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Macroeconomic Implications of Demographic Changes: A Global Perspective

  • Ronald Lee

    (Professor of Demography and Economics, University of California, Berkeley (E-mail: rlee@demog.berkeley.edu))

The populations of the World are aging, in both rich and poor countries. Older people work much less than younger adults, and earn far less than their consumption costs. The difference is made up in part by public or private transfers from working age adults, and in part from asset income. As countries grow richer, labor supply at older ages drops while consumption at older ages rises relative to younger, due mainly to the rising costs of publicly provided health care. For these reasons, population aging becomes more costly with economic development. As populations age in the coming decades, support ratios will drop, slowing the growth of per capita consumption by .3% to .8% per year. However, the same processes that lead to population aging also may lead to increased investment in both human capital and in physical and financial assets, raising the capital intensity of the economy and raising labor productivity. The rising labor productivity should offset the declining support ratio, and increased asset income will further offset these declines. However, the extent to which these offsetting processes unfold depends on the institutional structures and public policies that are in place. While population aging will place severe strains on particular public programs, overall, the economic challenges of population aging need not be overwhelming, and need not pose a major threat to economic well-being.

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File URL: http://www.imes.boj.or.jp/research/papers/english/12-E-11.pdf
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Paper provided by Institute for Monetary and Economic Studies, Bank of Japan in its series IMES Discussion Paper Series with number 12-E-11.

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Date of creation: Sep 2012
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Handle: RePEc:ime:imedps:12-e-11
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  1. Becker, Gary S & Lewis, H Gregg, 1973. "On the Interaction between the Quantity and Quality of Children," Journal of Political Economy, University of Chicago Press, vol. 81(2), pages S279-88, Part II, .
  2. Ronald Lee & Andrew Mason, 2010. "Some macroeconomic aspects of global population aging," Demography, Springer, vol. 47(1), pages S151-S172, March.
  3. Ronald Lee & Andrew Mason & Timothy Miller, 2003. "Saving, Wealth and the Transition from Transfers to Individual Responsibility: The Cases of Taiwan and the United States," Scandinavian Journal of Economics, Wiley Blackwell, vol. 105(3), pages 339-358, 09.
  4. Antoine Bommier & Ronald Lee & Tim Miller & St├ęphane Zuber, 2010. "Who Wins and Who Loses? Public Transfer Accounts for US Generations Born 1850 to 2090," Population and Development Review, The Population Council, Inc., vol. 36(1), pages 1-26.
  5. James M. Poterba, 2001. "Demographic Structure And Asset Returns," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 565-584, November.
  6. Brian K. Bucks & Arthur B. Kennickell & Traci L. Mach & Kevin B. Moore, 2009. "Changes in U.S. family finances from 2004 to 2007: evidence from the Survey of Consumer Finances," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.).
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