Population Aging and Its Economic Costs: A Survey of the Issues and Evidence

The aging of the population is expected to result in substantial increases in the costs of maintaining health care and pension programs, and that is a source of widespread concern. However, a proper assessment requires that attention be given to all categories of government expenditure, including education and others associated with younger age groups, and not just those associated with the older population. It requires also that privately provided goods and services be considered, since their costs must be charged against the same national income as publicly provided ones. Beyond that, it is important to recognize that population change affects not only the demand side of the economy, but also the supply side -- the economy's productive capacity. An important conclusion is that while other influences will no doubt play a role, demographic effects by themselves are likely to cause government expenditure (all categories, all levels of government combined) to increase by no more than the rate of growth of the population, and by less than the rate of growth of the gross domestic product. Taking public and private costs together, and assigning appropriate weights to different age groups, the overall "dependency ratio" can be expected to remain at its current low level for another decade and a half or two decades, and then to rise as the baby boom generation retires in large numbers. However, the projected future ratio never reaches the levels of the 1950s and 1960s. Although the overall "burden" of population aging is manageable, major adjustments will be required in the coming decades, especially in the area of federal/provincial cost sharing. For the most part, though, the effects of population aging are predictable, slow, and some time off.