Aging Populations Slow Economic Growth

On Friday, the Paris-based Organization for Economic Cooperation and Development (OECD) produced a new set of economic growth projections for the world. The basic message is that aging populations are dragging down the richer countries. The OECD website has a very nice short video of the highlights of the report, and Floyd Norris of The New York Times provides some background:

“The active share of the population has to finance the old population,” said Asa Johansson, a senior economist in the organization and the principal author of the report, explaining why the rising proportion of older people is expected to reduce growth.

The process is expected to be particularly rapid in China. In 2010, that country had just 11.3 people over 65 for each 100 people in the working-age population, less than half of Britain’s 25.1 figure and well below the United States’s 19.9. But the United Nations estimates that by 2045, the dependency ratio in China will be 39, almost exactly the same as in Britain and well above the 34.6 figure forecast for the United States. 

The O.E.C.D. report said that more rapid aging in China “partly explains why India and Indonesia will overtake China’s growth rate in less than a decade.” It forecast that China’s G.D.P. would grow at a rate of 2.3 percent a year from 2030 to 2060, little more than the 2 percent it forecast for the United States. But it projected growth of 3.3 percent in Indonesia and 4 percent in India.

The population data come from the United Nations Population Division, so there is nothing inherently new here. Indeed, this message has been out there in the demographic literature for a long time, especially in the writings of Ron Lee of UC Berkeley, and Andrew O. Mason of the University of Hawaii. Still, it is a good reminder of the way in which demographic trends underly major changes taking place in the world. Of particular note is that the UN population projections do not take into account the possible future impact of immigration into some of the aging countries, but Norris does make the point:

One thing that could render these forecasts wrong would be an increase in immigration. For South Korea, which now seems to be on course to rival Japan as one of the oldest — and slowest-growing — countries in the world by late in this century, an obvious source of new workers would be the much younger North Korea, if politics ever made that possible. For many other countries, a source would be less developed nations, something that is politically unpopular in both the United States and Western Europe, and all but anathema in Japan.

Perhaps the politics of that will change someday, as young immigrants are viewed not as competitors for limited employment opportunities but as sources of tax revenue to help support aging populations.