Demographics can change the picture for nations' economies

What happens when the huge baby boomer population in the United States retires? Will there be a workforce sufficient enough to support the economy? Because of millennials — who earlier this year overtook baby boomers as the largest generation, according to the Census Bureau — the US demographic picture looks more sustainable than an aging population such as Japan’s.

The charts below graphically depict the comparison between the US and Japan in 2036, 20 years from now. In the US chart, the baby boomer group (who would be ages 72 to 90) is a diminishing part of the top of the pyramid as they age. The millennials, who would be in the 40- to 56-year-old range in two decades’ time, show as a slight bulge in the younger part of the chart. In fact, the entire US chart has a more consistent younger base — as opposed to Japan’s “kite” view in 2036, where the extremities are directly at the retirement age range of 60 to 69.

Population dispersion by age, US and Japan, in 2036

Population dispersion by age, US and Japan, in 2036

Source: United Nations, Department of Economic and Social Affairs, 2015

What the shrinking Japanese workforce tells us

This experience in Japan helps explain the long-lasting and deep recession in that country that has continued for 20 years, despite many fiscal and monetary policy efforts to address it. Japan’s economic doldrums began in the mid-1990s, when a significant part of the Japanese workforce began retiring. Correspondingly, the national output in Japan also shrank, leading to recession that has been difficult to break out of because of fewer workers.

However, the impact of aging populations makes even economies such as the US, with its larger base of younger workers, not entirely immune. As the chart below shows, the US Bureau of Labor Statistics has been tracking falling labor participation rates for a decade. This graph also shows the impact that changing demographics can have on workforce participation and how it tracks against the Japanese experience.

Will US labor force participation follow a path similar to Japan's

Source: US Bureau of Labor Statistics (BLS), Bank of Japan, Macquarie, 2014

Charts are shown for illustrative purposes only.

The views expressed represent the Manager's assessment of the market environment as of July 2016 and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject to change without notice and may not reflect the Manager's views.

Carefully consider the Funds' investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Funds' prospectuses and their summary prospectuses, which may be obtained by visiting or calling 800 523-1918. Investors should read the prospectus and the summary prospectus carefully before investing.


Investing involves risk, including the possible loss of principal.

Past performance does not guarantee future results.


Subscribe to hear from our portfolio managers and analysts on trending topics

I'm interested in hearing from:
Or select:

Subscribe to Insights

Thank you for your subscription!

Top charts of the month