Issues with demographic forces in Asian region

Jon Aldous 기자 승인 2023.11.17 10:42 의견 0

The adage "Demography is destiny" aptly describes the powerful, albeit slow-moving, impact of demographic forces. Historically, Asia's demographic trends have facilitated a transition from agriculture to industry, driven by young rural migrants. However, the demographic landscape is shifting, with countries like China and Advanced Asia experiencing rapid aging, while other Asian economies with lower productivity levels see an increase in their working-age populations and nonfarm workforce. The challenge for Asia lies in enhancing productivity to counteract the effects of aging, utilizing its varied demographic profiles. Additionally, there's a need for companies in aging parts of Asia to reskill their workforces and embrace automation to boost productivity.

The Role of Demographics in Asia’s Economic Success: Asia's remarkable achievement of lifting 1.1 billion people out of extreme poverty since 1990 can be attributed to a favorable mix of a growing working-age population, migration from rural to urban areas, and a spike in productivity.

A Monumental Shift in Labor Supply: During the Era of Markets, Asia experienced what could be described as the world's largest labor supply shock. From 1990 to 2022, the region contributed 55 percent of the global increase in the working-age population, which grew faster than the overall population. Urbanization played a significant role in this shift, with the proportion of Asia’s urban population rising from 40 percent in 1990 to 48 percent in 2022. This urban growth led to a substantial restructuring of the workforce, notably in China and India, where the farm employment share markedly decreased.

Continued Urbanization Potential: Despite these changes, a considerable portion of Asia's population still works in agriculture, indicating the potential for further urbanization. In India and China, a significant number of workers are still engaged in agriculture, contrasting sharply with less than 2 percent in the United States. By 2050, urbanization rates in China and India are projected to reach 80 percent and 53 percent, respectively, adding approximately 600 million people to urban areas in these two countries alone. The interplay of these factors — a declining proportion of the working-age population but an increasing nonfarm workforce — will be critical in shaping Asia's future.

Asia's demographic trends have been greatly enhanced by significant productivity increases, especially notable in China. Between 1990 and 2022, China's productivity grew more than 14-fold, while India’s increased over fourfold. A substantial part of this growth is attributable to workers transitioning from agriculture to other sectors. For instance, in India, a farm worker's productivity is just a quarter of that of a nonfarm worker. In China, approximately 35 percent of the productivity gains since 2000 are due to this agricultural shift, with the remainder stemming from remarkable productivity growth in the industrial sector, supported by rapid capital development.

Adapting to Demographic Shifts: With aging populations, Asia faces the challenge of matching work with future workforce locations. This transition necessitates a significant increase in productivity, particularly in new labor pools.

The Challenges of an Aging Population: Rapid aging is a notable trend in parts of Asia, with China, Japan, and South Korea projected to have some of the oldest populations globally by 2050. In Advanced Asia and China, the elderly will constitute 34 percent and 30 percent of the population, respectively, nearly double that in Emerging Asia (16 percent) and India (13 percent). The dependency ratio in the region is expected to rise from 47 percent in 2022 to 58 percent by 2050. This aging process is occurring at a much faster pace in Asia compared to the United States and the EU. For example, it took South Korea just 15 years, Japan 22 years, and is expected to take China 23 years to see the median age rise from 30 to 40, a transition that took more than 50 years in the United States and the United Kingdom. By 2050, the population aged 64 or above in the region will have increased by an estimated 425 million, equivalent to the combined populations of France, the United Kingdom, and the United States.

Workforce Imbalances: By 2050, Advanced Asia and China, collectively referred to as “aged Asia,” could see a reduction of 250 million working-age individuals. Although new workers will emerge in other regions, their productivity levels are significantly lower.

When considering Asia's labor force collectively, the demographic profiles across the region complement each other. The decrease in the working-age population in China and Advanced Asia is nearly balanced by the addition of 200 million working-age individuals in Emerging Asia and India. However, this still results in a shortfall of approximately 50 million workers.

The ongoing migration from agricultural to non-agricultural sectors is expected to mitigate some of the impacts of this deficit. For example, in China, which is already highly urbanized, the agricultural labor force is projected to decrease from 22 percent to 12 percent by 2050, resulting in 87 million fewer farm workers. This transition will somewhat cushion the effects of an aging population in the industrial sector but will still lead to a reduction of 29 million industrial workers.

A significant shift is anticipated in India, where the proportion of farm workers is expected to drop from 46 percent in 2022 to 29 percent in 2050, adding 223 million individuals to non-farm employment. This change is particularly relevant for Indian women, 60 percent of whom are currently engaged in subsistence farming.

While cross-border labor flows or relocating value chains could alleviate some of the labor market challenges posed by an aging population, large-scale immigration is less likely than value chain relocation. Few Asian countries have experienced significant immigration; for instance, migrant stocks as a percentage of the total population were very low in countries like China, Japan, and South Korea, compared to much higher percentages in countries like Australia, New Zealand, the United States, and Canada. South Korea has made policy moves to facilitate immigration, but this is unlikely to substantially alter the overall labor dynamics.

More probable in the short term is the relocation of work to where the labor force is located. The 'China Plus One' strategy exemplifies this, with Foreign Direct Investment in the Association of Southeast Asian Nations increasing significantly, partly driven by inflows from China, from 2015 to 2021.

The Necessity of Boosting Productivity: The dynamic of shrinking labor pools in Asia's most productive regions and their expansion in less productive areas complicates the straightforward movement of work. A significant productivity disparity exists between Asia's advanced and emerging economies. For example, the nonfarm productivity in Advanced Asia is approximately eight times higher than in India. While India's nonfarm productivity is projected to rise from around $9,800 per worker to about $22,000 by 2050, it will still lag behind China's current productivity level of $26,000. If India and Emerging Asia could match China's historical nonfarm productivity growth rate, Asia's overall productivity could potentially triple by 2050 to $86,000. However, based on current trends, nonfarm productivity is expected to nearly double, reaching $46,000 by 2050.

Elevating More Asians Out of Poverty: Increasing productivity is crucial for alleviating poverty in Asia. In 2019, over 185 million people in the region were living in extreme poverty, earning less than $2.15 a day. At a higher international poverty threshold of $3.65 a day, the poor population in Asia was about 950 million. Emulating China's productivity success across Asia is key to improving incomes and addressing the challenge of higher dependency ratios, but this will require substantial capital investment.

Addressing Asia's Demographic and Productivity Challenges: Asia is at a pivotal point where demographic trends and productivity growth intersect, presenting a mix of challenges and opportunities.

UN population database

세계를 읽는 눈 - 뉴스네이션

저작권자 ⓒ 뉴스네이션, 무단 전재 및 재배포 금지