South America is on the cusp of political, economic and social challenges spawned by demographic changes. The two largest economies in the region, Brazil and Argentina, will have to deal with increasing budgetary pressures resulting from the aging of their populations. Countries in the region also will face the challenge of attracting more capital to create jobs for their growing workforces. In the longer term, the relative growth of Argentina’s population will challenge Brazil’s regional leadership.
For several decades, countries in Europe and Northeast Asia have seen their populations aging. Low birthrates combined with high life expectancy have caused populations in these countries to age significantly. South America will face a similar process in the coming decades.
Numerous factors contribute to falling birthrates. As the bulk of countries’ rural populations move to the city, traditional social structures break down. Access to education and the labor market leads women to postpone having children, and the higher cost of rearing children in urban and industrial environments encourages having fewer children. In cities, young people typically only enter the labor market after finishing their education, something that usually takes at least 20 years. Increased life expectancy results from a combination of factors. These include improved healthcare systems and generally improved living standards.
To varying extents, all countries in South America have experienced these processes in the past 50 years. The region has experienced urbanization and economic modernization, which affects social structures in most countries.
Still, South America remains considerably younger than Europe. It has an average of 35 people over 65 years old for every 100 people under 15. By contrast, Europe has some 170 elderly people for every 100 young people. But South America is catching up.
Countries like Brazil, Chile and Uruguay have had birthrates below the replacement level — 2.1, the number of children per woman needed to maintain a stable level of population — for almost a decade, while Argentina is currently at the replacement level. Other countries, such as Colombia, Venezuela, Paraguay and Peru, are still above replacement level, but their birthrates are falling fast. At the same time, life expectancy has grown dramatically throughout the region and will continue to do so.
This will have two major consequences. First, South America is projected to reach its population peak by mid-century, at which point its population will begin to decline. Second, there will be more elderly people than young people by the mid-2030s in Brazil, Chile and Uruguay, by the mid-2040s in Argentina and by 2050 in the rest of the region.
Brazil vs. Argentina
Birthrates have fallen considerably in Brazil and Argentina. The decline has been particularly sharp in Brazil, which has experienced more dramatic economic and social change than Argentina.
Argentina has a longer tradition of urban life. This means that Argentina has had relatively low birthrates for most of the past century compared to other developing nations, and the decline in birthrates has been slower and from a lower ceiling. Fertility rates fell steadily between the mid-1980s and the early 2000s, when the country experienced rapid economic liberalization, but have somewhat stabilized since then due to a series of government policies benefitting low-income families.
For its part, Brazil experienced an accelerated process of urbanization in the second half of the century. Birthrates have plummeted in Brazil while life expectancy has had a spectacular increase, rising by 19 years in only half a century. As a result of both processes, the percent of Brazil’s population that is elderly has more than doubled during that period, from only 3.19 percent of the total population to 7.19 percent.
The decline in births tracks an increase in the percentage of Brazilian women participating in the labor force, a figure that rose from one-fifth in the early 1970s to almost two-thirds in 2009. As more Brazilian women received educations and entered the labor force, they postponed having children and the total number of children they had declined.
Income and education levels also grew significantly in Brazil in the second half of the last century. In 1970, one-third of the Brazilian population was illiterate. The rate dropped below 10 percent in 2010. Urbanization rates also skyrocketed during that period, with the percentage of Brazilians living in cities rising from 36 percent of the total population in 1950 to 84.4 percent in 2010.
During the same period, Argentina moved from 65 percent urban dwellers to 91 percent urban dwellers. Because of Argentina’s overwhelmingly urban population, Argentines have high average access to their universal health care system. Life expectancy has increased from 65 to 75 since 1960 (the second-highest increase in South America after Uruguay). Argentines are living longer and getting older, with the share of the population above 65 doubling in the past 50 years from 5 percent to 10 percent of the total.
By contrast, Paraguay and Bolivia, two of the smallest economies on the continent, still have fertility rates well above the replacement level. These are still largely traditional rural agrarian populations, where life expectancy, access to health care and female access to education and participation in the labor force are lower on average than in the region’s more developed countries. However, fertility rates are still falling.
The Demographic Bonus Ahead
South America will have a growing workforce for the next two decades. Life expectancy in the region grew at a faster rate than the decline in fertility rates. At present, two-thirds of the population in South America is of working age. This means that the continent’s already large stock of working age people will continue to grow for two decades before beginning to shrink. In “younger” countries such as Bolivia or Paraguay, this so-called “demographic bonus” will last even longer. As a result, the economies of the region have room for further growth both in absolute and relative size, especially compared to the shrinking population and economies in most of the developed world.
Obstacles in certain areas lie ahead. One of these is the price of education and health care. If the South American countries fail to properly train their expanding workforces, their economies could become less productive and less competitive. Brazil and Argentina have free education systems, permitting them to educate the thousands of people who enter the labor market each year. But free education alone will not be enough, since these countries will also have to address the quality of their schools and universities. Recently, the quality of secondary education in Argentina and Brazil ranked below the Organization for Economic Co-operation and Development average.
The cost of maintaining education and health systems will put Argentina and Brazil under growing budgetary pressures. Aging populations will exacerbate health care costs and will bring increased pension costs, with fewer young people to cover these costs.
Fiscal pressures on the two largest states in South America are liable to reach a maximum around the 2040s, when the current cohorts of young workers start to retire. The region will therefore need to reduce the government role in social policies as a result of declining income and increasing costs. As in Europe, attempts to dismantle the welfare system will be politically difficult, testing the ability of these countries to adapt to demographic change.
The smaller countries in the region will have problems of their own. Chile and Uruguay, the two “oldest” countries in South America, will be the first to be forced to adjust their policies to the aging of their populations. “Young” countries like Bolivia and Peru will have to find a way to incorporate their increasingly large masses of working-age populations into the labor market. These countries will need more capital and better infrastructure to generate more employment for these new waves of workers. Otherwise, the youngest countries in the region are likely to face greater social unrest.
An additional effect of demographic change will be the increasing competition for workers. Wealthier Argentina and Brazil will draw non-skilled workers from Bolivia, Peru or Paraguay and mid- to high-skilled workers from Colombia or Venezuela. Argentina and Brazil have a long tradition of immigration — and large territories — so the arrival of foreign workers is likely to create less political and social tensions than it would in places like Europe.
But there will be competition for South American workers abroad, too. South America will reach the peak of its workforce at the same time that the working-age sector in Europe will be contracting. Countries with higher levels of education, such as Argentina and Brazil, will see high-skilled workers drawn to higher wages in Europe and the United States, creating a potential brain drain.
However, the need for additional capital in South America could see the continent’s countries enhance their economic prospects by liberalizing their economies to attract private domestic and foreign investment. This process could see Bolivia, Venezuela and Argentina change their current policy of nationalizing foreign-owned companies.
Over the medium term, demographic change will not affect Brazil’s position as South America’s regional leader. Brazil will remain the largest economy and the most populous country in the region, and its labor market will continue to expand in the next two decades. The need to create jobs for a growing number of workers is likely to make Brazil further internationalize its economy in a bid to attract foreign investment and boost its exports. This is likely to make Brazil more assertive in the international arena. Budgetary pressures resulting from its aging population will test Brazil’s economy and politics, however.
Over the long term, the population of Argentina will continue to grow after Brazil reaches its population peak and begins to decline. This will increase the relative economic weight of Argentina in the region, both as a consumer and as an export market. Even if Argentina’s economy remains considerably smaller than the Brazilian economy in absolute terms, demographic change in both countries will give Argentina additional tools in its competition with Brazil for political dominance in South America.