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

55 Pages Posted: 4 Dec 2014 Last revised: 20 Aug 2016

See all articles by Nicole Maestas

Nicole Maestas

Harvard Medical School - Department of Health Care Policy

Kathleen Mullen

RAND Corporation

David Powell

RAND Corporation

Date Written: August 19, 2016

Abstract

Population aging is widely assumed to have detrimental effects on economic growth yet there is little empirical evidence about the magnitude of its effects. This paper starts from the observation that many U.S. states have already experienced substantial growth in the size of their older population and much of this growth was predetermined by historical trends in fertility. We use predicted variation in the rate of population aging across U.S. states over the period 1980-2010 to estimate the economic impact of aging on state output per capita. We find that a 10% increase in the fraction of the population ages 60 decreases the growth rate of GDP per capita by 5.5%. Two-thirds of the reduction is due to slower growth in the labor productivity of workers across the age distribution, while one-third arises from slower labor force growth. Our results imply annual GDP growth will slow by 1.2 percentage points this decade and 0.6 percentage points next decade due to population aging.

Keywords: population aging, GDP growth, demographic transitions

JEL Classification: J11, J14, J23, J26, O47

Suggested Citation

Maestas, Nicole and Mullen, Kathleen and Powell, David, The Effect of Population Aging on Economic Growth, the Labor Force and Productivity (August 19, 2016). RAND Working Paper Series WR-1063-1. Available at SSRN: https://ssrn.com/abstract=2533260 or http://dx.doi.org/10.2139/ssrn.2533260

Nicole Maestas (Contact Author)

Harvard Medical School - Department of Health Care Policy ( email )

180 Longwood Avenue
Boston, MA 02115
United States

Kathleen Mullen

RAND Corporation ( email )

1776 Main Street
P.O. Box 2138
Santa Monica, CA 90407-2138
United States

David Powell

RAND Corporation ( email )

1776 Main Street
P.O. Box 2138
Santa Monica, CA 90407-2138
United States

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