The Price of Maturity
Finance and Development, pp. 7-11, June 2011
6 Pages Posted: 15 Jun 2011
Date Written: June 2011
Over the next few decades population aging will begin developing in many countries and become much more challenging in high-income countries. Population aging has profound implications for the economy because of the economic life cycle, characterized by extended periods of, “dependency,” at young and old ages. The first order economic effects of population aging are captured by the support ratio, the effective number of workers divided by the effective number of consumers. Support ratios constructed using National Transfer Account data show that for many developing countries changing age structure is boosting economic growth by as much as one percent per year. In high-income countries, however, economic growth could be depressed by as much as one percent per year in the absence of effective responses by individuals and by governments. To the extent that the elderly are self-sufficient, relying on continued work and the accumulation of assets to support themselves in old-age, population aging may produce a second demographic dividend, a further spur to economic growth. Comprehensive estimates of the support system for the elderly show great variation across countries, however, in the extent to which the elderly are relying on themselves or depending on younger generations to fund their material needs in old-age. Postponing retirement is an important response to population aging, but must be complemented by increased emphasis on the accumulation of assets in the form of housing, pension funds, and personal savings.
Keywords: aging, retirement
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