What’s going on with an aging population and productivity?
The impact of an aging population on economic output and growth is the focus of an increasing number of studies. This development is not surprising given the retirement of the baby boomers and a rapid increase in the share of the population over age 60.
The studies, however, provide seemingly conflicting conclusions. Two studies say an aging population is bad, and two say that it’s good.
First, here’s what theory would tell you. In the absence of any other change, an increase in the dependency ratio reduces the fraction of active workers in the population and thereby reduces output per capita. That is, GDP growth per capita would be expected to decline in an aging society.
But it is possible to improve things in two ways. One is to provide workers with more capital, which would increase their productivity and offset some or all of the effect of an aging population. Another way would be if relative labor force scarcity triggers labor-saving technological innovation. So while most commentators focus on the basic notion that fewer producers relative to consumers must lower the level of output per capita, the theory clearly indicates that this negative effect could be offset by increasing capital per worker or technological innovation.
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