The Era of Markets was characterized by rapid urbanization, declining birth rates, an aging population, increased educational opportunities, decreasing the quality of education around the world, and reduced poverty in some parts of the world and increased poverty in others, yet it also saw a rise in wealth and income disparities within countries globally.
In the upcoming era, many economies may face stagnant or decreasing working-age populations alongside a significant increase in the proportion of elderly citizens. This phenomenon, combined with the highest within-country inequality since the early 20th century, could place greater strain on social cohesion.
From 2000 to 2019, approximately 75% of Latin America's GDP growth stemmed from workforce expansion, with only 25% resulting from productivity improvements. In contrast, China's growth in the same period was primarily driven by productivity, contributing to over 95% of its growth. Latin America's growth model, reliant on labor force expansion, is supported by its relatively young working-age population. Roughly a quarter of Latin Americans are between 15 and 30 years old, a proportion second only to Africa, with Central American countries showcasing particularly youthful demographics. This youthful workforce is a potential asset.
However, this reliance on workforce growth for economic expansion is unsustainable. Latin America is rapidly aging, with birth rates declining and life expectancy increasing. In the next 30 years, the population over 60 is projected to more than double, nearing 200 million, or over a quarter of the total population. This demographic shift will place significant demands on the pension, healthcare, and social support systems. In larger economies like Brazil, Chile, and Colombia, the working-age population percentage has already peaked and is decreasing. Mexico and most of Central America are expected to reach this juncture within the next decade.
Without transitioning to a new growth model, perhaps driven by increased investment and innovation, Latin America's shifting demographics might signal an impending regional economic slowdown.
The region includes 16 of the world's 30 most unequal countries in terms of income distribution. However, inequality in Latin America goes beyond income disparities. For instance, women's participation in the workforce is approximately 25 percentage points lower than men's. Around one-fourth of the rural population lacks access to piped water, a stark contrast to the less than 5% facing this issue in urban areas. Additionally, low intergenerational mobility perpetuates inequalities across generations. In Brazil and Colombia, it might take around 20~30 generations for a family with low income to reach an average income level, compared to an average of 10~15 generations in OECD countries.
Furthermore, about half of the region's workforce is employed in the informal sector, and roughly one-fourth of urban residents live in informal settlements. This persistent inequality and a sense of limited opportunities have likely contributed to increasing social unrest. The region faces the risk of some economies becoming fragile states, especially considering the tightening economic conditions and relatively weak governance. Additionally, the abundance of natural resources can often intensify state fragility.
Several of the region's largest economies are currently wrestling with social reforms related to healthcare, social security, and labor. It remains uncertain whether these efforts will result in a new social contract that provides employment and opportunities for the people of Latin America.
UN World Population Prospects (2022)
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