Demographics Unravelled

Discover what demographics can tell us about the economy, markets, and the future

In Demographics Unravelled, renowned Macro-Demographics expert Amlan Roy delivers an insightful and timely exploration of the impact that "people characteristics" have on national economies. Considering factors like gender, race, migrant status, family background, and education, the author delves deeply into a subject that drives market behavior and economic variables, including growth, debt, inflation, employment, and productivity. These have national and international policy implications.

In this one-of-a-kind book, you’ll discover:

• Why the study of demographics is the hidden key to understanding economic growth, asset prices, and capital flows
• How to use detailed demographics to forecast future scenarios in economics, socioeconomics, geopolitics, and the environment
• The short-, medium-, and long-term effects of consumer and worker behavior
• How understanding demographics is key to understanding health, pensions, migration, sustainability and social policies. It is intimately linked to the Sustainable Development Goals of the UN—Gender, Climate, Poverty and Inequality

Perfect for institutional investors, insurance professionals, economists, and business leaders, Demographics Unravelled will also earn a place in the libraries of academics and students studying a variety of economic disciplines and seeking a one-stop and in-depth discussion of demographics-driven macroeconomic effects.

Acknowledgements xv

Selected Abbreviations xvii

Preface xix

Chapter 1: Introduction 1

1.1 Recasting Demographics 2

1.2 Effects and Implications of Demographics 5

Chapter 2: Core Data: Past, Present, and Future 11

2.1 Economic History and the History of Global Population Trends 13

2.2 Core Demographic Variables: Data, Analysis, and Some Observations 16

2.2.1 Population Size and Population Growth 16

2.2.2 Ageing Populations 18

2.2.3 Life Expectancy Increases 20

2.2.4 Total Fertility Rates 21

2.2.5 Dependency Ratios 23

2.2.6 Gender Ratios 26

2.2.7 Age Structure and Population Pyramids 29

2.2.8 The Demographic Transition Model 32

2.3 The Role of Migration 35

2.4 Urbanisation 46

2.5 Small Nation- States: Demographics 50

2.6 Changing Longevity— Metrics Need Changing 51

2.7 Changing Social and Individual Behaviour 53

2.8 Multiple Generations 55

2.9 Conclusion 57

Chapter 3: Demographics and Macroeconomics 59

3.1 Demographics and Economic Growth 60

3.2 The “Demographic Dividend” and GDP per Capita Growth 66

3.3 Inflation 70

3.4 Debt, Deficits, and Fiscal Sustainability 84

3.5 Demographics, Monetary Policy, and Interest Rates 90

3.6 Demographics and Unemployment 93

3.7 Demographics, Capital Flows, and Current Account 95

3.8 Conclusions 96

Chapter 4: Demographics and Asset Prices 99

4.1 Theories of Life- Cycle Consumption, Savings, and the Permanent Income Hypothesis 100

4.1.1 Life- Cycle Consumption Theory 100

4.1.2 Permanent Income Hypothesis 102

4.1.3 Consumption, Savings, and Intertemporal Loans: Pioneer Paul Samuelson 104

4.2 How Demographics Influences Equity Prices and Markets 105

4.3 Will There Be an Asset Market Meltdown When the Baby Boomers Retire? 116

4.4 Demographic Changes and Interest Rates (Bond Yields) 119

4.5 Demographics and Risk Premiums 124

4.6 Asset Holdings and Age 125

4.7 Demographics and Equity Sectors 128

4.8 Demographics and Real Estate 136

4.9 Demographics and Commodities 140

4.10 Conclusions 143

Chapter 5: Health and Longevity 147

5.1 Health Issues, Expenditures, and Measures 149

5.1.1 Health Expenditures 150

5.1.2 Global Health Security 152

5.1.3 Global Burden of Disease 155

5.1.4 Health in Emerging Countries 157

5.2 Longevity 163

5.2.1 Increases in Life Expectancy and Conditional Life Expectancy 164

5.2.2 Life Expectancy vs. Healthy Life Expectancy 166

5.2.3 DALYs and Their Causes 168

5.2.4 Longevity and Mortality: More Than Just Births and Deaths 169

5.2.5 Longevity Risk and the Uncertain Future of Longevity 172

5.2.6 Longevity Forecasting Models: Countries and Regions 174

5.2.7 Short Summary of Longevity Models 177

5.2.8 Annuities as a Longevity Risk Management Tool 183

5.2.9 Other Longevity Risk Management Tools and Instruments 187

5.3 Conclusions 190

Chapter 6: Pensions and Retirement 193

6.1 A Brief History of Social Security and Pensions 194

6.1.1 Pre–Social Security 195

6.1.2 Committee on Economic Security 196

6.2 Evaluating Pension Systems: Indicators and Cross- Country Comparisons 200

6.3 Evaluating Age- Related Pension Expenditures Across Countries 208

6.4 Pensions and Pension Systems: The Experts 210

6.5 Pensions, Asset Allocation, Investments, and Capital Markets 224

6.6 Pensions and Corporate Finance/Equity Prices 230

6.7 The Future of Retirement and Conclusions 231

Chapter 7: Quality of Life, Gender, Governance and Sustainability 235

7.1 Utility Theory, Social Welfare, and Happiness 236

7.2 Quality of Life: Human Development Index (HDI) 243

7.3 Gender and Governance 245

7.4 Corruption and Transparency 249

7.5 Sustainability and Climate Change 252

7.6 Politics and Geopolitics 254

7.7 Conclusion 256

Chapter 8: Summary and Conclusions 257

Notes 263

Index 283

AMLAN ROY is a global macro-researcher and recognised public speaker with 35 years of experience across investment banking, investment management and academia. He is the founder of Global Macro Demographics. He was most recently Head of Global Macro Policy Research and Senior MD at State Street Global Advisors (until end-June 2021) and prior to that MD and Global Head of Demographics & Pensions Research at Credit Suisse Investment Bank (1998-2016). His research is in macroeconomics, demographics and retirement, and asset pricing. He is a Research Associate at London School of Economics’ Systemic Risk Centre and Honorary Fellow of the Institute and Faculty of Actuaries. He has a BA in Economics (St Stephen’s College), MBA (IIM Ahmedabad), MA and PhD (University of Iowa).

Many economists, policy makers, and regulators take a narrow view of demographics, artificially restricting its application to age and population analysis. In Demographics Unravelled: How Demographics Affect and Influence Every Aspect of Economics, Finance and Policy, Amlan Roy challenges this conventional perspective with a conclusive demonstration of the relevance of demographics to macroeconomics, investments, policy, and sustainability across all time horizons short to long-term.

The author shows readers how demographics—interpreted broadly as “people characteristics”—extend beyond age to include gender, race, migrant status, family background, and education and how they are reflected in psychology and behavior. He explores how close analyses of these characteristics drive deep insights into what motivates economic trends and market movements.

The book covers not just the commonly discussed long-term effects on markets, economics, and policy driven by demographic trends, but the short- and medium-term effects with significant consequences for investors and economic actors. It also discusses the economic prospects and fortunes of companies, households, and countries as they are impacted by the shifting sands of demographic movement.

Drawing on over two decades of the author’s research, Demographics Unravelled examines the hidden key to understanding economic growth, asset prices, capital flows, and scenario forecasting in economics, socioeconomics, geopolitics, and the environment. Roy’s macro-perspective sheds light on previously inscrutable and unpredictable economic phenomena.

Demographics Unravelled is the ideal resource for institutional investors, policy makers, analysts, corporate leaders, strategists, actuaries and researchers. It is also an indispensable book for academics, students, and entrepreneurs interested in big-picture economic trends.

The hidden key to understanding economic trends

Demographics Unravelled: How Demographics Affect and Influence Every Aspect of Economics, Finance and Policy unveils the critical role that demographics—broadly understood—plays in shaping macroeconomics, investment policy, and sustainability.

Written from a macro-perspective informed by the author’s decades of focus on “people characteristics,” including gender, race, migrant status, family background, and education levels, Demographics Unravelled explores how consumers and workers affect economic variables. From growth, public debt, and inflation to unemployment, productivity, savings, and capital flows, readers will discover why no major economic indicator is insulated from the impact of demographic movement. The broader impact beyond GDP on health, longevity, inequality, sustainability and corruption is also discussed with new insights. Roy challenges several common misperceptions and hypes based on data and reasoning.

The book delivers a long-overdue correction of the oversimplification of the discussion of demographics, injecting crucial nuance and complexity into an often-overlooked area of macroeconomics. It is expected to be used as a reference text due to its extensive academic and practitioner references.

Analysts, researchers, institutional investors, real estate investors, corporate leaders, strategists, and insurance professionals will all appreciate the enduring and unique insights offered in Demographics Unravelled. The author has uncovered a robust and penetrating lens through which to view important and impactful economic trends. He persuasively demonstrates that demographics affects economics and asset prices in the short-term, medium-term and long-term, and also influences income and profits of households, firms and nations.