SNAPSHOT2 min read

The 3D Reset: demographics

Demographics is one of the “3Ds” we see as shaping a new economic regime characterised by higher inflation. We explain how.

robot regime shift


Simon Keane
Equities Specialist

The global pandemic underlined the fragility of labour markets at a time when governments in many major economies had already been running out of options to offset adverse demographics as populations age. By the end of this decade, the working age population of the world’s largest economies combined will likely be shrinking.

The result will be fewer available workers, weighing on growth and exacerbating inflationary trends in the global economy as labour shortages and wage pressures persist.

It will also very likely mean increased investment in technology focussed on automation, robotics and artificial intelligence (AI) as companies strive to offset rising labour costs with improved productivity.

Demographics slowly but surely impacting labour markets

Prior to the pandemic, rising retirement ages had helped offset some of the adverse demographic trends impacting labour markets.

Covid-19, however, tested the willingness of working-age people to continue participating in work, let alone older workers to remain in the workforce for longer.

The sharp drop in participation rates in major economies as the health crisis struck captured the loss of appetite to remain economically active.

Participation rates are now improving, and an expected pick-up in unemployment rates will also create some much needed slack.

But even once price stability is restored – at the probable cost of recession and noticeably higher unemployment rates in some instances – companies are still likely to be facing labour shortages over the medium term. Ageing populations will almost certainly ensure this.

This probably means more inflation than otherwise might have been the case as companies compete to secure staff, pushing wages higher as a result. Supply side solutions to offset adverse demographics – which could include relaxing immigration controls – are limited.

Indeed, any improvement in migration trends has often been hampered by increased political opposition.

The overall result has been less flexible labour markets, which are one aspect of broader, less supportive globalisation trends linked to rising protectionism (see The 3D Reset: deglobalisation).

Azad Zangana, Senior European Economist and Strategist, says:

“The rise of populist politics has meant that populations are less willing to allow migrants to come in and fill roles, so companies are having to think of alternative solutions to the labour shortages.

“The shortage of workers will force companies to begin to make greater use of robotics, automation and AI in order to manage their rising costs, but such actions may only slightly offset the higher inflation pressures coming from the new regime.”

How the new regime may impact the economic outlook, in summary The 3D Reset: how it’s changing the inflation outlook

Could a “fourth industrial revolution” be the answer?

While these trends may all present challenges to companies, the history of technological change offers plenty of hope.

Over the course of the 20th century, technology led to huge productivity improvements that raised living standards for all.

The power of combining robotics and AI to create machines which can operate independently and communicate with each other has been hailed by some as a “fourth industrial revolution”.

This is one reason why “smart robotics” is likely to be a focal point for new investment as AI promises to take automation onto a whole new level. Investors are asking if it could it be the answer to improve productivity and help offset adverse demographics.

For a description on highlighted words see: The 3D Reset: the economic terms you’ll need to know

Subscribe to our Insights

Visit our preference center, where you can choose which Schroders Insights you would like to receive

Important information

The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.


Simon Keane
Equities Specialist


3D Reset
Regime shift

Please consider a fund's investment objectives, risks, charges and expenses carefully before investing. The Schroder mutual funds (the “Funds”) are distributed by The Hartford Funds, a member of FINRA. To obtain product risk and other information on any Schroders Fund, please click the following link. Read the prospectus carefully before investing. To obtain any further information call your financial advisor or call The Hartford Funds at 1-800-456-7526 for Individual Investors.  The Hartford Funds is not an affiliate of Schroders plc.

Schroder Investment Management North America Inc. (“SIMNA”) is an SEC registered investment adviser, CRD Number 105820, providing asset management products and services to clients in the US and registered as a Portfolio Manager with the securities regulatory authorities in Canada.  Schroder Fund Advisors LLC (“SFA”) is a wholly-owned subsidiary of SIMNA Inc. and is registered as a limited purpose broker-dealer with FINRA and as an Exempt Market Dealer with the securities regulatory authorities in Canada.  SFA markets certain investment vehicles for which other Schroders entities are investment advisers.

For illustrative purposes only and does not constitute a recommendation to invest in the above-mentioned security/sector/country.

Schroders Capital is the private markets investment division of Schroders plc. Schroders Capital Management (US) Inc. (‘Schroders Capital US’) is registered as an investment adviser with the US Securities and Exchange Commission (SEC).It provides asset management products and services to clients in the United States and Canada.For more information, visit

SIMNA, SFA and Schroders Capital are wholly owned subsidiaries of Schroders plc.