- Australia’s working-age population has grown at twice the level of the US and UK since 2011.
- Working age is generally defined as those aged 15-64 years.
- Nikko analyst Chris Rands says a positive connection can be drawn between working age population and economic growth.
Australia’s working age population has grown faster than other G10 economies over the last seven years, research shows.
Since 2011, the growth rate of Australia’s working age population has doubled that of the US and UK:
“In 2011 a dramatic shift occurred through the developed world — working age populations began a multi-decade decline,” said Chris Rands, fixed income portfolio manager at Nikko Asset Management.
Working age populations are typically defined as those aged 15 to 64 years old.
“Demographic shifts in an economy like this can have profound effects on economic factors, leading to changes in growth and debt metrics.”
And Rands said the difference in working age population growth has been a contributing factor to relative economic performance over that time.
He based his argument on the following equation: GDP growth = workforce growth + productivity growth.
“In order to grow, an economy can increase the number of people working and/or improve how efficiently those people work,” Rands said.
That line is worth considering, because it’s central to the ongoing debate about Australia’s current rate of population growth, which is being driven by high levels of immigration.
Last week, CBA analysts took a look a Australia’s chronic levels of low wage growth, and found Australia’s current levels immigration could be exacerabating the problem.
Yesterday’s Q2 GDP data beat expectations with headline growth of 3.4%, although underlying data showed growth per capita was only 1.5% — a reflection of strong population growth.
On the other hand, RBA governor Philip Lowe used a speech last month to espouse the benefits of population growth. Lowe said Australia’s immigration level have reduced the average population age and “boosted the nation’s human capital”.
But Rands highlighted the tricky balancing act of economic growth via population growth, with reference to the “productivity” component of his GDP equation.
He cited research from the Bank of England which shows the individual output of workers peaks at around age 50, while “the productivity of young and old workers is lower”.
As a result, “demographics can have a considerable influence on productivity as people acquire new skills at a different pace throughout their lives”.
But looking at the last seven years, Rands said a link can still be drawn between working age population growth and economic performance.
Based on the chart above, “our findings show that these ten countries do indeed follow a distribution based on their working age population growth,” Rands said.
“Countries with positive working age population growth have been able to achieve higher levels of growth and inflation, bringing with it a higher interest rate structure.”
Australia’s working age population growth is still expected to lead other major economies over the next seven years, although it will be at a slower rate.
“From a demographic perspective the next seven years are going to produce similar economic challenges to the past seven,” Rands said.
“Only the United Kingdom is expected to see a higher rate of working age population growth compared to the period 2011-2018.”
Australia’s working age population growth is expected to grow by around 5%, compared to a 0-2% range for the US, UK and Canada.
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