Population Aging: the Effects on the US Economy

1
Population Aging the Effects on the US Economy

• Nellie Wood
• 10/21/10

2
A Changing Age Structure

• Population gt65 increasing
• 2000 12.5
• 2050 20
• Population 25-34 declining
• Population lt18 declining

3
Consumption and Production

• In MOST sectors, consumption rate does not change
  with age
• BUT
• Production level of retirees 0
• So consumption gt production
• Health care
• Rates of disease increase as life expectancy
  increases
• Hospitalization and pharmaceuticals

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What are the effects of an Aging Labor Force?

• Depends on the productivity of the elderly
  workers
• Theory of human capital
• Aging labor force stimulates economy
• Incentive theory
• Aging labor force slows economic growth
• So are they less productive?
• Lower absenteeism, higher job loyalty
• Less technologically savvy, slower learners

5
Pension Programs

• Firms encourage early retirement
• ?
• Labor force decreases
• ?
• Income increases
• ?
• Earlier retirement

6
Pension Programs

• Decreasing labor force
• Increasing elderly population
• (earlier retirement, increasing life expectancy)
• The result?
• Heavy burden on public pension systems

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Declining Saving Rate Harmful to the Economy?

• Life-cycle Hypothesis
• More dissavers lower saving rate
• Saving rate ?
• Net investment ?
• Capital stock ?
• Economic growth ?
• HOWEVER
• Declining labor force growth rate less need for
  capital stock

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State Level Effects

• K-12 education and Medicaid
• Localized populations
• Florida 17.6 over 65 (highest)
• Alaska 5.7 over 65 (lowest)
• Expenditures on dependents
• Florida lowest
• Alaska highest
• Relaxed state burden fewer young dependents

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Policy Implications

• Increase labor force
• Delay retirement ?
• Increase immigration? ?
• Increase saving rate
• Delay retirement?
• Pension reform
• Political power of large cohorts

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Bibliography
Brucker, Eric, (2006), "Demographic, Employment,
Expenditure, and Income-related Dependency
Ratios Population Aging in the Fifty States",
Public Budgeting and Finance, Fall, pp.
65-80. Johnson, Paul and Jane Falkingham.
(1992). "Aging and the Macroeconomy" in Ageing
and Economic Welfare, Sage Publications,
Newberry Park, California, Ch. 6,
pp.152-176. MacKellar, Landis and David
Horlacher, (2009) "Policy Implications of
Population Aging", in Japan Spotlight,
March/April 2009, pp. 8-11. Pryor, Frederic L.
(2003), "Demographic Effects on Personal Saving
in the Future", Southern Economic Journal v69,
n3 (January 2003) 541- 559.