Rob Arnott and Denis Chaves write,
the developed world is entering a new phase in which the low fertility rates of past decades lead to slow growth (in many countries, no growth) in the young adult population; young adults are the dominant engine for GDP growth. Mature adults, many of whom are at or near their peak productivity, are poised to retire, creating an impressive surge in the rolls of senior citizens. These newlyminted senior citizens, transitioning from near-peak productivity to retirement in a single step, will be drawing on the economy while no longer producing goods and services. The unequivocal good news of a steady rise in life expectancy means that these retirees will create a very substantial drag on GDP growth, as these seniors move from peak productivity to negligible productivity in just a few years.
I think that with old people healthier, productivity does not have to drop off so much at age 60. And we do have the ability to change the age of government dependency. But read the whole thing. The point that we have a major slowdown in economic growth baked into demographics seems straightforward and powerful.
UPDATE: Kevin Erdmann shows how demographics have affected labor force participation in the U.S. the past decade.
I’ve been reading that demography is destiny for at least ten years now, and I must say I’m skeptical. Look at the preceding post. We have substantial unemployment, especially among the young. The retirement of the baby boomers (of whom I’m one) should open opportunities for younger workers. I suspect that if we could get the incentives right, we would have a good mix of people in employment.Most of our problems, I also suspect, arise from over-regulation of labor markets, including such things as tying health insurance to one’s job. I would expect demography to hobble Japan because of its hostility to immigration and its customs regarding life-time employment, but I don’t see why the U.S. should have the same problems.
There’s a measurement problem which I’ve seen directly. I retired at 45. In some sense my productivity as measured by wages in GDP went to zero. I no longer count in the labor participation rate.
But I’ve done as many projects, spent about as much time inventing, etc. as before. But this effort is in long-term startups, or corporations building in Africa, and so I don’t think it shows in GDP or productivity.
Traditionally retired people did things like help out on the farm or help raise children – they were productive in some real sense, if not a GDP sense.
I know a man somewhat older than me who has “retired” and now spends nearly full time mentoring and teaching at robotics and science clubs. To argue he’s not adding to real wealth is silly. But he doesn’t get paid, it won’t show in GDP until the youth he helps mentor go on to be more competent people.
Soooo – what precentage of current retirees (in generally better health) will have real (as opposed to measured) productivity fall to near zero, at least in the period from say 62 to 70?
I completely disagree: the information economy is too dynamic to extrapolate using such simple demography. As Bryan points out, there are a lot more opportunities for “retired” workers these days. Once the next information boom hits, there will be a lot of part-time online work for them to do, that would benefit from their knowledge and experience, as opposed to the stereotypical greeter job at Walmart. Great advances in robotics are going to provide much of what the retired, and everyone else, want at a much smaller share of GDP in the coming decades. There are too many positive, and perhaps some negative, shocks coming for demography to matter much.
A factor which has been commented upon by sociologist, but not to any great extent by economists has been the continuing extension of delaying maturity, and the requirements of maturity for an increasing number of the younger members of the populations of the developed economies.
Without delving into the “causes” of the delays in maturity (increasing lifespans, etc.) the degree of “required” maturation for any particular age level in the range of 15 to 25 in most of “Western Civilization,” Which Would Include Some Large Areas of “Developing” societies, has been decreasing, and an increasing rate since at least 1900.
All wrong. They are just converting from being producers to consumers and the population will continue to grow until the leading edge begins dying. For some countries that is already underway, but not America for a few (two) decades. Following generations will continue to grow in experience and productivity, and have the potential to grow in education, leading to increasing gdp per capita, even if slower in gdp overall.