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Uneven Prospects for the World's Millennials

Friday, April 1, 2016

Uneven Prospects for the World's Millennials

Patrick Low, Fellow of Asia Global Institute, argues that millennials from the world's richer societies face bleaker prospects than those from less prosperous ones.

To read the first of this two part series, please click here.

Two weeks ago this column compared the economic and social plight of millennials with the accumulated privileges amassed by baby boomers. Many millennials are saddled with high college debts, poor and unstable job prospects, impossible housing prices, little opportunity to save, and plenty of reason to feel disaffected.

Such circumstances are starkly different from those enjoyed by many baby boomers throughout their careers, and increasingly today as pensioners. Causal links join these two conditions at the hip.

Left unchecked, inter-generational inequalities will erode a shared sense of belonging and threaten the very fabric of society.

Moreover, in rich and rapidly ageing societies where these inter-generational inequalities are most prevalent, the situation is aggravated by a growing dependency ratio, with fewer and fewer working age people supporting a growing number of retirees.

The whole dynamic puts downward pressure on growth, compounding increasingly precarious structural realities, especially in advanced economies. Where does this leave emerging economies?

They may face another challenge - that of growing old before growing rich as opposed to becoming rich before a large share of the population grows old.

China has been singled out as the leading example of this challenge. It was Wu Cangping, an eminent Chinese demographer who in 1982 first coined the phrase "getting old before getting rich." The one child policy, initiated in the early 1980s, raised the spectre of nearer-term population ageing.

Since the 1980s, Chinese researchers have feared that a high dependency ratio would hamper escape from the much touted middle-income trap and prevent China from joining the ranks of high per capita income economies.

More than 9 per cent of China's population is now aged over 65. Analysts reckon that a population can be classified as ageing when that figure reaches 7 per cent. The global average is just over 8 per cent.

Lauren Johnston, a post-doctoral researcher at the University of Melbourne, together with colleagues at Peking University, are extending Wu's work beyond its initial Chinese context. They seek to understand better the effects of ageing among economies facing differing age and wealth configurations.

This permits a comparison between those economies that have become rich prior to building an inverse pyramid of age composition in the population, and those for whom the pyramid becomes a reality at lower levels of per capita income.

Western European economies, Japan, the United States, Canada, Australia, Hong Kong SAR, and New Zealand fall into the first category - getting old after getting rich. And according to Johnston and her team, no fewer than 26 less well-off economies are already facing an inverse age pyramid.

On the face of it, one might be tempted to conclude that the cushion of high income and accumulated wealth would make it easier to handle a "growing rich before growing old" situation than the reverse condition where ageing must be accommodated earlier on in the development process. Johnston's work questions this.

The rich countries are facing low growth in part precisely because of the generational divide. A balance of political power favouring the aged obstructs redistributional initiatives that could drive greater dynamism in the younger and more productive segments of society - precisely at a time when this is required to support ageing populations. Recent literature on the relationship between growth and inequality suggest a negative correlation. Other problems also beset advanced economies, including the seeming disappearance of productivity growth.

The lower-income countries facing ageing challenges may have access to more policy levers. Many of them are still growing and could sustain easier redistribution. While rich country growth depends largely on productivity increases, the scope for adding physical capital and labour is still a factor in emerging economy growth performance.

Moreover, emerging economies retain considerable scope for increasing human capital, productivity, and output per worker. When output per worker increases a growing dependency ratio is less debilitating. Opportunities for diminishing demographic burdens on growth may mean that prospects for the young in rich societies are bleaker than in lower-income economies that can yet escape the middle-income trap.

This article first appeared in the South China Morning Post on March 30, 2016 as Why millennials in rich societies face bleaker prospects than those in poor ones

The views expressed in this article are the author's own and do not necessarily reflect Asia Global Institute's editorial policy.


Patrick Low

Senior Fellow, Asia Global Institute

Patrick Low


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