Old Before Rich: When Factories Run Out of Workers

Low fertility has often been explained as the price of affluence. Western societies became wealthy, and children were no longer seen as a sign of God’s favor, family continuity or economic security. Instead, they became a cost, an obstacle to career advancement, personal development and personal comfort.

In the West, demographic decline is therefore not new, although it has accelerated in recent years. Western societies are aging after having had time to accumulate capital, build welfare states and achieve high productivity.

The Flip Side of Rapid Modernization

The same is not true in other parts of the world, especially in countries that have become the winners, or rather the apparent winners, of globalization in recent decades. Cheap transport, cheap labor and the relocation of production have accelerated growth in parts of Asia, Latin America and Eastern Europe. Globalization has brought them factories, exports and urbanization. It has also brought the flip side of modernization: a rapid fall in fertility.

That is where a new economic problem begins. Countries whose growth model is based on a young, large and relatively cheap labor force are starting to lose that advantage before they have had time to become truly wealthy.

China as a Demographic Laboratory

For decades, China benefited from an almost ideal demographic structure: a vast number of working-age people, a low share of older citizens and a steady flow of workers from the countryside to the cities. That combination enabled the rise of China’s export machine. Cheap labor was combined with high investment, foreign capital and global demand. The result was the biggest economic boom in modern history. As recently as 1980, China accounted for only a fraction of the global economy. Today it is the world’s second-largest economy.

But that model has begun to run out of steam. According to official figures, China’s population fell for the third year in a row in 2024, to about 1.408 billion people. The working-age population, aged 15 to 64, peaked in 2013 and has been shrinking ever since, according to an analysis by the ASEAN+3 Macroeconomic Research Office (AMRO). The fertility rate has fallen far below replacement level and is estimated at about one child per woman. At the same time, the number of older people is growing rapidly. Chinese citizens over 60 already account for more than a fifth of the population.

That means China will no longer have the same supply of young workers that carried it upward. At the same time, pressure on healthcare, pensions and public finances is rising sharply. China therefore finds itself in a paradoxical position. It wants to become a technological and geopolitical superpower just as the demographic basis of its rise is beginning to disappear.

Beijing is therefore entering a period in which its chances of global dominance are narrowing. Around the middle of the next decade, demographics will begin to catch up with it much more forcefully. Robotics and artificial intelligence may replace part of the demographic shortfall, but that is more a bet on a technological leap than a certainty.

The Illusion of Endless Growth in Emerging Markets

The problem is even more acute in countries at a lower stage of development. Vietnam is a typical example. To some extent, it is following China’s path while taking over some of the production leaving the country. Foreign investment is pouring in, factories for electronics, textiles and consumer goods are being built, and the economy is still growing at a pace most of Europe would consider unattainable. On the surface, it is a classic success story of globalization: cheap labor, export discipline and gradual industrialization.

Beneath the surface, however, a demographic window is closing. Vietnam’s fertility rate has fallen below replacement level, meaning the country will begin to age rapidly before it reaches the level of rich economies. That is a fundamental problem for its model. Vietnam cannot rely on cheap labor indefinitely if young workers start to dwindle. Wages will rise without productivity necessarily growing at the same pace. Low-value-added production may then move elsewhere, for example to India, Bangladesh, Indonesia or Africa.

Vietnam may therefore take over some of China’s production, but it will not take over China’s future. If it wants to become a technological or even a semiconductor power, cheap labor will not be enough. It will need education, research, capital and a broad layer of skilled people. Those are precisely the resources that are hardest and slowest to build in a rapidly aging society.

A Slowly Tightening Noose

Demographic change does not act immediately. It does not stop the economy overnight, which is why it is dangerous. When birth rates are falling, cities can continue to grow, factories can keep filling their order books and GDP figures can still look impressive. But the children who are not born today will be missing from the labor market 20 years from now.

Nor is it only a question of who will produce, but also for whom. Many emerging economies still rely on exports to the rich West, but the West is aging too. Older societies spend less on new housing, home furnishings, fashion or family expansion, and more on health, care and security. Domestic demand may not make up for the shortfall. The aging populations of Vietnam, China and Thailand cannot by themselves sustain a growth model built on consumption by a young and expanding middle class.

Countries that look like young economic stars today may therefore discover that their model has a much shorter life than it seemed. They will have fewer people to produce cheaply and fewer customers to pay for their growth.