Demystifying the Aging Population and Economic Growth Paradox

The relationship between aging population and economic growth has been a topic of much debate among economists and policymakers. Certain studies argue that an aging population does not necessarily hamper economic growth, but a growing body of research suggests a more nuanced view.

Aging Populations: A Boon for Economic Growth?

A compelling proposition comes from a study at MIT, led by Daron Acemoglu et al. They discovered that countries experiencing rapid aging have, counterintuitively, shown higher growth rates in recent decades [1]. The researchers attribute this anomaly to the accelerated adoption of automation technologies in countries undergoing more pronounced demographic shifts. The study highlighted that businesses increase robot deployment as the population ages, primarily to address labor shortages rather than merely to reduce costs [1, 2].

The Grim Realities

However, a series of studies present a contrasting perspective on the positive correlation between an aging population and per capita growth. A research collaboration between Brown University and Harvard University, led by Gauti B. Eggertsson et al., posits that this relationship deteriorates when nominal interest rates plummet to a lower limit, as witnessed during the Great Financial Crisis [3].

A study by Hyun-Hoon Lee and Kwanho Shin uncovers a nonlinear relationship between population aging and economic growth. The research suggests that economic growth is negatively impacted only when the share of the old-age population reaches and exceeds a specific threshold. This negative effect is linked to the decline in the working-age population that occurs once the old-age population share crosses that threshold [4].

In the same vein, a study from Harvard Medical School and the University of Southern California points out that a 10% increase in the population aged 60 and above led to a 5.5% decrease in per capita GDP. The study attributes one-third of this reduction to slower employment growth and two-thirds to slower labor productivity growth [5].

Adding another dimension to this complex issue, researchers from Kyoto University in Japan contend that in an economy where exhaustible resources are essential for production, population decline can significantly influence the persistent growth in per capita income and consumption [6].

Conclusion

While automation and technological advancements may mitigate the impact of an aging population on economic growth in some situations, they are by no means panaceas. The intricate relationship between population aging and economic growth is molded by a plethora of factors, including labor force participation, productivity, interest rates, and resource availability. Contrary to some assumptions, aging could have a negative impact on economic growth. This underlines the imperative for policymakers to consider the broader repercussions of aging populations on long-term economic sustainability.

References

[1] Acemoglu, D. et al. (2017) "Secular Stagnation? The Effect of Aging on Economic Growth in The Age of Automation."
[2] Dizikes, P. (2021) "Study: As a population gets older, automation accelerates."
[3] Eggertsson, G.B. et al. (2018) "Aging, Output Per Capita and Secular Stagnation."
[4] Lee, H.-H., Shin, K. (2019) "Nonlinear effects of population aging on economic growth."
[5] Maestas, N. et al. (2016, Revised 2022) "The Effect of Population Aging on Economic Growth, The Labor Force and Productivity."
[6] Mino, K. et al. (2023) "Long-run consequences of population decline in an economy with exhaustible resources."