighs any actual evidence you can get from the data. The big issue here seems to be "denial".

(Will, if you are reading this, I suspect that something similar has been the case in Ukraine, a few extra births in any one year, even though they may feel like a lot - especially if the services for mothers and young children have been reduced, or a lot of young couples have bought homes in one particular area - normally don't upend long-term 20-year-plus patterns, I must post on this).

So I think those societies were a drop in marriage rates and anincrease in desired childlessness have occurred may well be in much more serious trouble long term, especially if all of this then gets mixed in with economic difficulties which make it more difficult to have children whether you want to or not. The 1930s recession saw below replacement fertility springing up all over the place in the industrial economies, including - I think - the US.

On political consequences though, I think any changes you may observe among young people who have and don't have children are going to be massively overshadowed by the growing weight of the over 50s (who steadily become an electoral majority) in those societies with ongoing lowest-low fertility and consequent ultra rapid ageing.

Anonymous said...

In Chinese terms, I don't think the one-child policy is a significant factor any longer. It _was_ a significant factor in that it drove China's fertility transition much faster than might otherwise have occurred, but low fertility has been "naturalized" in China by now.

The Chinese government was pushing on an open door, of course -- TFRs in China would have fallen anyway. It's always easier to push people faster in the direction they're already going.

So if the Chinese government were to adopt a neutral, or even mildly pro-natalist policy tomorrow (politically unlikely), I don't think it would have much effect.

Anonymous said...

Again, I think people here aren't taking the demographic exceptionalism of the US sufficiently into account.

This is _not_ primarily an immigration-driven phenomenon; US TFR's started to seriously diverge from European ones in the 1970's, after previously tracking them quite closely, albeit at a slightly higher level.

That was well before the current wave of immigration got underway, and there's every indication that it will continue after demographic changes in Mexico and points south slow and then stop the surge into the US from that direction.

(I doubt intercontinental migration will become significant in US terms within the forseeable future.)

In other words, the rise in TFRs and the rise in immigration are separate factors; the latter has pushed the numbers higher, but it would have occurred to a large degree even if there had been no change in immigration statistics since 1975.

On present trends, most of the US population will have higher TFR's in 2050 than they do now.

They're higher now than they were in 1975 -- why shouldn't this continue?

Hence, the US population profile will still be a pyramid, albeit a tall skinny one; the rest of the world will be an _inverted_ pyramid.

Anonymous said...

The UN's high and medium projections have always been inaccurate.

They always underestimated the speed and breadth of fertility reduction; and they contain unrealistic assumptions about where declines will stop and about subequent increases in TFR's in very low areas.

Eg., until recently they assumed that middle-income developing countries like those in the Maghreb couldn't fall below replacement level, or not much.

But they have -- Tunisia is down to 1.73 now, for example.

I'd say the most likely outcome is that TFRs will equalize all around the Mediterranean basin at about the current Spanish-Italian levels.

Likewise, I'd say most or all of East Asia will fall right to the current South Korean or urban-Chinese levels and stay there for quite some time.

And that a little later South Asia will do the same.

Consequently, I'm of the opinion that world population will top out well before the middle of this century, and will be falling by 2050 if not before.

Lowest-low rates halt "demographic intertia" rather quickly, as opposed to rather slowly, for rates just a little higher.

Anonymous said...

In the _longer_ term, however, TFR's will probably go back up. That's quite long term -- generations -- though. I expect the world population in 2100 to be smaller than in 2000.

In most cases where I've been able to get at more detailed data, low TFR's are the product of a substantial fraction of the population having _no_ children, another large minority having 1, and the remainder (a majority or near-majority) having 2 or more.

That certainly seems to be the case in Germany and the UK, for instance, though the data are frustratingly sparse.(*)

In the long term -- and this would take many years -- this will result in a 'demographic world' in which nearly everyone is from families of 2 or more, though only a bare majority or large minority of couples had that many children.

Other things being equal, which recently they haven't been, number of siblings is the best predicator of the number of children.

If I'm right (and I don't claim Papal infallibility) what will happen is that not only will nearly everyone come from families of more than 2 children, nearly everyone will come from families that have _very strong_ committments to the rewards of childbearing and rearing.

In other words, the circumstances which have produced very low TFR's will act as a choke-point in memetic evolution.

Those "resistant" to the incentives driving down fertility will have the reproductive field to themselves.

(*) the same thing seems to be happening in the US, but with the curve pushed to the right -- 1-child couples taking the place of the 0 child ones in Europe, and 3 or more taking the place of 2 or more.