What Does Population Aging Mean for Growth and Investments?
Paula Campbell Roberts, KKR:
If you think about what drives economic growth, there're two
fundamental aspects. There's growth in the labor force, and
productivity. What demographics is impacting is the labor force
side of the equation.
As more and more people are exiting the labor force and retiring,
that's the growth in the over-65 population, that lessens or
decreases the size of that labor force.
In addition, millennials or school aged individuals are actually
staying in school longer. On both ends, you're seeing sort of a
slowing of growth in that core working age population. That, then,
constrains overall economic growth.
Privcap: Europe has the oldest population in the world. What are we learning there?
Campbell Roberts: Europe is certainly the oldest economy, and has been the oldest
economy for some time.
As that dependency ratio rises—larger population of baby boomers,
smaller population in the working age—there's a shift in funding
from the working age population to baby boomers. I think we
should expect to see more of that in other countries.
But in addition, that creates sort of an inter-generational conflict.
You have this retired baby boomer population that potentially is
putting a strain on this shrinking working age population,
particularly in Europe, in countries like Germany, for example.
If the sum total of a government budget is now going to be
differentially focused on pensions and social security and
healthcare, versus, potentially, programs that would support the
working age or younger populations.
Campbell Roberts: Japan actually has a contracting workforce, and has had that for
some time. That has caused stagnation in Japan, and because it
hasn't benefited as much from immigration, that really is a
significant drag. For Japan to improve economic growth, it really
has to invest in productivity.
On the other hand, you have countries like Mexico, where
productivity may not be as high, but they have the benefit of high
fertility rates, of a growing working age population.
What are the most important demographic trends in the U.S.?
Campbell Roberts: While the U.S. is also experiencing the aging of the baby boomer
and this aging population, we benefit from the coming of age of a
very large and diverse millennial population. That's driven by the
fact that a significant portion of the millennial population, I think it's
about 1/3, are represented by Hispanics, who have above average
fertility rates and are therefore contributing to growth in the working
age population. In the U.S., we expect a bit of a hockey stick, where
the potential for economic growth may slow for some time, but we
do expect a tick up driven by millennials coming of age.
Campbell Roberts: Certainly, the below average wage growth that we've seen in
millennials could, down the line, become an issue. But for right now,
they are set up to benefit from the huge baby boomer wealth that
has been accumulated.
What are some facts about the large foreign-born population of
the U.S. that both sides of the political aisle need to understand?
Campbell Roberts: The U.S. would not have been able to sustain the levels of
economic growth that we have without immigrants, without this
foreign-born population. That said, we also have to think about our
native-born workers, and the impact that foreign born workers may
have on that. It's a complicated issue. If we on both sides of the
aisle could acknowledge the complexity, I think we could go a long
way to actually solving the problem.
What is a top long-term investment play based on these
demographic forecasts?
Campbell Roberts: I'm very bullish on infrastructure. One of the topics we haven't
talked about is how these demographic trends are going to fuel
continued urbanization. The urban footprint to support that growing
population is going to need to increase. Unfortunately,
governments' budgets are constrained. They're not able to fund a
lot of this. As investors, I think there's a lot of opportunity for private
capital to find very profitable investments related to infrastructure.
Every single dimension of sort of that urban footprint is going to
require investment, and in many cases these great cities that we
have in the world, especially in places like New York, are sort of
overdue for that type of investment.