A global aging population and Bangladesh's economy | The Daily Star
12:00 AM, May 25, 2018 / LAST MODIFIED: 01:13 AM, May 25, 2018

A global aging population and Bangladesh's economy

Many of the industrialised economies are going through an unprecedented demographic change called “population aging”. Population aging is a situation where the share of the population over 65 rises relative to the working-age population (15-64 years). In Japan, for example, there are so many older people that recently Japanese government statisticians divided people over the age of 90 into three separate categories: 90-94, 95-99, and 100-plus. Today, a staggering 68,000 Japanese are at least 100 years old!

While birth rates are falling, aging is more of an outcome of people living much longer, thanks to advances in medical technology. A century ago, workers in Europe would be lucky to reach retirement age; today, people are expected to live 20 to 30 years after their retirement. A lot of ink is being spilled fretting over the effects of population aging on economic growth, mostly from the perspective of developed countries. A widespread perception is that older populations work less, reducing a country's potential productivity and economic growth.

Comparatively little is known about how global population aging will affect the economy of Bangladesh. From an economic perspective, Bangladesh's integration to the rest of the world can be narrowed down to two items: exports of readymade garments and labour services (mostly unskilled or semiskilled workers). So, it is very likely that any changes to the global economy would be transmitted to the Bangladeshi economy through these two direct channels: RMG and overseas workers.

Will we see a fall in garment exports because the size of elderly population is increasing more than the younger population in developed countries? Will developed countries hire more workers from Bangladesh because of their shrinking labour force? In a recent research study, we shed light on these questions.

Older people consume goods and services differently than younger people. For example, older consumers spend less of their income on clothing and transportation and more on food, medicines, and healthcare products. Older shoppers have higher disposable income than young consumers. In the United States, for example, income growth of the 65-and-older age group has been the best performer in the last decade. The labour force participation rate of the elderly cohort also recorded the highest growth. Today, the young are more burdened with debt than old people.

Surprisingly, many retailers such as H&M and GAP—with whom Bangladesh does a lot of business—have not targeted older shoppers successfully. Most clothing advertisements are still fixated on younger shoppers. According to AT Kearney, a global management consulting firm, for the rest of the 21st century, the world's fastest-growing consumer group will be people of the age of 60, who will force companies to rethink the way they do business.

All these facts and trends, however, are a matter of lesser concern for Bangladesh. This is because Bangladesh is a part of international production networks and a subcontractor for large retailers. So thankfully, Bangladesh need not worry about the shift in consumer preferences for apparels. This is a headache of western retailers who must continuously follow changing market trends.

Such complacency about changing market conditions, however, comes at a hefty price for Bangladesh. For example, a news headline in a local English daily in May 2017 read: “What does Bangladesh get for a $42 shirt? $3.30.” The large price gap between suppliers and buyers is the price of complacency for not bearing the risk of unsold merchandise, changing tastes, or even shipping accidents when transporting the goods overseas.

So, global population aging does not have a direct impact on the future demand for Bangladesh's RMG. As long as Bangladesh remains a competitive supplier, it is likely to maintain its market share in global apparel market despite the pronounced demographic shift in developed countries.

What about the impact of population aging on Bangladesh's overseas employment? On the surface, it seems that because of the relative rise in the number of older workers, developed countries will hire more workers from labour-surplus countries such as Bangladesh. The logic behind this conjecture is that a smaller labour force will hurt economic growth.

But this is not always the case due, at least, to two factors: automation and the rise of nationalism. In fact, recent research suggests that countries experiencing more rapid aging have grown much faster in recent decades. The explanation for this counterintuitive finding is that countries with a fast-aging population are rapidly adopting automation technologies. To minimise the potential adverse effects of labour scarcity, developed countries are increasingly relying on industrial robots for work that humans used to do. South Korea, Germany, Netherlands, and Finland are leading the adoption of industrial robots among OECD countries.

Besides automation, developed countries are encouraging older workers to remain longer in the labour force by raising the retirement age and other complementary initiatives such as phased-in retirement and late-life work. Surprisingly, today's older people are more willing to work than their previous generation. In the United States, the labour force participation of men aged 65 to 69 was 37 percent in 2016, compared to 25 percent in 1985.

However, the biggest threat to the free movement of labour comes from the global rise of populism. There is a growing aversion to immigration among the population in developed countries. Both trade and immigration have become prominent targets since Brexit and Donald Trump's ascendancy to presidency. Therefore, despite a population decline, a large segment of the population in developed countries may prefer to be poorer and keep the country to themselves.

Finally, more than trade and labour, population aging will create opportunities in finance. As older people save, a global pool of savings becomes available in the form of pension funds, insurance, sovereign wealth fund, etc. Most of these savings are invested in equities and bonds, and only around one percent of the savings is invested in infrastructure. Herein lies a tremendous opportunity for capital-hungry countries like Bangladesh—but to make use of it a proper legal and economic environment is needed for institutional investors.


Syed Basher is an associate professor of economics and Teresa Islam is a graduate student of economics at East West University (EWU). This article is based on Teresa Islam's research paper for the Department of Economics, EWU.

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