The greying of the global population and its macroeconomic consequences

Abstract

Population ageing is emerging as a major demographic trend in many countries, with potentially important implications for a variety of macroeconomic issues. Notwithstanding these challenges, population ageing will likely have a comparatively modest effect on economic growth. Although the changed age distribution would be expected to cause the labour force participation rate to decrease, the ratio of labour force to population will actually increase in most countries. This will occur because the lower youth dependency rate and the increased rate of female labour force participation—both of which may reasonably be expected to follow from the fertility rate declines that are driving population ageing—will counterbalance the shifting of adults toward older ages at which labour force participation and savings rates are lower. Behavioural and policy responses to population ageing—including higher savings for retirement, a higher rate of human capital accumulation, alternate pension funding plans, and (possibly) increased migration from labour-abundant to labour-scarce countries—also suggest that population ageing need not necessarily significantly impede economic growth.