Chart of the Week
Behind the ugly economic news coming out of Europe – as the eurozone seems to be heading into its second recession in less than three years – lies a still more ominous set of data that is likely to have repercussions for Europe’s economy and the choices available to its policymakers for many years to come.
As can be seen in this week’s Chart of the Week, below, the percentage of the population of Europe that is of working age has begun to decline; a decline that is likely to accelerate sharply over the next several decades as aging workers retire and there are fewer younger citizens graduating from high school and college, moving into the workforce, and taking up their share of the tax burden.
The consequences of an aging citizenry are numerous. First, and most dramatically, in any society, retirees consume a disproportionate percentage of a government’s social spending, ranging from pensions to healthcare. Secondly, they tend to consume fewer consumer goods, meaning that they aren’t contributing to the economy’s growth in that way, either. Finally, when they retire from the workforce – which happens at a relatively early age in many European nations – they contribute far less to government tax revenues. Economies already battling to balance budgets and tackle lofty public debt levels will face additional challenges as a result.
In contrast, in the United States, the percentage of the population that is of working age is expected to climb a few percentage points over the coming decades; the relative lack of change may well prove a stabilizing force. Meanwhile, in India, the forecast is for that percentage to climb significantly over the next 20 years. That may well create fresh challenges for the emerging economy, which already is grappling with relatively high unemployment rates and far higher rates of youth unemployment.
In the coming weeks, we’ll revisit European workforce issues, and focus specifically on the composition of the workforce. Even as the macro data showcased in this week’s Chart of the Week – which, as always, seeks to depict the economic trends making headlines and shaping investment decisions – show clearly the problem created by an aging population, the Eurozone must also contend with structural issues that mean that even within the ranks of those theoretically able to work, a far smaller percentage of those actually do so than is the case in other nations.
Correction: Please note that unfortunately the US series is not calculated on the same basis as the Euro Zone and India. Oxford Economics US working population data are taken from Bureau of Labor Statistics (BLS), where the working population in the US includes people aged 16 and over as well as those 65 and over. In the case of the Euro Zone and India, the working population is 16-64.
Learn more about how Datastream can help you better analyze macro data and quickly identify data trends and relationships. Request a free trial today.