Tapering labour boom of China could spell volatile 2020s, says Bain

30 April 2018 Consultancy.asia 4 min. read

As a number of global forces track toward a collision-point, the strategy and management firm Bain & Company has made the case for what it predicts will be a more volatile economic environment in the 2020s, with China’s tapering labour force central to concerns.

In a wide-reaching report by the Macro Trends Group of global strategy consultancy Bain & Company, the firm has predicted an unsteady period of economic disruption for the upcoming decade and beyond – a major transformation it believes could be greater than any such transitions of the past 60 years.

The report, ‘Labor 2030: The Collision of Demographics, Automation and Inequality,’ looks into the interplay of these three major forces, already impacting the public and private spheres but set to completely reshape the world in the short-to-medium term. And China, so pivotal in the provision of labour which has powered economic growth since the last great transition of the 1970s, will likewise play a central role in its reversal.Global market entry of China and India more than tripled the size of the  world’s labor forceTracing a series of potential scenarios at the intersection of ageing populations, rising inequality, and the promise of automation, the Bain analysis projects that the rapid spread of automative technologies could shed up to a quarter of current jobs and otherwise widely depress wage growth to in turn create greater wealth inequality and push output potential (through higher productivity) beyond demand potential.

Noting China’s level of income inequality at a current historic peak, the report states that, “faced with market imbalances and growth-stifling levels of inequality, many societies may reset the government’s role in the marketplace.” And the mass investment spike into automative technologies (as much as $8 trillion projected by the firm in the US alone) initiating this scenario, could in effect be stimulated by the threat of a declining workforce and labour scarcity.

As one of three remarkable developments which converged in the 1950s to ignite the global economy through labour-force growth, including the coming of age of the baby boomer generation and greater female workforce participation, the integration of China together with India into the global economic sphere saw the addition of 1.3 billion new workers to the world labour pool between 1970-1990 – fuelling the international trade of goods and services.Baby boomers powered worldwide labor force growth in 1970s and  1980s, but this is slowingBut the era of plentiful labour is about to come to an end, irrespective of trends toward later retirements. China’s growth rate in the working-age population bracket of 25-54 year-olds during the 1970-1990 boom sat at 2.8%, followed by 1.8% growth in the two decades to 2010. For the 2010-2030 period, Bain projects growth in the age-group at minus 0.4%.

This negative rate is in line with the countries of the OECD, among which the firm contends that the deceleration in labor force growth could, on the balance of several factors, result in a $5.4 trillion shortfall in otherwise expected GDP by 2030. China’s situation, the firm says, is even more precarious due to its one-child policy; “The combination of a baby boom followed by a baby bust will abruptly diminish China’s labor pool and could aggravate labor scarcity.”

Future ramifications

The forthcoming governmental and societal challenges of ageing populations are familiar ones; strains on the pension system, high debt levels, and surging healthcare costs. Even the healthcare sector of the major economies of Southeast Asia, generally considered a younger demographic, will according to a recent report by strategy firm Solidiance face a potential $320 billion black-hole by 2025 – and as predicted by Bain, “governments confronted with serious economic imbalances often have opted for a more active role in reshaping market-based outcomes,” with options including tax, labor market and regulatory interventions.

As for businesses, the prospective implications of a volatile macroeconomic environment mean that leaders and investors should be wary of following market momentum; “The crosscurrents of multiple macroeconomic forces will ebb and flow at different times, making it dangerous to assume that signals indicate stable opportunities. Trends that had longer trajectories up until now, such as falling interest rates or even growth itself, may reverse course far more rapidly than in past decades,” the consulting firm concludes. “Companies can prepare for such shifts by making resiliency a high strategic priority.”