The Impact of Aging on
Economic Development
Name: Zhuang Long
No.222306250
5.22.2023
Abstract
This paper examines the advantages and disadvantages of aging for economic
development, using data analysis and graphic tables to support some of the opinions.
It also suggests some policy recommendations to cope with the challenges and
opportunities of aging. The paper finds that aging can have both positive and negative
impacts on economic development, depending on diverse factors such as human
capital, productivity, innovation, savings, investment, consumption, public spending,
taxation, and growth. Therefore, policymakers need to adopt a comprehensive and
proactive approach that addresses both the supply-side and demand-side factors of
economic development.
Key words: aging; economic development; policy; data analysis; graphic tables
Introduction
Aging is the process of growing older and experiencing changes in various aspects of
life, such as health, productivity, and social relationships. Aging is inevitable and
universal, but its pace and consequences vary across countries and regions. According
to the United Nations, the population of the world aged 60 years or over is estimated
to increase from 962 million in 2017 to 2.1 billion in 2050, and to 3.1 billion in 2100.
The share of older persons in the total population will rise from 13% in 2017 to 25%
in 2050, and to 36% in 2100. This demographic transition poses significant challenges
and opportunities for economic development, as it affects various aspects of economic
activity, such as labor supply, savings, investment, consumption, public spending,
taxation, and growth.
Advantages
Increasing human capital and productivity
Aging can have positive effects on economic development through several channels.
First, aging can increase human capital and productivity, as older workers tend to
have more experience, skills, and knowledge than younger workers. According to a
study by Börsch-Supan et al. (2019), older workers are more productive than younger
workers in complex tasks that require cognitive abilities, such as problem-solving,
creativity, and communication. Moreover, older workers can mentor and train younger
workers, enhancing their human capital and productivity as well.
Stimulating innovation and technological progress
Second, aging can stimulate innovation and technological progress, as older people
may demand new products and services that cater to their needs and preferences. For
example, aging can create a market for health care, assistive devices, leisure activities,
and financial products that can improve the quality of life and well-being of older
people. According to a report by Nature Aging (2021), targeting aging itself can offer
potentially larger economic gains than eradicating individual diseases. The report
estimates that a slowdown in aging that increases life expectancy by 1 year is worth
US$38 trillion, and by 10 years, US$367 trillion.
Fostering social cohesion and stability
Third, aging can foster social cohesion and stability, as older people tend to have more
civic engagement, altruism, and trust than younger people. According to a study by
Putnam (2000), older people are more likely to vote, volunteer, donate, join
associations, and participate in community activities than younger people. Moreover,
older people tend to have more tolerance, respect, and solidarity than younger people.
These social values can enhance social capital and reduce social conflicts that may
hamper economic development.
Disadvantages
Reducing labor supply and labor force participation
Aging can also have negative effects on economic development through several
channels. First, aging can reduce labor supply and labor force participation, as older
workers tend to retire or work less hours than younger workers. The European
Commission (2021) predicts that the proportion of people who are 65 or older
compared to those who are 15-64 will grow from 31.9% in 2019 to 51.2% in 2070 in
the EU. This is called the old-age dependency ratio. This implies a shrinking and
aging workforce that may constrain economic growth and competitiveness.
Lowering savings and investment rates
Second, aging can lower savings and investment rates, as older people tend to
consume more than save for their future needs and retirement. According to the lifecycle hypothesis, people tent to save during their working years and consume during
their retirement years. As a result, a population with more older people may save and
invest less, which may have an impact on the formation and efficiency of capital.
Moreover, an aging population may also change the composition and quality of
investment, as older people may prefer safer and shorter-term assets than younger
people.
Increasing public spending and taxation
Third, aging can increase public spending and taxation, as older people demand more
public services and transfers, such as health care, long-term care, pensions, and social
security. According to the European Commission (2021), age-related public spending
is projected to increase from 25.1% of GDP in 2019 to 26.7% of GDP in 2070 in the
EU. This implies a rising fiscal burden and pressure on public finances that may affect
fiscal sustainability and macroeconomic stability.
Graphic Tables
Table 1 shows the projected population percentage change categorized by age from
2020 to 2050 for selected regions and countries.
Table 1: Projected percentage change in population by age group from 2020
to 2050
Source: United Nations (2017)
Region/Country
Total
Under 15
15-64
Over 64
World
Africa
Asia
Europe
Latin America
North America
China
India
(Percentage)
+25
+108
+14
-4
+18
+18
-2
+25
-3
+50
-17
-9
-13
-2
-18
-8
+10
+115
+6
-16
+4
+5
-10
+23
+109
+229
+112
+23
+141
+68
+58
+274
The table shows how the population will change by age group from 2020 to 2050 for
some regions and countries. The world’s population will grow by 25%, but not evenly.
Africa will grow the most (108%), while Europe will shrink (-4%). China and India
will have opposite trends: China will lose 2%, while India will gain 25%.
The table also shows that the population will age, as older people (over 64) will
increase a lot (109%), while younger people (under 15) will decrease (-3%). Africa,
India, and Latin America will age the fastest. The working-age population (15-64)
will grow slightly (10%), but mostly in Africa and India. Europe, China, and Asia will
lose workers.
These changes will affect the economy in many ways, such as labor, savings,
spending, taxes, and growth like we have discussed.
Policy Recommendations
To deal with the problems and benefits of aging, policymakers should take a holistic
and forward-looking strategy that considers both the factors that affect the production
and consumption of goods and services. Some possible policy recommendations are:
Promote active aging and lifelong learning
By encouraging older workers to remain in the labor market or re-enter it through
flexible work arrangements, incentives, training, and anti-discrimination measures.
This can help increase labor supply, human capital, productivity, and social inclusion.
Stimulate innovation and technological progress, by investing in research and
development, digitalization, infrastructure, and entrepreneurship that can create new
products and services for older people and improve their quality of life and wellbeing. This can help boost economic growth, competitiveness, and welfare.
Reform public policies and institutions
By adjusting the pension system, health care system, long-term care system, and
social security system to ensure their adequacy, affordability, efficiency, and equity
for older people. This can help reduce public spending, taxation, fiscal pressure, and
inequality.
Enhance international cooperation and coordination
By engaging in dialogue and partnership with other countries and regions that face
similar or different aging challenges and opportunities. This can help share best
practices, learn from each other’s experiences, and address common issues such as
migration, trade, climate change, and security.
Conclusion
In this paper, we have examined the advantages and disadvantages of aging for
economic development, using data analysis and graphic tables to support some of our
opinions. We have also suggested some policy recommendations to cope with the
challenges and opportunities of aging. We have found that aging can have both
positive and negative effects on economic development, depending on various factors
such as human capital, productivity, innovation, savings, investment, consumption,
public spending, taxation, and growth. To promote economic growth, policymakers
should take a holistic and forward-looking strategy that considers both the factors that
affect the production and consumption of goods and services. By doing so, they can
harness the potential of aging as a source of economic and social progress, rather than
a burden or a threat.
Reference
Börsch-Supan, A., Duzel, S., Weiss, M., & Wöhrmann, J. (2019). Productivity and
age: Evidence from work teams at the assembly line. The Journal of the Economics of
Ageing, 14, 100201.
European Commission. (2021). The 2021 Ageing Report: Economic and Budgetary
Projections for the EU Member States (2019-2070). Retrieved from https://economyfinance.ec.europa.eu/publications/2021-ageing-report-economic-and-budgetaryprojections-eu-member-states-2019-2070_en
Nature Aging. (2021). The economic value of targeting aging. Nature Aging, 1(7),
616-623.
Putnam, R. D. (2000). Bowling alone: The collapse and revival of American
community. New York: Simon & Schuster.
United Nations. (2017). World Population Ageing 2017. Retrieved from
https://www.un.org/en/development/desa/population/publications/pdf/ageing/WPA201
7_Report.pdf