SOCIOLOGY OF WORK AND EMPLOYMENT: TOPIC 4
TOPIC 4: Effect of Social, Demographic and Macro-Economics Forces; Fundamental Ideas
About the Humans.
The word “demographics” comes from the Ancient Greek two words: “demo” meaning people
and “graphics” meaning measurement. There is a strong tradition of studying demography as
part of economics since its related to population growth as part of economics. As the economy has
moved from financial crisis and the Great Recession to sustainable expansion, attention has shifted
from cyclical aspects of the economy to structural factors such as age, education, gender, race,
income level etc.
Demographic change can influence the underlying growth rate of the economy, productivity,
living standards, savings rates, consumption, and investment. It can also influence the long-run
unemployment rate and equilibrium interest rate, housing market trends, and the demand for
financial assets. Moreover, differences in demographic trends across countries can be expected to
influence current account balances and exchange rates. So to understand the global economy, it
helps to understand changing demographics and the challenges they pose for monetary and
fiscal policymakers.
Some examples of Demographic Trends
Until the early 18th century, world population grew little because high mortality rates offset high
fertility rates. However, increased knowledge and technological change in the form of advances
in medicine, public health, and nutrition began to lower mortality rates. Fertility rates also began
to decline. For example in the U.S. there were shifting preferences for smaller families because of
the rising opportunity costs of having children and the higher costs of raising and educating them.
The shift in population from rural to urban areas also reduced the need for large families to
run farms. The average life expectancy has risen and the population has aged. where life
expectancy is now nearly 80 years old. In some countries, the population has been shrinking over
the years resulting to the ratio of older people to working-age people becoming higher. In Europe,
fertility rates have been below the replacement level for some time. In China, the growth rate of
the working-age population has slowed since the late 1980s, and partly because of its previous one-
child policy, China’s population is also rapidly aging. On the other hand, many low- and middle-
income countries are at a considerably earlier phase in the demographic transition, with young and
faster growing populations, and rising labor force participation rates. In India, the median age is
around 27 years. Much of the increase in world population between now and 2050 is projected to
be in Africa, where fertility rates remain high.
THE IMPLICATION OF DEMOGRAPHICS TO WORK & EMPLOYMENT
The implications of these global demographic patterns for the future economy are worth
considering because they pose some challenges for policymakers. This is because these changing
demographics influence the economy, in particular, labor markets and economic growth.
1. Demographics influence on supply of labor: Typically, as mortality rates decline and people
live longer, the supply of labor increases. Increased life expectancy means individuals will need to
work longer but it causes a fall in the overall participation rate. Additionally, older workers
typically have lower unemployment rates than other age groups, and they tend to change jobs less
frequently.
1
, 2. Demographics influence on economic growth: The expected slowdown in population growth
and labor force participation rates will have implications for long-run economic growth and the
composition of growth. The key determinants of the economy’s longer-run growth rate are labor
force growth and structural productivity growth — how effectively the economy combines its labor
and capital inputs to create output. Demographics suggest that labor force growth will be
considerably slower than it has been in recent decades, and this will weigh on long-run economic
growth.
3. Demographics influence on consumption, saving, and investment decisions: Increased
longevity means that people will need to save more over their working life to fund a longer
retirement period. This is especially true given the degree of under-funding of public pension plans.
Demand for healthcare will continue to rise, and an aging population will place different demands
on the housing sector than a younger population, affecting the demand for single- versus multi-
family properties, for owning versus renting, and for residential improvements that allow older
adults to age in peace.
4. Demographic Implications for Monetary Policy: Demographics have affect on monetary
policy to the economy, in particular, the strength of wealth effects versus income effects. Older
people tend to hold more assets than the young and tend to be creditors while drawing down their
assets to fund their consumption during retirement. Younger people tend to be borrowers but face
tighter credit constraints than the old because they hold fewer assets. As the share of the population
shifts from young to old, the propagation of an interest rate change through the economy is likely to
change. There will be a smaller share of young borrowers able to take advantage of a decrease in
interest rates but a larger share of older people who benefit from higher asset prices; similar
reasoning applies for an increase in interest rates. Demographic change may mean that wealth
effects become a more important channel through which monetary policy affects the economy.
5. Demographic Influence on Financial and Other Government Policies
The rising share of older people will put significant pressure on Social Security and Medicare
which are structured as pay-as-you-go programs, with current workers providing support for
current retirees. Other developed countries’ government pension and healthcare funds will also be
stressed. Projected longer-run fiscal imbalances are likely to be unsustainable, and it seems likely
that governments will need to respond with some combination of increased borrowing, reduced
benefits, increased taxes, program restructuring, and policies intended to stem the growth rate of
healthcare costs.
Every country experiences population ageing, a trend that is both pronounced and historically
unprecedented. Over the past six decades, countries of the world had experienced only a slight
increase in the share of people aged 60 years and older, from 8% to 10%. But in the next four
decades, this group is expected to rise to 22% of the total population, a jump from 800 million to 2
billion people. Evidence suggests that cohorts entering older age now are healthier than previous
ones. However, progress has been very uneven, as indicated by the wide gaps in population health
(measured by life expectancy) between the worst (Sierra Leone) and best (Japan) performing
countries, now standing at a difference of 36 years for life expectancy at birth and 15 years for life
expectancy at age 60 years. Population ageing poses challenges for countries’ economies, and the
health of older populations is of concern.
Older people have greater health and long-term care needs than younger people, leading to
increased expenditure. They are also less likely to work if they are unhealthy, and could impose
an economic burden on families and society. Like everyone else, older people need both physical
and economic security, but the burden of providing these securities will be falling on a smaller
portion of the population. Pension systems will be stressed and will need reassessment along
2
TOPIC 4: Effect of Social, Demographic and Macro-Economics Forces; Fundamental Ideas
About the Humans.
The word “demographics” comes from the Ancient Greek two words: “demo” meaning people
and “graphics” meaning measurement. There is a strong tradition of studying demography as
part of economics since its related to population growth as part of economics. As the economy has
moved from financial crisis and the Great Recession to sustainable expansion, attention has shifted
from cyclical aspects of the economy to structural factors such as age, education, gender, race,
income level etc.
Demographic change can influence the underlying growth rate of the economy, productivity,
living standards, savings rates, consumption, and investment. It can also influence the long-run
unemployment rate and equilibrium interest rate, housing market trends, and the demand for
financial assets. Moreover, differences in demographic trends across countries can be expected to
influence current account balances and exchange rates. So to understand the global economy, it
helps to understand changing demographics and the challenges they pose for monetary and
fiscal policymakers.
Some examples of Demographic Trends
Until the early 18th century, world population grew little because high mortality rates offset high
fertility rates. However, increased knowledge and technological change in the form of advances
in medicine, public health, and nutrition began to lower mortality rates. Fertility rates also began
to decline. For example in the U.S. there were shifting preferences for smaller families because of
the rising opportunity costs of having children and the higher costs of raising and educating them.
The shift in population from rural to urban areas also reduced the need for large families to
run farms. The average life expectancy has risen and the population has aged. where life
expectancy is now nearly 80 years old. In some countries, the population has been shrinking over
the years resulting to the ratio of older people to working-age people becoming higher. In Europe,
fertility rates have been below the replacement level for some time. In China, the growth rate of
the working-age population has slowed since the late 1980s, and partly because of its previous one-
child policy, China’s population is also rapidly aging. On the other hand, many low- and middle-
income countries are at a considerably earlier phase in the demographic transition, with young and
faster growing populations, and rising labor force participation rates. In India, the median age is
around 27 years. Much of the increase in world population between now and 2050 is projected to
be in Africa, where fertility rates remain high.
THE IMPLICATION OF DEMOGRAPHICS TO WORK & EMPLOYMENT
The implications of these global demographic patterns for the future economy are worth
considering because they pose some challenges for policymakers. This is because these changing
demographics influence the economy, in particular, labor markets and economic growth.
1. Demographics influence on supply of labor: Typically, as mortality rates decline and people
live longer, the supply of labor increases. Increased life expectancy means individuals will need to
work longer but it causes a fall in the overall participation rate. Additionally, older workers
typically have lower unemployment rates than other age groups, and they tend to change jobs less
frequently.
1
, 2. Demographics influence on economic growth: The expected slowdown in population growth
and labor force participation rates will have implications for long-run economic growth and the
composition of growth. The key determinants of the economy’s longer-run growth rate are labor
force growth and structural productivity growth — how effectively the economy combines its labor
and capital inputs to create output. Demographics suggest that labor force growth will be
considerably slower than it has been in recent decades, and this will weigh on long-run economic
growth.
3. Demographics influence on consumption, saving, and investment decisions: Increased
longevity means that people will need to save more over their working life to fund a longer
retirement period. This is especially true given the degree of under-funding of public pension plans.
Demand for healthcare will continue to rise, and an aging population will place different demands
on the housing sector than a younger population, affecting the demand for single- versus multi-
family properties, for owning versus renting, and for residential improvements that allow older
adults to age in peace.
4. Demographic Implications for Monetary Policy: Demographics have affect on monetary
policy to the economy, in particular, the strength of wealth effects versus income effects. Older
people tend to hold more assets than the young and tend to be creditors while drawing down their
assets to fund their consumption during retirement. Younger people tend to be borrowers but face
tighter credit constraints than the old because they hold fewer assets. As the share of the population
shifts from young to old, the propagation of an interest rate change through the economy is likely to
change. There will be a smaller share of young borrowers able to take advantage of a decrease in
interest rates but a larger share of older people who benefit from higher asset prices; similar
reasoning applies for an increase in interest rates. Demographic change may mean that wealth
effects become a more important channel through which monetary policy affects the economy.
5. Demographic Influence on Financial and Other Government Policies
The rising share of older people will put significant pressure on Social Security and Medicare
which are structured as pay-as-you-go programs, with current workers providing support for
current retirees. Other developed countries’ government pension and healthcare funds will also be
stressed. Projected longer-run fiscal imbalances are likely to be unsustainable, and it seems likely
that governments will need to respond with some combination of increased borrowing, reduced
benefits, increased taxes, program restructuring, and policies intended to stem the growth rate of
healthcare costs.
Every country experiences population ageing, a trend that is both pronounced and historically
unprecedented. Over the past six decades, countries of the world had experienced only a slight
increase in the share of people aged 60 years and older, from 8% to 10%. But in the next four
decades, this group is expected to rise to 22% of the total population, a jump from 800 million to 2
billion people. Evidence suggests that cohorts entering older age now are healthier than previous
ones. However, progress has been very uneven, as indicated by the wide gaps in population health
(measured by life expectancy) between the worst (Sierra Leone) and best (Japan) performing
countries, now standing at a difference of 36 years for life expectancy at birth and 15 years for life
expectancy at age 60 years. Population ageing poses challenges for countries’ economies, and the
health of older populations is of concern.
Older people have greater health and long-term care needs than younger people, leading to
increased expenditure. They are also less likely to work if they are unhealthy, and could impose
an economic burden on families and society. Like everyone else, older people need both physical
and economic security, but the burden of providing these securities will be falling on a smaller
portion of the population. Pension systems will be stressed and will need reassessment along
2
