Demographics and Productivity

Abstract

This paper examines the impact of workforce demographics on aggregate productivity. The age structure of the workforce is found to have a significant impact on aggregate productivity. A large cohort of workers aged 40 to 49 is found to have a large positive impact on productivity. Out of sample predictions of output growth from 1990 to 1995 predict 17% of actual output growth differences across a sample of 108 countries. The results suggest a partial explanation for the productivity slowdown in the seventies and the boom in the nineties. This paper estimates that US productivity growth in the seventies was 2% lower than trend due to the entry of the baby boom into the workforce. As the baby boomers entered their forties in the nineteen eighties and nineties, productivity growth rebounded. Japanese demographics predict almost the opposite pattern, with high growth in the seventies followed by low growth in the nineties. Demographics can also explain part of the productivity divergence between rich and poor nations between 1960 and 1990.

Keywords: Productivity, human capital, demographics, slowdown

JEL Classification: E23, O30, O47