Global Aging Demographics
Pat Dorsey on the implications of America's aging population vs. the much more rapid aging in Germany, Japan, and France.
Global Aging Demographics
Investing Insights with Pat Dorsey
Pat Dorsey: Hi I’m Pat Dorsey Director of Equity Research at Morningstar. With the
healthcare bill it seems finally out there and becoming a law and social
security reform possibly on the table. We’ve seen a few news reports on
that. I thought it might be time to kind of pull back and take an 80,000 foot
view of things and look at some demographic issues in terms of how much
older the uses is getting and importantly though how much older the rest
of the world is getting at a faster pace than us.
So if you look at just the U.S the numbers are a little bit scary. There is a
ratio called the dependency ratio which is basically the number of
dependents folks and you know under 15 over 65 per 100 working age
individuals. Now for the purposes of thinking about supporting older
individuals which is more expensive than supporting a young folks and it
also gets more expensive over time because as life expectancies go up
medical treatments cost more and more.
The cost of formula physically change over long periods of time the cost
of healthcare does so its really that number of older people, number of
older 65s per 100 working age individuals that we want to pay attention to.
In the U.S right now this is about 19. You have about 19 individuals over
65 per 100 people between the ages of 15 and 65 per working age adults
and over the next 40 years that’s going to go to about 35, folks over 65 per
100 working adults.
Now that sounds pretty scary and indeed its you know pretty rapid
increase in the number of folks in needing more medical care, few of them
working that the working age population only to support. The silver lining
is the rest of the world has it much worse. If you look at the numbers in
say Japan, Germany, France many other parts of the world these trends are
there in spades. In Japan, right now you have 35/65 and its going to 75 per
100 working adults over the next 40 years.
Germany almost as bad currently 30/65 per 100 working adults going to
59 and France 26 going to 47. Now again people are working longer as
you move more and more a knowledge based economy. It’s feasible for
people to reproductive later in life in a way that it wasn’t when work
consisted of you know poorly in the fields or working a steal mill but the
thing that they remember is that you know net, net more folks in that over
65 bucket relative to other countries say you know Russia and Europe
relative to the U.S is the U.S has frankly more productive people being
used per capital so our GDP growth is probably going to be significantly
higher because we have fewer folks in the over 65 area to support.
So it’s a fast leading thing to think about because in a lot of ways these are
the countries were competing with right now certainly over longer periods
of time as countries like Brazil and Indonesia and India move further out
the economic value chain and are able to export and compete in more
advanced markets with the U.S and German and Japanese goods. They
will be our competitors as well but right now our major competitors for
you know complex manufactured goods on global market really are these
other watching your PNN nations as well as Japan and frankly they’re
going to have a harder and harder time doing it because they don’t have
this demographic tail at the USS.
And we’re really breaking this down. There’s only two elements really to
GDP growth, how many people you got and how productive are they,
population growth and productivity growth so unless there are massive
changes in say birth rates in the world and those tend to be pretty stable
over time the US just culturally had a higher birth rate than many other
countries what immigration rates with the USS has been very immigration
friendly relative to many other countries in the world, well over a very
long hull it puts us on firmer footing perhaps than our industrialized
I’m Pat Dorsey and thanks for watching.
Global Aging Demographics
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