The Demographic Environment of Business - Business Environment

Demography is the statistical study of human populations and sub-populations. It can be a very general science that can be applied to any kind of dynamic human population, that is, one that changes over time or space.

From a business point of view the key areas of interest include the age structure of a given population, its gender balance, its geographical distribution and the tendency for both the size and structure of the population to change over time. As noted above, demographic change can have important implications for both the demand and supply side of the economy and hence for organizations of all types.

The size of the population
A country’s population normally increases over time and will vary according to such factors as changes in the birth and death rates and in the rate of net migration (see below). For example, the UK population in 1971 was just under 56 million, by 2001 this had risen to 59.1 million. Estimates suggest that by 2021 the UK will have a population of just under 64 million and that this could peak at almost 67 million by 2050 before it starts to fall back again. In comparison, Russia’s current population of around 145 million is projected to fall to about 100 million by 2050 as a result of a declining birth rate and a rising death rate in the wake of the country’s economic collapse. If this occurs the world’s biggest country will have fewer people than countries such as Uganda and Egypt.

Table indicates the wide variations that can occur in the size of national populations by examining a range of countries across the globe. Within the EU we can see that major member countries such as France, Germany, Italy and the UK all had populations over 50 million in 2003, while the majority of the new member states had populations below 10 million. These figures are dwarfed, however, by India and China, which had populations of around 1 billion and 1.3 billion respectively. Such differences in overall population size have important economic implications in areas such as potential market size, workforce availability, public expenditure, economic growth and international trade.

population size in selected countries

The age and sex distribution of the population
In addition to examining the overall size of a country’s population, demographers are also interested in its structural characteristics, including the balance between males and females and the numbers of people in different age categories. Table provides illustrative data for the UK population by age and gender for selected age groups and intervals over the period 1971–2021. As can be seen from the figures in the right-hand column, women out number men in the UK population despite the fact that the annual number of male births slightly exceeds that of female births.
Moreover, the data clearly point to an ageing population, with an increasing percentage of the population in the over 65 group and a decreasing percentage in the under 16 category. Projections suggest that by 2013 the number of over 65s in the UK population will exceed the number who are under 16, a trend which is sometimes described as ‘the demographic time-bomb’ and which has important implications for both the private and public sectors, not least in terms of the overall demand for goods and services including ‘public goods’ such as education,healthcare, social services, state pensions and social security arrangements.

distribution-of-uk population

It is worth noting that the UK’s ageing population is a characteristic shared by many other countries, including those in the European Union. Data produced by Euro stat indicate similar trends in both the original EU-15 and in the new accession countries. In comparison, both India and China have a much smaller percentage of the population in the over 65 category, the figures being 4.8 per cent and 7.4 per cent respectively for 2003.

percentage-of-EU populations

Other structural characteristics
Populations can also be examined in a number of other ways including their ethnicity and geographical distribution. For instance, in the 2001 population census in the UK, around 8 per cent of people surveyed described themselves as belonging to a minority ethnic group, with the largest grouping being Indian, accounting for almost 2 per cent of the total population and nearly 23 per cent of those in the ethnic minority category. The census data show that, in general, minority ethnic groups in the UK have a younger age structure than those in the ‘White Group’ and tend to be highly concentrated in large urban centers, particularly London. For theUK population as a whole, the majority of people live in England, with significant concentrations in regions such as the south-east, the Midlands, the north-west and the north-east, a fact which has important economic, political and social ramifications. Moreover, inter-regional movements of population, together with other factors such as international migration and differential birth and death rates, can result in significant local and regional variations in population over time with a knock-on effect for both the public and private sectors (for example, demand for housing and school places).

Population change
As the previous analysis indicates, populations can change in either size and/or structure, with important consequences for economic activity both within and between countries. The size and structure of a country’s population depend on a number of variables, the most important of which are the birth rate, the death rate and the net migration rate.

The birth rate
Birth rates tend to be expressed as the number of live births per thousand of the population in a given year. In many countries this figure has been falling steadily over a long period of time for a number of reasons. These include:
_ A trend towards smaller families as people become better off and health
improves and death rates fall.
_ The increased availability of contraception.
_ The trend towards later marriages and later childbearing.
_ Declining fertility rates
_ Changing attitudes towards women and work.
In some countries governments have offered financial and other incentives to married couples to try to reduce the birth rate (e.g. China) as a means of controlling population growth. In other countries incentives have been offered to try to reverse the actual or potential decline in the birth rate because of its economic consequences (e.g. France, Singapore). It is worth remembering that declining birth rates are an important contributor to an ageing population.

The death rate
Like birth rates, death rates are usually measured per thousand of the population in a given year. For developed economies such as the UK this figure has tended to fall over time before reaching a plateau. Among the main contributors to this trend have been:
_ Rising living standards, including better housing, sanitation and nutrition.
_ Developments in medical technology and practice.
_ Better education.
_ Improved working conditions.
The difference between the birth rate and the death rate represents the ‘natural change’ in the population (i.e. increase or decrease).

Net migration
Apart from the movement of population within a country (internal migration), people may move from one country to another for a variety of reasons. The balance between those leaving (emigrants) and those entering (immigrants) a country over a given period of time represents the rate of net migration. Along with changes in the birth and/or death rate, this can be a significant factor in population change and can have important consequences for the economy (e.g. the gain or loss of certain skills) and for the political system.
Influences on the rate of net migration include:
_ Legal barriers (e.g. immigration laws).
_ Economic migrancy.
_ The numbers fleeing persecution.

_ Government policy.

Demographic change and business
Changes in the size and/or structure of a country’s population can have important consequences for enterprises in the public, private and voluntary sectors both in the short and long term. Given increased globalization and international trade, the impact of demographic change has an international as well as a national dimension for a growing number of trading organisations.

The following examples provide illustrations of how a changing demography can influence both the level and pattern of demand within an economy and in turn help to explain why changes can occur in a country’s economic and industrial structure and why some countries engage in international trade. Demographic change can also have important effects on the supply side of the economy.

You should try to think of other examples.
_ As populations grow in size the demand for many types of goods and services also tends to grow (e.g. energy, consumer durables, food). A growing population also provides a larger workforce, other things being equal. An ‘ageing population’ increases the demand for a range of public, private and voluntary sector goods and services (e.g. healthcare, pensions, specialist holidays, sheltered housing). It also creates an increasingly ‘dependent population’.
_ A declining birth rate influences the demand for education, children’s products, childcare, certain TV program, comics, toys, etc. It can also reduce the numbers of young people available to enter the workforce to replace those who retire.
_ Changes in the ethnic make-up of the population can affect the demand for particular food products, clothing and media services and can place increased demands on public authorities (e.g. documents printed in different languages).
Some researchers also argue that a more diverse workforce can improve an organisation’s performance.
_ The regional redistribution of the population will affect the consumption of a range of goods and services including housing, education, healthcare, transport, energy and many day-to-day products. It can also affect prices (e.g. in the housing market) and the make-up of the local labour market.

On a more general level, it is also worth noting that demographic change can impact on a country’s social as well as its economic structure and that this can result in increased (or reduced) demands on a range of organisations, particularly those in the public sector. For example, the growing imbalance being experienced in many countries between an increasing and dependent elderly population and a diminishing population of working age touches on many areas of public policy, from healthcare and social provision on the one hand to pensions and fiscal policy on the other. Governmental responses to the consequences of demographic change can have both direct and indirect consequences for a wide variety of organisations across the economy.

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