Nov 15, 2021 08:51 PM

Caixin Summit: Shrinking Workforce Could Push Up Inflation, Economists Say

The aging populations and shrinking workforces in major economies — including China — can lead to higher labor costs and long-term inflationary pressure, two economists said at the 12th Caixin Summit on Saturday.

The remarks came as rising inflation has become a major concern for policymakers and investors in the wake of the pandemic. As many economists attribute rising prices over the past months mainly to monetary easing and supply disruptions, some warn about demographic changes’ impact on inflation in the decades to come.

As countries spend more to support their growing elderly populations and a greater proportion of workers are employed in senior care, greater inflationary pressure will follow, Charles Goodhart, an emeritus professor at the London School of Economics and Political Science, said in an online speech delivered to the summit.

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Weekend Long Read: Talking Out the Implications of China’s Great Demographic Reversal

The idea of the demographic change being a long-term factor pushing up inflation and interest rates is the theme in a book co-written by Goodhart and fellow economist Manoj Pradhan, which was published last year.

As society ages and labor supply decreases, wages will increase, Peng Wensheng, chief economist at brokerage China International Capital Corp. Ltd., said at the panel.

China’s latest census shows that its working-age population continues to shrink. The population from 15 to 59 years old accounted for 63.35% of the total population last year, down 6.79 percentage points from 2010.

The working-age population is falling in many countries, with the African continent the key exception and India to a lesser extent, according to Goodhart.

Both Goodhart and Peng said shrinking labor forces could narrow the gap between rich and poor. Workers’ wages could increase, while older generations’ assets could depreciate amid high inflation, Peng said.

Goodhart said the demographic reversal could lead to lower inequality but in the context of slower economic growth. As the labor force continues shrinking, China’s annual GDP growth will probably decline to somewhere significantly under 4%, maybe about 2.5 %, over future decades, he said.

But he said it is not necessary to be too upset about slowing growth because what really matters for social happiness is the growth rate of output per worker, which is likely to increase. “The average living standards of the average person in China will go on rising, possibly even faster than it has over the last few decades.”

Contact reporter Guo Yingzhe ( and editor Joshua Dummer (

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