There has been a lot of articles printed recently which are written along the lines of “Don’t worry about COVID-19 everyone, it only kills old people”. A financial article has even been written to suggest that COVID-19’s effect of eliminating retirees, will reduce pension liabilities and boost the stock market in the long run.

Here’s the most damning quote from this seeking alpha article:

The fact of the matter is that it is the old and frail member[s] of society that are overwhelmingly at risk from the virus and are largely net recipients from the pool of real savings in the world rather than net contributors. Much of the world’s economies are facing financial risks in the form of aging populations that are a drag on national savings and public finances. As much as we are reluctant to say it and as much as we truly hope conditions improve, the fact of the matter is that a truly global pandemic would be beneficial in terms of the global active population ratio which has shown to be positive for asset prices. – Stuart Allsopp

I’m writing this article to emphatically argue that this hypothesis is completely w rong and, at least in developed countries, the sudden loss of our older generation would be economically catastrophic.

What exactly counts as “old” or “older” is debatable and somewhat subjective. However the demographic distribution which COVID-19 kills is not. Make no mistake, COVID-19 kills significant numbers of people in their mid 50s and early 60s. It certainly hospitalizes them, and, once the hospitals get overloaded, the death rate of people in their mid 50s to early sixties will likely skyrocket, from between 1 and 4% to somewhere closer to 5-20%. There are countless cases of people well within their working careers, who are in hospital fighting for their lives, a 50 year old lawyer was the first New Yorker to develop a serious condition from a COVID-19 infection, while the first Frenchman to die from COVID-19 was 60 years old. Many individuals in this demographic are highly economically valuable members of society – many of them also have underlying health conditions that increase their risk of dying from COVID-19 still further.

Many Leaders Are Old

Running a large organisation of any kind is not easy, people have to grow into the role. And, as I mentioned in my previous article, many leaders of businesses, nations, churches, and institutions of all kind, including charities, are pretty old. Ronald Reagan, Jeremy Corbyn, Bernie Sanders, Donald Trump and Joe Biden are all examples of heads of state and those running for that position who lie squarely inside the group with a high-risk of dying from COVID-19. I could just as easily name similar heads of finance and industry, such as Warren Buffet or Tim Cook.

Indeed, to date, a total of six politicians and state officials of Iran have died from COVID-19 and a French politician is now in intensive care. Not everyone may like Iranian politicians, but the sudden death of large numbers of politicians, and almost inevitably a few heads of state, is likely to occur over the next few months in every country on Earth if the outbreak isn’t contained.

Many Retirees Serve on Advisory Boards And Sit On The Boards of Directors Of Many Organisations

Although many high achievers, who possess high levels of domain knowledge and experience, take it easier after formally retiring, many high performers continue to offer their services as consultants, and hold seats on the board of directors and the advisory boards of many organisations well into their seventies. Furthermore, even if they stop working for money, many retirees continue to use their skills to coordinate non-profits and charities – even without pay.

Such people have invaluable experience, accrued over decades, and play an important organizing role in civil society, yet a COVID-19 outbreak could kill many of them in the next few months.

There is a significant trend for an increasing fraction of those over the age of 65 to stay in work and indeed a surprisingly large number of entrepreneurs start out in their 50s and 60s.

Many Older People Work In Sectors Lower Down Maslow’s Hierarchy of Needs

This is certainly the case in wealthy developed countries.

This is due to a combination of how pricing works, as well as how economic progress works.

High prices arise when a good or service’s supply is low and demand for it is high. Things that are very useful can be free, such as air, similarly, things that are scarce yet undesirable, such as golden eagle droppings, are also not that valuable.

According to Maslow’s hierachy of needs, there is an order to the goods that we pursue. At the base of that order is food, shelter, medicine, then you move up to safety and security, etc., etc., in other words, we begin by buying the things we need, they we buy the things we really want, and finally we purchase things that tickle our fancy and arouse our interest.

In general, during any given age, people will tend to spend the most money on whatever scarce good is lowest down on maslow’s hierarchy of needs.

And whatever good consumers spend the most money on, will generally be the production sector that offers the most employment opportunities.

As such, upon reaching maturity, the majority of each generation will receive employment in sectors that produce whatever scarce good is lowest down Maslow’s hierarchy.

Now we consider the nature of business competition and economic progress.

Competition favours businesses that can produce more of a product at a lower price. Since labour costs a certain amount of money, and indeed, during periods of economic progress the price of labour often increases, the goal of businesses is always to produce more of their good per unit labour.

Up to a point, the reduction in price will have the effect of increasing demand for the product in question, and this increase in demand may even create new jobs, but at some point the market for a given product becomes saturated, the market share of the sector starts to decline and further increases in productivity within that sector have the effect of reducing the total number of people employed there.

In other words, as an economy progresses and production becomes more efficient, previously necessary, yet scarce, goods become evermore cheap and abundant, with less and less people required to produce them.

The instant employment within a given sector or industry shrinks at a faster rate than those working in it retire, that sector will in practice will become nearly impossible for young college graduates to find work in as, for every position that opens up, they will be competing against veterans with decades of experience under their belt.

So, while there are some exceptions, once the goods lower down the hierarchy of needs, the necessities, become more and more abundant, the next generation will generally seek employment in sectors that produce goods higher up the hierarchy of needs. Goods that are less necessary.

This doesn’t mean that all old people work in fundamental sectors like agriculture, or run-of-the-mill manufacturing. But it does mean that the majority, or a great deal of people working in these sectors are old.

Generally as employees in these established sectors retire, employers will increase the labour-efficiency of production to replace retirees as opposed to hiring new college graduates. Andrew Yang’s book Smart People Should Build Things discusses, at length, how expensive it is to scout for talent and, in many cases, medium sized companies in sectors with declining market shares can rarely afford this.

From time to time, there may be a recruitment drive for new graduates when a sector becomes chronically understaffed, but if the sector is declining, they will likely hire one graduate for every two retirees, or two graduates for every three retirees, with automation, efficiency and outsourcing making up the difference.

Outsourcing is a slow process that can take a company decades to achieve, but the effect on the age distribution of the remnant of the company that does not get outsourced is more immediate. Again, if you replace retirees with labour from the developing world, the average age of those working in the operation in the developed world will increase markedly.

So there you have it, young people work in coding, fashion, finance and social media, old people work in coal mining, farming, nuclear power and manufacturing.

Renewable energy and electric car manufacturers are an exception where the workforce is somewhat younger and actively recruits college graduates. These sectors are close to the base of Maslow’s Hierarchy and are an exception to the rule due to fact that problems were found with the existing production methods (due to their contribution to greenhouse emissions) and this required a labour-intensive overhaul which created an intense demand for jobs, which in turn opened up entry to college graduates. But in general, if there’s no problem with an existing industry, it just steadily get automated, and labour efficiency steadily increases as the older employees retire.

Because of this, COVID-19 has the potential to suddenly decimate the workforce across a wide range of essential industries from food, to basic utilities, to manufacturing – especially in the developed world, due to outsourcing. And many of these highly-experienced, highly-skilled elderly employees will be irreplaceable. COVID-19 could kick the base out from under the pyramid and create shortages in a wide range of necessities whose affordability we currently take for granted.

Many Older People Work In Industries At The Base of Many Supply Chains

Building block must always chronologically precede the things that they are used to build. In order to build a product that uses resistors or capacitors, resistors and capacitors must first exist. In order to build a sewerage system, pipes must first exist. For this reason, industries that create components will usually be older, and more mature, than industry’s that combined basic components into different kinds of final products.

Today, older people manage the servers, younger people develop the software.

Of course, every now and again, it is necessary to use components with exceptionally high performance, and high-performance component design is labour intensive and hence can be a source of employment for youths. But there are plenty of affordable run-of-mill components produced in volume by mature industries that have not changed very much in a long time – mature industries with highly-experienced, dwindling, aging work forces – for exactly the same reasons given in the previous section.

Again COVID-19 could decimate highly-experienced irreplaceable workers that oversee and maintain the manufacture of a wide range of components at the base of a huge number of supply chains.

If such workers are allowed to die, their experience will not be easy to replace.

And without the building blocks they need to do their job, the productivity of younger people further up the supply chain will grind to a screeching halt.

Even if COVID-19 is only dangerous for older people, it’s impact on the overall economy could be CATASTROPHIC!

We MUST protect our elders! We MUST contain this outbreak at ALL COSTS!

John McCone

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