The Effect of Population Aging on Economic Growth, the Labor Force and Productivity

Abstract

Population aging is expected to slow U.S. economic growth. We use variation in the predetermined component of population aging across states to estimate the impact of population aging on growth in GDP per capita for 1980-2010. We find that each 10% increase in the fraction of the population ages 60+ decreased per-capita GDP by 5.5%. One-third of the reduction arose from slower employment growth; two-thirds was due to slower labor productivity growth. Labor compensation and wages also declined in response. Our estimate implies population aging reduced the growth rate in GDP per capita by 0.3 percentage points per year during 1980-2010.