Expansion

Mexico's aging will require accelerating productivity

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Globally, the distribution of the population by age is changing. The new McKinsey Global Institute report, Dependency and depopulation? Facing the consequences of a new demographic reality , shows how what we previously thought of as population pyramids, with the highest concentration of people at the base (corresponding to the youngest ages) and the lowest concentration at the top (corresponding to the oldest ages), are transforming into population "obelisks." In these obelisks, the concentration of people has shifted to the top of the structure, while the base, which was once broad, is becoming increasingly smaller.

This phenomenon is due to the fact that, almost everywhere in the world, people are having fewer children and living longer lives. In general, family size has decreased due to the decline in the fertility rate. In demographic terms, this rate refers to the total number of children that each woman will have during her lifetime, and it is now below the replacement rate of 2.1, estimated by the United Nations (UN) to keep the population at a constant level over time.

In Mexico, the aging process is happening faster than it seems. The country's fertility rate, at 1.9 children per woman, is also below the replacement rate, projecting that the population will peak in 2058 and begin to decline from then on. Meanwhile, the percentage of people of working age will peak in just five years, in 2030.

The importance of this change lies in the fact that current economic systems and social contracts have been developed over decades of population growth, especially of working-age populations that drive economic growth and support people who live longer. This calculation is no longer possible with the new population structures. For Mexico, this transformation would have two consequences of significant impact.

The first would be slower economic growth—the end of the “demographic dividend” that Mexico has enjoyed until now. In general, people work less as they age, and per capita gross domestic product (GDP) growth depends on the number of hours worked per person and the productivity of each hour of work. From 1997 to 2023, Mexico’s favorable demographics added 0.5 percentage points per year to per capita GDP growth, more than half of total growth; the projection for 2050 is that growth will slow to just 0.1 percentage points per year.

No less important in its impact, the second consequence will be the pressure on public finances, with lower tax revenues and a greater burden on pension and health systems, as well as on families to support the elderly.

As Mexico (and the world) ages, the ratio of workers to each older person will decline. This ratio, known as the support ratio, measures the number of people aged 15 to 64 (or those of working age) relative to the number of people aged 65 or older. In 1997, the support ratio in the country was 12.8, or nearly thirteen people of working age to support one older person. Today, it is 8.4, and is expected to fall to 3.9 by 2050.

The good news is that Mexico has some room, which is actually time, to work on solutions that allow it to maintain sustainable economic growth in the face of this situation. These solutions should focus on increasing labor participation and productivity.

For example, we could increase the participation of female workers between the ages of 20 and 49, since this group has a significantly lower participation rate in our country (52%) compared to advanced economies (74%). This would require better childcare and eldercare programs to help workers balance their family life with their work.

Furthermore, labor productivity in Mexico is still $30 per hour, compared to $60 per hour on average in advanced economies, so the country still has the opportunity to close that gap through innovation, investment, and technological adoption. In fact, productivity growth in Mexico is one of the country's pending issues, since it has been stagnant for 25 years, with 0.2% annual growth. As a reference, Latin America as a whole, despite being the region of the world with the lowest productivity growth, grew 0.8% annually in the same period.

We have time, but it is limited. In just one generation, Mexico will be as old as today's advanced economies are, that is, in just over 25 years, the Mexican support rate, as well as the percentage of people over 65 years old, will reach the current level of those economies. Mexico has to "get rich" before "getting old." The challenge is relevant, but we are at the right time to begin to solve it and manage to capitalize on it as an opportunity for significant and sustainable growth for the country.

This article was translated by Expansion and originally appeared in their publication. 

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