A new OECD report has sounded warning bells for the global growth citing aging workforce and slowdown of growth in emerging markets as the biggest risk for growth and income equality.
According to the report, global growth, which was at 3.6% in the decade between 2010 and 2020 may slow down to 2.4% by 2050-2060. Strong trends like rise in population of aged individuals, technology change lead to skill bias, globalization, and environmental pressures and risks were expected to hit growth and raise significant challenges for policy makers. Global warming alone is expected to shave off average global growth by 1.5%.
The report suggest that OECD countries face the double demographic shock of shrinking demand for high-skilled workers and reducing income gap between developed and emerging markets. The report also suggests a shift of economic balance in favor of non-OECD countries. These developments are expected to affect economic migration and work-related immigration that OECD members currently enjoy. Emerging markets are expected to reap the benefits of reduced migration coupled with the aging of workforce in OECD countries.
OECD anticipates a 20% reduction in Euro zone’s labor force and a 15% decline in the US labor pool. This reduction is expected to coincide with doubling of trade between non-OECD countries from 25% today to 50% in 2050-60. This will further strengthen the economic interdependency between OECD and other economies.
Asian countries like India and China are expected to reap the benefits of these changes with India’s GDP per capita expected to increase by seven times by 2060. The report indicates that African countries too will benefit from the changed global economic scenario. China’s GDP is expected to be comparable with current US GDP levels. These developments will enhance the contribution of non-OECD countries to the global GDP and cause OECD nations to lag behind.
However, higher growth is not expected to lead to higher income equality. Innovation and skill-centric growth and prevalence of skill-biased technological developments are expected to accentuate the existing income inequality. OECD nations may see a 30% increase in pre-tax inequality, which may affect growth unless changes are made to redistributive policies to facilitate access of economic opportunities to low-income talented members of the workforce.
The report recommends deferment of retirement age in OECD countries and suggests additional incentives to encourage work at old age. To improve versatility and flexibility of the workforce, the report suggests implementation of learning strategies to make it easier to manage job transitions and structural changes.
OECD also advises government policies designed to encourage knowledge-based growth combined with bankruptcy law reforms to allow unproductive and ailing companies to exit the economy. The report also highlights the importance of reviewing funding infrastructure for education as well as tax structures.
According to the OECD, trade policy cooperation through multilateral trade liberalization will be the most significant aspect that will ensure global coordination and cooperation boosts research and technology-centric innovation.