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Demography & Destiny

Oct. 28, 2021

The 19th century French sociologist Auguste Comte is generally considered to be the first person to articulate the insight “demography is destiny”: the size and structure of a population will tell you a lot about its future, in part because population trends are relatively predictable and change only slowly. Comte’s insight from 170 years ago remains true today, and applies to 21st century issues and trends that are probably beyond his wildest dreams. Demography provides some understanding about the future of technology and innovation.

The Problem

Many news outlets publish articles about companies struggling to hire workers as the COVID-19 pandemic winds down. While this is described as a temporary problem to be cured by cutting unemployment benefits, increasing wages, or making jobs more flexible, demographics tell a different story. As families get smaller and the “baby boomers” retire, the United States population is aging. Data from the Organization for Economic Cooperation and Development (OECD) compiled by the Federal Reserve show that after decades of steady growth, the U.S. working-age population (defined as people between the ages of 15 and 64) stopped growing in 2017. Meanwhile the total population has continued to expand, which means the workforce is a declining share of the total.

U.S. Working Age Population, 2011-2021

Organization for Economic Co-operation and Development, Working Age Population: Aged 15-64: All Persons for the United States [LFWA64TTUSM647S], retrieved from FRED, Federal Reserve Bank of St. Louis.

The U.S. is not alone in these trends—in fact, nearly every industrialized economy has it worse:

  • Europe’s working-age population declined by 4% from 2010 to 2020 and it continues to shrink.
  • Japan’s total population began declining in 2011 and the share of working-age people is declining even faster.
  • South Korea has the world’s lowest birthrate, just 0.9 children per woman compared to the 2.1 needed to maintain a stable population size. 

China may have the biggest dilemma of all. Thanks to low birthrates and the lingering effects of the one-child policy, the country’s working-age population is expected to fall by 9% between 2015 and 2035, and by 20% by 2050. That’s a loss of 206 million workers over the next 30 years, more than the total working-age populations of Germany, France, the UK, Italy, Belgium, the Netherlands, and Switzerland combined. (Another comparison: the United States’ current working-age population is about 205 million.) While China has a higher share of the population at working age than the U.S., Japan, or western Europe, they have begun to grow old before they grew as wealthy, and there is no welfare state for the elderly to fall back on.

Compounding these problems is the mismatch between the jobs to be done and the workers that are available. Many industries already suffer from a lack of skilled workers, whether they are welders or computer programmers. Immigration has offset these trends to a degree, helping mitigate the decline in native-born workers particularly in dirty, dangerous, difficult, or low-paying jobs at farms, construction sites, restaurants, nail salons, and so on. But the past few years have demonstrated the challenges with relying on immigrant labor in the United States and western Europe.

Economists measure economies in terms of gross domestic product (GDP), which can be thought of as the product of the number of workers times the productivity per worker. If the declining number of workers outpaces productivity growth, the economy will shrink, reducing quality of life, deflating asset prices, and creating political and social turmoil and strategic weakness.

The Solution

So what does this gloomy story have to do with technology? Everything.

Since the earliest days of the industrial revolution, technology has been one of the main drivers of productivity growth. A mill powered by a water wheel or a steam engine and attended by a few low-skilled workers could weave as much cloth in a day as dozens of skilled weavers at hand-powered looms. Tractors, disk harrows, threshers, combines, fertilizers, and high-performance seeds allowed millions of workers to go from the farms to the factories, even as the few who remained produced more food than ever before. Electricity, radios, telephones, railroads, aircraft, computers, and myriad other innovations enabled enormous productivity gains over the years in almost every industry. These productivity gains outpaced population growth too, so that everyone has become wealthier.

Some jobs can be done from any place in the world where there is an internet connection, as the COVID pandemic has demonstrated. However, many other tasks, like construction, nursing, food preparation, or package delivery, cannot be done remotely.

Today’s entrepreneurs have noticed the market’s need for more—and more productive—workers, and they are applying the next generation of technology to the problem. Here are a few examples:

  • “Low-code” and “No-code” platforms that allow software developers to build apps more quickly and reduce the need for specialized programming talent.
  • Computer vision systems that can analyze MRI scans to flag areas of interest for a radiologist, so they can help more patients while making fewer errors.
  • Natural language processing tools that can help lawyers and paralegals review documents or draft briefs.
  • Flexible robotic systems that autonomously perform physical tasks like stacking crates, picking goods from warehouse shelves, welding, hanging drywall, harvesting fruit, or assembling salads—enabled by AI that allows them to adapt to variations that earlier generations of robots could not handle.
  • Self-driving vehicles… truck driver is the most common job in 29 U.S. states.
  • Wearable sensors that can help workers like baggage handlers, nurses, or construction laborers avoid back injuries, hearing damage, or heat stroke.
  • Augmented- and virtual-reality training systems such as simulators for forklift drivers and crane operators that allows for quick, efficient, and less costly training and avoids risks .
  • Connected, hands-free computers and displays to provide work instructions and connect employees in the field to experts in the office when they need assistance.
  • Exoskeletons, essentially wearable robots that allow people to do more physical labor without fatigue or injury, or to augment their capabilities to do jobs they could not otherwise perform.

True to Comte’s words, demography provides a lot of insight into the drivers and directions of technological innovation that are useful for entrepreneurs and VCs alike. Worries about “robots stealing our jobs” appear to be misplaced in the long run, because as populations age and even shrink, there will be more tasks than human workers. Robots, artificial intelligence, and other technologies are key to maintaining our health, welfare, and prosperity in the face of inevitable demographic headwinds over the coming decades.

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