The Effect of Population Aging on Economic Growth, the Labor Force and Productivity

Nicole Maestas, Kathleen J. Mullen, David Powell

NBER Working Paper No. 22452
Issued in July 2016
NBER Program(s):Aging, Economic Fluctuations and Growth, Labor Studies, Public Economics, Productivity, Innovation, and Entrepreneurship

Population aging is widely assumed to have detrimental effects on economic growth yet there is little empirical evidence about the magnitude of its effects. This paper starts from the observation that many U.S. states have already experienced substantial growth in the size of their older population and much of this growth was predetermined by historical trends in fertility. We use predicted variation in the rate of population aging across U.S. states over the period 1980-2010 to estimate the economic impact of aging on state output per capita. We find that a 10% increase in the fraction of the population ages 60+ decreases the growth rate of GDP per capita by 5.5%. Two-thirds of the reduction is due to slower growth in the labor productivity of workers across the age distribution, while one-third arises from slower labor force growth. Our results imply annual GDP growth will slow by 1.2 percentage points this decade and 0.6 percentage points next decade due to population aging.

A non-technical summary of this paper is available in the 2016 number 2 issue of the NBER Bulletin on Aging and Health. You can sign up to receive the NBER Bulletin on Aging and Health by email.

Acknowledgments and Disclosures

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Document Object Identifier (DOI): 10.3386/w22452

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