What effect will the aging population have on the economy?

If their population age structure between 1960 and 2005 had been what projections suggest it will be for the 2005 to 2050 period, the OECD countries would have grown by 2.1 percent per year rather than by 2.8 percent per year.

The share of the population aged 60 and over is projected to increase in nearly every country in the world between today and 2050. An aging population tends to lower labor-force participation and savings rates, and may slow economic growth. In Implications of Population Aging for Economic Growth (NBER Working Paper No. 16705), co-authors David Bloom, David Canning, and Günther Fink conclude that OECD countries are likely to experience lower rates of economic growth because of population aging. In most non-OECD countries, however, declining fertility rates will cause labor-force-to-population ratios to rise: the shrinking share of young people will more than offset the aging of the population.

These researchers first study how changes in population age structure affected economic growth between 1960 and 2005. They then estimate how various countries' economies would have grown during those years if their labor force participation rates by age and sex had remained the same, but the age structure of their populations had been what we expect to prevail between 2005 and 2050. They conclude that labor force participation rates would have fallen in 126 of the countries included in the United Nations' World Population Prospects, with sizeable declines in China, Singapore, and some Western European countries.

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