To continue stoking the world economy, cities must adapt to changing demographics

By Jaana Remes, Jonathan Woetzel
To continue stoking the world economy, cities must adapt to changing demographics

The decline in population growth in cities is forcing them to adapt in order to maintain a healthy global economy, write Jaana Remes and Jonathan Woetzel in The Globe and Mail.

Cities have powered the world economy for centuries. Consider that large cities in Canada contribute about 65 per cent of the nation's GDP. But the days of easy urban growth are over. Cities now face a double demographic hit that poses a threat to their growth and to the health of the global economy.

In the past, city economies expanded largely because their populations were increasing due to high birth rates and mass migration from rural areas. Expanding populations accounted for 60 per cent of large cities' growth, and growth in per-capita income the rest. But both sources of population growth are weakening, transforming the urban landscape.

The first shift is that population growth is slowing because of declining fertility rates and aging. This is a radical break from the past 50 years, when large cohorts of working-age people fuelled urban growth. In 2015, the share of people over 60 living in large Canadian cities was 21 per cent, and this is set to rise to 26 per cent in 2025.

The second shift is that urbanization is plateauing. In countries where a huge share of people already live in cities, there is scarcely any room left for further migration from rural areas. Canada is already largely urban, with 82 per cent of its population living in cities. This leaves little room for cities to expand through an influx of migrants from rural areas.

Together, these shifts are bearing down on the population growth of Canada's cities. Between 1990 and 2015, that growth was 1.3 per cent a year, but, according to the United Nations, that growth is set to decline to 1.1 per cent a year between 2015 and 2025.

Many cities – for now, largely in developed regions but in future, also in the emerging world – are now experiencing shrinking populations. Worldwide, we expect population to decline in 17 per cent of large cities in developed regions and 8 per cent of all the world's large cities between 2015 and 2025.

In the new demographic era, we are likely to see a much more fragmented urban landscape with pockets of robust expansion but also areas of stagnant and declining populations. Cities' growth prospects will reflect very different demographic footprints and dynamics shaped by their local birth rates and death rates, net domestic migration and net international migration.

For instance, in our sample of 1,503 cities across developed and developing countries, the average age ranges from 23 years in the northern Indian city of Shillong to 48 years in Punta Gorda in Florida.

Even within countries, the demographic profiles and prospects of cities vary widely. In Canada, there is a six-year gap between the average ages in its youngest and oldest cities. In India, South Korea and Spain, the gap is about 10 years, while in the United States, it's about 20.

Demographics are not an inevitable drag on urban economic growth and the prosperity of cities. Even in a slower-growing world, cities that maintain their dynamism and vibrancy will attract talented workers and successful businesses. But all cities need to meet two imperatives in the face of challenging demographics.

The first is to ensure that they are attractive to current and potential citizens. Urban strategy used to focus on attracting businesses to create the jobs that would encourage people to stay or to relocate to a city. In today's digital age, jobs are increasingly likely to follow people rather than the other way around.

The second imperative is to adopt a relentless focus on productivity. As the demographic boost to urban growth slows, cities need to perform better with fewer resources. Cities that are more productive tend to achieve higher growth in percapita GDP, derive greater benefits for the money they invest and spend, and are more appealing to current and potential citizens.

Big can still be an advantage. Large cities such as London, Tokyo and Toronto will continue to enjoy scale benefits and attract people, although keeping costs low – particularly housing costs – will be key. Many more cities are likely to design “niche" strategies to appeal to particular demographic groups.

Shrinking cities might try to broaden their demographic bases by appealing to both ends of the age spectrum, as Chemnitz in eastern Germany has done. In 2005, the city had among the lowest birth rates in the world, 7.3 births per 1,000 inhabitants. The city offered child subsidies and state-funded daycare, and in 2015, the birth rate stood at 9.4 per 1,000.

The answer for cities searching to maintain growth in a more challenging era will vary; there is no single blueprint. What's certain is that cities remain the lifeblood of the world economy, and how they react to changing demographics is critically important for the health of the global economy in the years ahead.

This article originally ran in The Globe and Mail.

About the author(s)

Jaana Remes is a partner and Jonathan Woetzel a senior partner with the McKinsey Global Institute