The Effect of Population Aging on Economic Growth

Nicole Maestas (), Kathleen Mullen and David Powell
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Nicole Maestas: RAND Economics

No 14-012, Discussion Papers from Stanford Institute for Economic Policy Research

Abstract: Population aging is widely expected to have detrimental effects on aggregate economic growth. However, we have little empirical evidence about the actual existence or magnitude of such effects. In this paper, we exploit differential aging patterns at the state level in the United States between 1980 and 2010. Many states have already experienced high growth rates of the 60+ population, comparable to the predicted national growth rate over the next several decades. Furthermore, these differential growth rates occur partially for reasons unrelated to economic growth, providing a natural approach to isolate the impact of aging on growth. We predict the magnitude of population aging at the state-level given the state’s age structure in an initial period and exploit this predictable differential growth to estimate the impact of population aging on Gross Domestic Product (GDP) growth, and its constituent parts, labor force and productivity growth. We estimate that a 10% increase in the fraction of the population ages 60+ decreases GDP per capita by 5.7%. We find that this reduction in economic growth caused by population aging is primarily due to a decrease in growth in the supply of labor. To a lesser extent, it is also due to a reduction in productivity growth. We present evidence of ownward adjustment of earnings growth to reflect the reduction in productivity.

Keywords: population aging; GDP growth; demographic transitions (search for similar items in EconPapers)
JEL-codes: J11 J14 J23 J26 O47 (search for similar items in EconPapers)
Date: 2014-11
New Economics Papers: this item is included in nep-age, nep-gro and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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