Harry S. Dent | Monday, September 09, 2013 >>
There was a recent article in The New York Times entitled “Germany Fights Population Drop.”
I was impressed.
Someone in the mainstream media actually has their thinking cap on.
You see, Germany is Europe’s largest economy and the most competitive in high-value-added global exports. Recent reports continue to show it doing better than most European countries. So everyone expects Germany to hold up the euro zone… to be the financial backstop… to bail everyone else out.
The question is this: How is Germany going to do this when its workforce is set to decline by 14% over the next 17 years (and over a third during the next 50 years)?
At least, not unless it makes some radical changes NOW. In 1989, Japan was as competitive, if not more, than Germany today, yet its economy stalled for 23 years after it hit the demographic cliff Germany now faces.
Although Germany’s Spending Wave doesn’t turn down until around 2014, its population has already declined by 1.5 million people in recent years. And it’ll lose another 14.3 million people. Over the next 47 years, its population will decline 19%, going from 81.8 million today to just 66 million in 2060.
Its fertility rate has dropped to 1.4 children per woman. That’s way below the replacement rate of 2.1 children per woman.
But the biggest blow is this: Its workforce, those between the ages of 20 and 64, will fall from 49.5 million to 33 million, or a whopping 33% drop, between now and 2060!
This is not a country that will have the necessary power to hold the euro zone above its head like Atlas holding up the world. As the years pass, it’ll become more like an emaciating mortal buckling under the pressure, until it’s eventually crushed.
Already, Germany has begun tearing down unoccupied residential and commercial developments and turning them into parks. You can’t see the decline as clearly through the trees as you can through the empty parking spaces and broken windows.
Also, as its workforce ages, Germany is redesigning assembly lines and work environments to minimize bending and lifting. Arthritic knees and bad backs make for absent workers.
More companies are offering flexible and part-time hours for workers that would have otherwise retired.
Germany is also spending $265 billion a year on family subsidies to help support higher birth rates, but we all know that’ll only have a limited effect. Instead, the country should encourage young immigrants, who have higher birth rates, to view Germany as the place to be.
It should offer greater maternity support for working women. That is the best investment any country can make. It’s why birth rates in the Scandinavian countries, the U.K., and France are still close to that 2.1 child-per-woman replacement level.
But Germany has a tradition of stay-at-home moms and hasn’t been good at integrating immigrants. Half the Greek and Spanish immigrants that come to Germany leave within a year (not part of the Aryan race I assume).
So what else can an aging country do?
Well, it can take the most important and obvious step: increase the retirement age.
Kudos to Germany as it has already begun to do this, moving the retirement age from 65-years-old to 67-years-old. From 2002 to 2012, the percentage of people between the ages of 55 and 64 in Germany’s workforce rose from 38.9% to 61.5%. Now that’s a policy that works.
But that ultimately will not be nearly enough. Germany needs to increase its retirement age to 73 or 75 in the next decade or two!
Such a step is critical because our life expectancies have grown dramatically in the last several decades while retirement ages stayed where they were. That means the length of our retirement has been steadily increasing, which acts as a drain on the economy because pensions are paid out longer and health care coverage lasts longer.
But if Germany were to continue gradually increasing its retirement age to 74, by 2030 it would gain five million workers instead of losing seven million. That’s a 12 million difference… or 24% of the workforce… or 1.4% a year in GDP potential.
Here’s what that would look like…
The reality is the U.S. should follow Germany’s example on the retirement front and increase retirement age from 63 on average to between ages 72 and 75. In fact, all developed countries should undergo this shift in retirement age sooner rather than later. I’m talking about having the new retirement age of 75 set by 2030.
Why the rush?
Because the massive Baby Boom is already near being 50% retired in countries like the U.S. It will be fully retired by 2024 if our retirement age remains unchanged.
Yet most economists aren’t recommending this obvious approach!
What’s wrong with these overly-analytical, under-sexed robots? Well! Don’t even get me started.
Only a global crisis will force developed countries to do the obvious… to implement this solution.
Here in the U.S. alone, increasing the retirement age would be the biggest single step to solving Social Security’s, Medicare’s and Medicaid’s $66 trillion unfunded-entitlements problem because the workers who will drain these systems would have to pay into them for longer and be recipients of the benefits for shorter.
Why should we play shuffleboard or golf for 22 years? That’s what we do nowadays because the average person retires at age 63 and dies at age 85?
I don’t know about you, but I’m not interested in that.
We see a global crisis coming between 2014 and 2019. Put on your seat belts and look to work longer, contribute more and be happier and more secure when you finally do retire.
Ahead of the Curve with Adam O’Dell
From Harry’s article above, “Germany is redesigning assembly lines and work environments to minimize bending and lifting.”
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