ABSTRACT
Population ageing affects the output and macroeconomy directly because labor force growth is slower and because capital per worker rises, raising productivity and leading to higher wages and lower interest rates. Population ageing also affects the public and private systems that redistribute output across age groups by altering the relative numbers of donors and recipients, typically requiring either that donors give more or that recipients get less. Consequently, population ageing has positive and negative effects on economic well-being at the individual level and alters market and nonmarket distributions of income. The net outcomes differ from country to country depending on demography, institutions, and policies as data from National Transfer Accounts can illuminate. Population ageing is also associated with changes in policy and individual behavior. The low fertility that causes population ageing is associated with higher investments in the human capital of children, raising their productivity. It also releases parental time for increased labor supply (partially offsetting slower growth in the working-age population), home production, or leisure. Longer life may lead to postponed retirement and/or increased saving. Possibly, an older labor force will be less flexible and less creative, leading to slower technological progress and productivity growth. Capital may flow through international markets from capital-rich ageing populations of higher-income countries to labor-rich and capital-poor countries with younger and more rapidly growing populations. In recent years, many new studies have examined these issues theoretically and empirically. Some have focused on Keynesian worries that ageing may bring secular stagnation: Low and declining real interest rates constrain policy options for central banks seeking to stimulate the economy. Slow population growth may reduce investment demand as investors anticipate less growth in demand for their products. The combined effect may mire ageing economies in slow growth and high unemployment.
