Aging Economies: Older, and Growing

Data Sourced from http://www.jpc-net.jp/

Large-scale anti-aging solution for economies? Just an idea.

Korea, Japan, the US and China are perhaps just a few economies experiencing ominous dynamics in their demography. South Korea expects its GDP to slow down by 8 percent by 2026 due to this reason, and China, with its present single digit rate of economic growth, suffers from an ongoing aging demographic.  The segment of more-than-60-year olds in the US is predicted at 21 percent between 2010 and 2020. The woes of Japan are plenty to be recounted. Deflation, employment rates, and an aging population, are just a few that have come into light.

Higher rates of infertility and lower rates of mortality are cited as significant reasons for skewed demographics. Especially developing economies like China have achieved an improvement in life expectancy from 40 to 70 years, too soon, too early.

Higher infertility rates stand as significant factors effecting GDP growth in these countries. Even though, the correlation between aging and economic growth may be intuitive, there are some evidences that are startling. Rising infertility rates and decreasing mortality rates have increased the incidence for medical care and insurance. While there is increasing revenue in this stream, there is lack of revenues from the workforce, in terms of productivity. A lop-sided workforce that is in the age range of 50-70 years, has created a gap in the industry in terms of growth of productivity also. The fact that such a scenario is responsible for an imbalance between labor supply and demand is of a concern in these economies. There is an increase in workforce, because of the older population being employed; however, the increase in workforce is less than proportionate to the increase in productivity (growth). The estimated per capital income, is thus lesser than that in the situation with a younger population.

Does labour productivity depend on the age of the workforce to such an extent that an aging population would lead to a decrease in GDP, in the long run? Labour productivity has numerous determinants; and age cannot be limiting factor for it to diminish in the long run. While age may limit per capita labor productivity, it may not limit the overall productivity of the economy. On the one hand, if availability of technology to replace human efforts is considered an option, then capital-intensive research and development is the additional cost. However, if such advanced technology promises increased labor productivity, overriding the determining factor of age, then perhaps a pronounced effect on GDP growth can be mitigated. In other words, diminishing labour supply growth that is due to an increasing proportion of older workforce may not have a long-term effect.

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