Macroeconomic & Geopolitical

Running Out of People

May 2021 – 3 min read
Understanding the forces that will one day fuel persistent price increases helps clarify why inflation is less of a problem now.

Prices are rising fast as global demand recovers, but in a market economy these will trigger fresh supply to cap inflationary pressures. At some point, the cost of a barrel of oil, a shipping container, and even staffing a fast-food restaurant will stop rising. Soon enough, the world’s ample labor supply—with a little help from automation and data science—will adjust to keep overall wages in check.

But that’s not to say that the global workforce will remain forever ample, or that wage inflation is impossible. Even though it’s not a problem in this cycle or the next one, persistent price rises will return when the supply of workers dwindles relative to the work to be done. 

That’s where investors worried about inflation should set their sights, while taking comfort in the fact that persistent price pressures will be limited to a few sectors where skills are in short supply, or where technology is not driving rapid gains in productivity. 

The short-term picture looks especially confusing as the U.S. reports lots of job seekers and lots of open jobs, but this may reflect a combination of factors, including mismatched skills, residual pandemic concerns, and government support checks that keep some at home for now. With nearly 10 million Americans still unemployed, digital systems that continue to replace humans and a labor supply that remains global in spite of fresh trade friction, it’s hard to imagine a generalized pay rise.

The outlook is far more worrying beyond the next few years and into the next few decades. Under current trends, it now appears we will start to run out of new people to fill the world’s jobs. This may not occur in this recovery or the next one, but a population peak may come sooner than expected, with implications for both inflation and interest rates when it arrives.


New Chinese data showed that last year’s population barely rose from the year before. Pandemic restrictions and economic uncertainty may explain part of it, but the country’s 12 million births are down 18% from 2019. China’s population now stands at 1.4 billion, up just 5.3% in a decade. While the United Nations has been predicting that the country’s one-child policy would lead the population to peak in 2030, officials now worry the decline may start to appear over the next few years. 

U.S. census-takers delivered some unsettling news, too, as the population grew at its second-slowest rate since… 1790. The coronavirus lockdown added further headwinds to a decade of economic uncertainty, declining fertility, and slower immigration. At 331 million, the population has grown just 7.4% since 2010. 

Meanwhile, the baby news continues to look bleak in places like Japan, Italy, South Korea, and Spain, where populations may halve by the end of the century. While the United Nations projected the world’s population might peak in 2100 at 11 billion, a more recent study is calling the top much sooner and at a much lower level: 9.7 billion in 2064. Even expectations for a pandemic-led baby boom appear to be leaning toward a baby bust

Demographic trends are at once far more predictable and far more uncertain than other economic data. Rising and falling fertility rates change slowly and have direct impact on overall economic trajectories. Ultimately, though, they remain dependent on the vagaries of human psychology, household incomes, and government policy. 


Source: Institute for Health Metrics and Evaluation and the University of Washington. BBC. As of July 2020.


Source: The Lancet. BBC. As of July 2020. 

Twentieth-century demographers were preoccupied with the risks of a population explosion that would culminate in a Malthusian struggle for limited natural resources. The current conventional wisdom suggests that, as countries grow richer and more women join the workforce, population growth slows sharply. Countries like Sweden have found that government policies to provide more child care and family allowances help boost fertility rates somewhat, but they hardly drive a boom.

One of the largest uncertainties around global forecasts remains the rapid population growth trends in parts of Africa and the Middle East, but there is little reason to believe these will not fall with time as affluence changes family preferences and possibilities.

“It now appears we will start to run out of new people to fill the world’s jobs. This may not occur in this recovery or the next one, but a population peak may come sooner than expected, with implications for both inflation and interest rates when it arrives.”

Slowing population growth may help delay some of the worst consequences of climate change, but the economic consequences may be dire. Fewer people alone will not necessarily drive up the cost of hiring them, but fewer working-age people relative to the overall population may do just that. Economists Charles Goodhart and Manoj Pradhan focus on this rising dependency ratio as they lay out the case for rising wages, prices, and interest rates. 

Their argument likely underestimates the influence of technology and globalization in keeping inflationary pressures at bay for now, but the longer-term consequences bear watching. Current investor worries about supply shortfalls should focus instead on the future needs of a planet whose most precious resource is—quite literally—able-bodied people.

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