(Expansion) – En argued that North America enjoys two key competitive advantages: demographics and energy. I have received many questions about it that motivate me to develop this idea a little more. I start with demographics.
Now that it is so fashionable to compare our economic circumstances with those prevailing in the 70s of the last century, it is worth highlighting the differences. On the demographic front they are diametric.
At that time, the term “demographic explosion” was popularized and apocalyptic scenarios were proposed, where there would not be enough resources for so much population. The book coordinated by Dennis Meadows The Limits to Growth captures the spirit of the times. Fifty years later, Matthew Yglesias publishes another book, where he proposes – with good arguments – that the United States should seek to reach 1,000 million inhabitants.
What happened? There are many reasons why we avoided catastrophe, but I am interested in highlighting one: the inverse relationship between life expectancy and birth rate. As it increases, it converges to the replacement rate. The population growth rate moderates and instead of a “population explosion” we have a “demographic transition”.
This consists of changes in the size of each generation that alter the dependency ratio – that there are so many children and the elderly for each person of working age – and that have an impact on economic growth. More population with a higher proportion of working age potentially generates a higher GDP. What is most notable for our purposes is that, compared to the regions with which we compete, we have a very favorable dependency ratio.
In the European Union there are 57 children and the elderly for every 100 people of working age. Japan has a more unfavorable relationship with 69. The United States is slightly below the European Union with 55, while in Canada and our country the relationship is even lower, with 50 and 51 respectively. The Canadian case is notable because it is the product of net immigration rates that are significantly higher than those of the rest of the countries mentioned – they reach a maximum of 11.4 migrants per 1,000 inhabitants vs. 4.4 for the United States or 3.4 for Western Europe.
On the whole, North America has a demographic advantage compared to Europe and Japan. And Chinese? At first it seems that this country has the upper hand. Their ratio is only 43 dependents per 100 people of working age.
But if one thing is clear, it is that demography is not a static phenomenon and it is in terms of trajectories that China faces a challenge. Its fertility rate is plummeting (1.16 births per woman, in 2021, vs. 1.81, 10 years ago) and that implies a very sharp demographic transition. The median age in China is already 37.9 years, slightly higher than the United States (37.7 years) and well above ours, at 29 years. Unlike Japan (median age 48.4 years), China will get old before it gets rich.
In North America, meanwhile, the demographic strength of the United States owes much to Mexico. The Center for Latin American Monetary Studies (CEMLA) calculates that the total number of workers of Mexican origin in that country is equivalent to 83% of the total number of Mexican workers registered with the IMSS and their wage bill is equivalent to 55% of Mexico’s GDP.
These figures show the tremendous potential to change the regional perspective: instead of talking about immigration policies, we must think about policies aimed at the integration of a North American regional labor market. In my opinion, the instruments exist: the purpose of the retirement savings system (Afores) in Mexico, for example, is to match the demographic transition with savings flows to make it financially viable.
If today the system does not depend on the worker being located in Monterrey or Puebla, the idea would be that it does not matter whether he works in Chicago or Los Angeles. Permission to work in these positions would be conditional on the person continuing to contribute to their Afore: remittances are transformed into savings for retirement and when retirement occurs, the worker returns to their place of origin, which is after all what the most seek.
The end result is a huge and vibrant labor market, with a high degree of mobility that takes full advantage of the different rates of demographic transition in our three countries and that would also deepen Mexico’s capital market. It is an opportunity that many, in other latitudes, would envy to have.
Editor’s Note: Sergio Luna studied Economics at UNAM and the University of London. He was an economist at the National Bank of Mexico for 33 years and continues in that profession, now independently. Follow him on and/or on . The opinions published in this column belong exclusively to the author.