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How Population Aging Drives Labor Productivity: Evidence from China

Author

Listed:
  • Chen Wu

    (School of Business, Nanjing University, Nanjing 210093, China)

  • Yang Cao

    (School of Agricultural Economics and Rural Development, Renmin University of China, Beijing 100872, China)

  • Hao Xu

    (School of Agricultural Economics and Rural Development, Renmin University of China, Beijing 100872, China)

Abstract

Population aging is a critical demographic trend in China, creating both challenges and opportunities for sustainable development. As aging alters the structure of the workforce and capital demand, understanding its effect on productivity is essential to managing demographic transitions in China. This study investigates the causal impact of population aging on labor productivity, with a focus on the mediating role of the capital–labor ratio and heterogeneities across industries, skill levels, and regions. Using data from Chinese listed firms between 2011 and 2018, this paper employs industry- and year-fixed effects regression models to control for unobservable heterogeneity and conducts a formal causal mediation analysis. The analysis reveals that population aging significantly enhances labor productivity. Specifically, a one-percentage-point increase in the old-age dependency ratio is associated with a 1.47% increase in firm-level labor productivity. The capital–labor ratio emerges as a critical mechanism, mediating the relationship between aging and productivity by incentivizing firms to increase capital intensity in response to labor shortages. Approximately 72.4% of the total effect is mediated through changes in capital intensity. The findings highlight notable heterogeneities. Labor-intensive firms and low-skilled worker segments experience stronger productivity gains from aging compared with their capital-intensive and high-skilled counterparts. At the regional level, the productivity effects are most pronounced in first- and second-tier cities, while third-tier cities show negligible impacts, reflecting resource and structural constraints. This study underscores the dual role of population aging as a challenge and an opportunity. Policy recommendations include (1) expanding targeted fiscal support for capital investment and automation in aging-intensive industries; (2) promoting vocational training programs tailored to older workers and digital skills development; and (3) strengthening infrastructure and institutional capacity in third-tier cities to better absorb productivity spillovers from demographic adjustment. By addressing these demographic and productivity linkages, the study contributes to achieving Sustainable Development Goals 8 (Decent Work and Economic Growth), 9 (Industry, Innovation, and Infrastructure), and 10 (Reduced Inequalities), by promoting inclusive productivity growth, enhancing industrial adaptation to demographic change, and reducing regional and skill-based disparities.These findings offer valuable insights for policymakers and businesses navigating the complexities of aging economies.

Suggested Citation

  • Chen Wu & Yang Cao & Hao Xu, 2025. "How Population Aging Drives Labor Productivity: Evidence from China," Sustainability, MDPI, vol. 17(11), pages 1-28, May.
    • Handle: RePEc:gam:jsusta:v:17:y:2025:i:11:p:5046-:d:1668751
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