Amlan Roy - Demographics Unravelled

1 Cover

2 Title Page Demographics Unravelled How Demographics Affect and Influence Every Aspect of Economics, Finance and Policy Amlan Roy

3 Copyright This edition first published 2022 Copyright © 2022 by John Wiley & Sons, Ltd. Registered office John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, United Kingdom For details of our global editorial offices, for customer services and for information about how to apply for permission to reuse the copyright material in this book please see our website at www.wiley.com . All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by the UK Copyright, Designs and Patents Act 1988, without the prior permission of the publisher. Wiley publishes in a variety of print and electronic formats and by print-on-demand. Some material included with standard print versions of this book may not be included in e-books or in print-on-demand. If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com . For more information about Wiley products, visit www.wiley.com . Designations used by companies to distinguish their products are often claimed as trademarks. All brand names and product names used in this book are trade names, service marks, trademarks or registered trademarks of their respective owners. The publisher is not associated with any product or vendor mentioned in this book. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. It is sold on the understanding that the publisher is not engaged in rendering professional services and neither the publisher nor the author shall be liable for damages arising herefrom. If professional advice or other expert assistance is required, the services of a competent professional should be sought. Library of Congress Cataloging-in-Publication Data is Available ISBN 978-1-119-79913-9 (hardback) ISBN 978-1-119-79914-6 (ePDF) ISBN 978-1-119-79915-3 (ePub) ISBN 978-1-119-79916-0 (Obook) Cover Design: Wiley Cover Images: © wildpixel/Getty Images, Floortje/Getty Images

4 Dedication To Anju, Shonai, Lilu, and Ranga

5 About the Author About the Author Dr Amlan Roy is an experienced global macro-finance researcher and thought leader specialising in global macroeconomics and demographics. He presents to institutional clients in the private and public sectors across 30+ countries and is the founder of Global Macro Demographics. He is a research associate at London School of Economics' Systemic Risk Centre and an elected Honorary Fellow of the Institute and Faculty of Actuaries. Until June 2021, Amlan was head of Global Macro Research and senior managing director with State Street Global Advisors, having joined them in 2017 as chief retirement strategist. He was managing director and head of global demographics and pensions research with Credit Suisse Investment Bank from 1998 to 2016. In a prior role as global EM strategist, he developed global risk and allocation models as an expert on financial architecture during the Asian crisis. Amlan spent 12 years in academia, with a distinguished teaching career in the US and UK. He was UK ESRC Research Fellow, Ponders Fellow, a Boston University Doctoral Scholar and a Government of India National Scholar. He has a PhD and MA in financial economics from the University of Iowa, an MBA from the Indian Institute of Management, Ahmedabad and an undergraduate honours degree in economics from St. Stephen's College, University of Delhi.

6 Acknowledgements

7 Selected Abbreviations

8 Preface Notes

9 Chapter 1: Introduction 1.1 Recasting Demographics 1.2 Effects and Implications of Demographics Notes

10 Chapter 2: Core Data: Past, Present, and Future 2.1 Economic History and the History of Global Population Trends 2.2 Core Demographic Variables: Data, Analysis, and Some Observations 2.3 The Role of Migration 2.4 Urbanisation 2.5 Small Nation-States: Demographics 2.6 Changing Longevity—Metrics Need Changing 2.7 Changing Social and Individual Behaviour 2.8 Multiple Generations 2.9 Conclusion Notes

11 Chapter 3: Demographics and Macroeconomics 3.1 Demographics and Economic Growth 3.2 The “Demographic Dividend” and GDP per Capita Growth 3.3 Inflation 3.4 Debt, Deficits, and Fiscal Sustainability 3.5 Demographics, Monetary Policy, and Interest Rates 3.6 Demographics and Unemployment 3.7 Demographics, Capital Flows, and Current Account 3.8 Conclusions Notes

12 Chapter 4: Demographics and Asset Prices 4.1 Theories of Life-Cycle Consumption, Savings, and the Permanent Income Hypothesis 4.2 How Demographics Influences Equity Prices and Markets 4.3 Will There Be an Asset Market Meltdown When the Baby Boomers Retire? 4.4 Demographic Changes and Interest Rates (Bond Yields) 4.5 Demographics and Risk Premiums 4.6 Asset Holdings and Age 4.7 Demographics and Equity Sectors 4.8 Demographics and Real Estate 4.9 Demographics and Commodities 4.10 Conclusions Notes

13 Chapter 5: Health and Longevity 5.1 Health Issues, Expenditures, and Measures 5.2 Longevity 5.3 Conclusions Notes

14 Chapter 6: Pensions and Retirement 6.1 A Brief History of Social Security and Pensions 6.2 Evaluating Pension Systems: Indicators and Cross-Country Comparisons 6.3 Evaluating Age-Related Pension Expenditures Across Countries 6.4 Pensions and Pension Systems: The Experts 6.5 Pensions, Asset Allocation, Investments, and Capital Markets 6.6 Pensions and Corporate Finance/Equity Prices 6.7 The Future of Retirement and Conclusions Notes

15 Chapter 7: Quality of Life, Gender, Governance and Sustainability 7.1 Utility Theory, Social Welfare, and Happiness 7.2 Quality of Life: Human Development Index (HDI) 7.3 Gender and Governance 7.4 Corruption and Transparency 7.5 Sustainability and Climate Change 7.6 Politics and Geopolitics 7.7 Conclusion Notes

16 Chapter 8: Summary and Conclusions Notes

17 Index

18 End User License Agreement

1 Chapter 2 Table 2.1 Changing age ranges and dependency ratios. Table 2.2 Gender distribution changes by broad age group. Table 2.3 Stock of foreign population by nationality (thousands).Table 2.4 Native-born and foreign-born (employment and participation).Table 2.5 Small countries' demographic differences.

2 Chapter 3Table 3.1 US consumer expenditures by age: 2019 (expenditure shares).Table 3.2 UK household expenditures by age of household reference person.Table 3.3 Age-related spending (% of GDP): 2016–2070.

3 Chapter 6Table 6.1 Average effective retirement age vs. normal retirement age: 2013–...Table 6.2 Pension replacement rates: 2018.Table 6.3 Gross pension wealth by earnings (males and females).Table 6.4 Net pension wealth by earnings.Table 6.5 Cash expenditures on public pensions.Table 6.6 Public pensions as share of GDP: 2019–2070.Table 6.7 Summary of the five-pillar pension system.Table 6.8 Pension asset allocation trends: 2001–2020.Table 6.9 DB-DC asset split: 2001–2020.Table 6.10 Pension market size: 2020.

4 Chapter 7Table 7.1 Human Development Index ranks: 2019.Table 7.2 Gender Inequality Index.Table 7.3 SDG index scores (select countries).

1 Chapter 2 Figure 2.1 World population level. Figure 2.2 Annual population growth.