In a new study from the OECD titled “Shifting Gear: Policy Challenges for the Next 50 Years”, we learn that ageing of the population, the decline in immigration and climate change are likely to slow the rate of global growth.
More than just a prediction, the OECD points to several factors likely to result in a slowing of the economy over nearly a half-century if the governments of the major world powers do not take them into account in their future policies. But what are they exactly?
Ageing of the population
According to the last census in 2011, people 65 years old and above represent 14.8% of the Canadian population. This proportion is 1.1 percentage point higher that in 2006 and is likely to increase more in the next census in 2016. Across the OECD the situation is identical. So much so that ageing of the population will affect growth per capita of the GDP. “Even where retirement is delayed, the ageing of the population will lead to a decline or, at best, a levelling out of the active population in most economies”, we learn from the OECD study. To develop points for growth, the international organization’s analysts suggests that governments leverage innovation and intellectual capital (organizational know-how, databases, project design, intellectual property, etc.).
The drop in emigration
Another phenomenon which will increase the demographic pressure: the drop in emigration. The reduction in income disparities between OECD countries and emerging countries such as China, Brazil and India is likely to lead to a reduction of work-related immigration. The authors of the study believe that by 2060, “the drying up of immigration could thereby have reduced the active population by 20% in the euro zone and 15% in the United States (…)”. Governments should focus on incentive labour policies so that a broader spectrum of the population is active.
The increase in inequalities
The study’s authors are categorical: “if redistributive policies remain unchanged, an average OECD country will face a 30% increase in pay inequality (before taxes) by 2060, a level of inequalities almost the same as that currently seen in the United States”. Still, if pay inequalities increase, they could compromise growth in the OECD area. To remedy this, countries should promote the concept of equal opportunities in access to education as in access to work, and put in place better redistributive policies, especially in tax matters.
Climate change
The environmental question could also play a leading role in growth development since it could cut 1.5% off the average world GDP and 5% off the GDP in South-East Asia. These estimates take into account the impact of the increase in greenhouse gases on agricultural productivity and sea levels but not the cost of health care and losses due to local pollution. These two factors, if recorded, could also influence the rate of economic growth. To counter the phenomenon, the OECD study urges the idea of working on a concerted policy of greenhouse gas reduction on a global scale.