Demographic dividend disappearing in U.S. and China economies, labor shortage driving up wages and inflation

With population growth in both U.S. and Chinese economies not only slowing, but also aging, labor shortages will drive up both wages and inflation. Inflationary pressures that are currently unsettling the economy and markets may shrink after the epidemic subsides and the economy reopens, but in the long run, it will be difficult to make up for it.

Both the world’s largest and second largest economies are facing declining birth rates and aging, and the demographic dividend has not only disappeared long ago, but the labor shortage effect caused by the “shrinking” population is even more inescapable.

According to the latest census, the U.S. population will increase by only 7 percent from 2010 to 2020, the smallest increase since the 1930s, and the Labor Department projects that the increase in the working population between the ages of 16 and 64 will be only 3.3 percent, based on census samples.

Even if the epidemic subsides, schools reopen, and unemployment benefits tighten, forcing people back to work, some will still not return to the workforce because of the baby boomers’ retirement wave.

The only way to reverse this trend is to encourage childbirth and increase immigration, both of which are now running counter to the U.S. Immigration has even become a politically incorrect problem.

China’s demographic problems are more serious than those of the United States. Its “one-child” policy has been in place for many years, and it does not accept immigrants, so its population has grown by only 5.4% over the past 10 years, and the working population between the ages of 15 and 59 has declined by 5% or 45 million people. It has become commonplace to have jobs on the coast that are not available.

Economists Charles Goodhart and Manoj Pradhan, in their book “The Great Statistical Reversal – Aging Societies, Inequality, and the Resurgence of Inflation,” say that workers produce more and consume less, while their children and retired elders consume more and produce less. Their children and retired elders consume more and produce less.

The trend has begun to reverse, they say, with the dependent population increasing much faster than the working population, and “the dependent population itself is an inflationary pressure” because more and more of the working population must support the elderly in their families; in China, for example, one grandchild has to support four grandparents, two of whom may have dementia.

The authors say that labor, which has been in decline for decades, is now on the offensive, not from the bargaining table, but from the ballot box, at a time when demographic trends favor labor and globalization is being held back by populism.