The two world wars of the twentieth century had enduring but different effects on population.  The conflict of 1914-8 killed and maimed young men in appalling numbers.  Except in Russia, there were fewer casualties in 1939-45, and they were widely distributed among the civilian as well as the military population.   The first world war was followed by an abnormally low birth rate:  rapid economic recovery after the second world war led to an unusually high birth rate.

And so in 1980 the cohort of potential retirees –  those aged between 55 and 64 and therefore born between 1916 and 1925 –  was relatively small.  Conversely, the cohort, aged between 15 and 24 and hence born between 1956 and 1965 – the new workers – was relatively large.  In Britain, in France, in Germany, even in the United States, there were almost twice as many new workers as potential retirees.

The United States was more successful at creating jobs for new workers, but wage earners gained little from the economic growth that resulted, and inequality in income distribution widened considerably.  Continental Europe resisted this trend:  instead, youth unemployment rose, and there was an explosion of what, in last week’s column, I called quasi-retirement.   The official retirement age did not fall, but large numbers of older workers left the labour force, few with any intention or expectation of working again.  These quasi-retired workers took advantage of benefits for sickness or disability until they reached normal pension age.  Some of these people were frustrated that their skills were no longer required.  Others, with limited skills, welcomed the opportunity to escape from dull jobs.

In 1980, there was little difference between France and the United States in the proportion of people aged 55 – 64 who worked.   By 1990, a large gap had emerged in this age group:  labour force participation was 38% in France and 54% in the US.   The French experience was repeated across Europe.  Most of all in Germany where the ranks of the quasi-retired were swollen by reunification, which left many older workers in the East without hope of productive employment at wages comparable to their entitlement social benefits.

Perhaps, on balance, the more market oriented American response was better.  But the verdict is not obvious, and each continent experienced social tensions in consequence of its choice. In any event, these are yesterday’s issues, not today’s.  The cohort of new workers and the cohort of potential retirees are now both about 20% of the working age population – pretty much the number that would be expected in a steady state.  In Europe, the proportion of potential retirees who are still working stabilised in the early 1990s, and youth unemployment has been falling.  In the United States, the increase in wage inequality appeared to come to an end in 1995 as the economy boomed.

As all the world knows, the effect of these demographic fluctuations is not over yet.  The baby boomers – the cohort of 1956-65 – will reach retirement age in the next two decades.  If, as in their predecessor generation in Europe, most stop work before retirement age, the costs will start to spiral very soon.  But this will probably not happen.

Metaphorically, even literally, there is always a queue of those hoping to leave employment, and a queue of those hoping to join it.  When – as in the 1980s – many are hoping to join, and few are hoping to leave, participation rates tend to fall and so do the wages of people in work.  We can opt for more of one and less of the other, but there is no avoiding this unpalatable choice. That was the dilemma of the 1980s, and wages took the strain in the US and employment in Europe.

But when – as in the next decades –  the queue of joiners is short and that of leavers long, we will face different options.  With young workers in short supply, early retirement will no longer be readily available, and the tendency to greater wage inequality will be reduced. 

Visions of apocalypse meet a deep-seated human need.  The intellectual history of the last three centuries is full of mostly unfulfilled prophesies of doom.  Future demography is a problem for the world economy.  But before panic sets in, we should appreciate the extent to which that economy has absorbed demographic changes in the last two decades without anyone really noticing.