Demographics

The population structure has strong implications for the economic future of any country. As an example, let us use my home country Germany (Table 1). Germany is an aging society. In the next 10 years the bulk of the boomer generation, consisting of 13 million people, who were between 56 and 65 years old in 2025, will retire. Only 8 million young people will enter their working age years. That is, assuming no major change in migration and retirement age, the working-age population will shrink by 5 million ≈ 10% in the next 10 years.  

In developed economies, GDP is more or less proportional to the size of the working-age population, everything else being equal (productivity, participation rate, ...). Whether the population will actually shrink depends on ongoing migration. Besides the 12 million with foreign citizenship, of the 71 million people with German citizenship, 14 million have a migration background ^*1. 9 million of these people were born in another country. 5 million of them are second-generation migrants, meaning they grew up in Germany as children of migrants, but have never lived in their parents' home country.

Migrants typically move to another country if they can no longer bear the situation in their home country and expect to live a safer and/or more prosperous life elsewhere. Whether they are welcomed by the native inhabitants and how quickly they integrate into the economy and society are open questions all over the world. Problems typically escalate and lead to unpleasant results when the economy or security situation in the new country suddenly deteriorates. Germany and some other European countries may reach that point in the not so distant future ...

Let us further analyze the structure of Germany's workforce (Table 2). Including those self-employed, 33% of the total population are working full time. 18% are only working part time or in marginal jobs that cannot fully cover their living expenses. The remaining 49% do not work because they are retired, too young or due to some other reason.

Simplifying a bit, we can say that one person working full-time supports two other persons directly (as members of their household) or indirectly (via taxes and social security contributions, examples see Table 3). And most likely more in the future, as discussed above.

The situation looks even worse when we analyze employment across the sectors of the economy (Table 4). At the core of each economy sit those industries which manufacture and produce physical goods, with the infrastructure, logistics and transportation sectors directly supporting the operation of the production sector. In economic terms, these 20% of the total population create economic value. The remaining sectors of the economy, no matter how important they may be for our daily life, are non-productive in economic terms and only consume value.

Is it justified to blame sectors of an economy as consuming value, which others generate? The background for this distinction is that most countries are not self-sufficient. Germany, for example, must import nearly all the fossil fuels for its primary energy, the solar panels and wind generators for its clean energy transition, raw materials like iron ore, copper, or nitrogen, computer and telecommunication hardware, military products like air defense systems, many consumer products like clothes and even part of its food. To pay for such imports, a country must generate foreign income. There are three possible ways to achieve this:

1. export natural resources,
2. export industrial goods (and services), or
3. export its people.

Without natural resources alternative (1) is not feasible and alternative (3) is nothing any nation would like. For alternative (2) to work, a country's products must be competitive on quality and price. Most countries (maybe with the exception of the U.S. ^*3) do not have a competitive amount or quality of services to export. Thus they can only export physical goods coming from their production sector. Physical products nowadays have a world-wide market, i.e. products are only bought if their quality is good enough and their price must be similar or lower than that of your competitors (Table 5). 

... to be continued ...

Germany's economic strength historically came from its large automotive, machinery, electrical and value-added chemical industry. But the economic model of the country is under pressure due to its high energy prices, wages, taxes, social security contributions, environmental and other regulations which make biotechnology and pharmacy, battery cell production, artificial intelligence or other modern industries economically difficult. Problems converting scientific research results and inventions outside of its old industries into successful businesses do not help either.

Unless society and politicians understand the overwhelming importance of a productive economy for the wealth and stability of their nation, managers, whose primary job is to keep their companies profitable, will continue to move their business to countries where they see more favorable conditions.

Notes:

^*1 Methods for population statistics based on citizenship, place of birth and origin have changed over the years and do differ between countries. For details on how destatis.de collects this data see here and here.

^*2 Methods for labor statistics differ between OECD and countries, sometimes even between different institutions in the same country. For details see here.

^*3 Companies like Google, Microsoft, Meta, or Amazon generate most of their revenue from services, not physical products. And maybe Washington now even sees the U.S. Military as a security service provider which should be rented by NATO or others.