The Impact of Population Ageing on Economic Growth

The Impact of Population Ageing on Economic Growth
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Introduction
In the previous year's demographic changes have been posing a serious policy problem in the industrialized world. As a result, this has raised more concern among various economist, creating more arguments on population aging and economic output. Demographic factors are crucial as they have a significant impact on various socio-economic aspects. In the United States, there have been economic developments that have resulted in several changes. For instance, due to family planning, fertility rates have moved from high to low. On the other hand, with increased living standards and health conditions, the mortality rates have reduced. As a result, life expectancy has gone up, leading to a higher population of older people. Due to these changes, there is a great need to study population ageing on economic growth.
According to the World Health Organization, an aging society refers to that community where more than 7 percent of its population is aged 65 years or more. It also states that for a society to be declared aged, the age group that is above 65 years must be 14 percent or more of the total population. On the other hand, if this age group accounts for more than 20 percent of the whole population, society is hyper-aged. Like most countries across the world, the U.S. is an aging society. Data collected by the U.S. Census Bureau in 2004 indicates that one in every five American citizens will be aged above 65. This will be above the previous data, which indicated that by 2000 only one American out of eight was above the age of 65 years. Furthermore, the data shows that by 2040 the number aged 85 and above will nearly multiply. Based on these data, it is clear that America's aging society will continue to go up, which will not be different from other countries, such as Germany and U.K.
There several reasons as to why I chose to research the topic of the impact of population ageing on economic growth. First, in the 21st century, the effect of aging and economic growth is becoming realistic since people are more learned and can quickly notice every change that takes place every day. People realize the rise in government taxes due to the reduced number of people working, as most of the population in many countries is having older people than young ones. Also, they are noticing the increased demand for public services that cater to older adults. Ironically, all these services require a growing economy to support them. Therefore, researching and gathering information on this issue would be necessary as its results would help people make the proper judgement concerning the economic situation, development planning and rational economic. My interest in this paper is to study the population aging mechanism since it presents and future social and economic issues. This information will play a significant role in enabling other researchers to develop theories that can be used or improved to help solve the problems related to population ageing and economic growth.
Literature review
Several researchers have come up with various discussions on population aging on economic growth in the past years. For instance, NAGARAJAN et al. (2017) researched Asia to analyze demographic changes in economic growth between 1960 and 2005. This study indicated that young people showed to be more productive, raising the country's economic growth. On the other hand, the old age people increased their dependency ratio, leading to short-term and long-term adverse economic growth effects. Similarly, Li Jun (2003) argues that population ageing also affects the human capital investment that impacts economic growth significantly. Human capital investment main focuses on two parts, which includes health and education. However, educational investments play a significant role in human capital than medical expenses. Therefore, having a large population of older adults than children would mean less human capital. This is because most of the spending will be related to health due to the rising medical costs of treating the elderly. As a result, this would lead to competition between health and educational investment leading to decreased social investment that would lead to low economic growth.
However, a researcher known as Tosun (2009) indicates that change in age structure does not negatively affect economic growth. Instead, he argues that it fosters output growth. To support this, he states that as adults age, they start to increase their saving levels and women start to participate in the labor force due to their declined fertility (Tosun et al., 2009). Based on his study in the United States, he indicates that workers aged 60 to 74 are not less productive than 25 to 59 years. Analyzing these results, he concludes that less productive people are among the younger ages than aged adults. Additionally, the development of chronic illnesses related to old-age, they lead to technological advancement. He also argues that these technological advancements lead to a decline in birth and death rates, leading to economic prosperity.
On the other hand, Ferrero (2005) fails to agree with Tosun on the elderly saving more than the young people. He argues that in a situation that society finds itself with more elders. It faces more economic problems since most of them depend on pension and other elderly benefits. This becomes hard since most of them deal with chronic illnesses that incur higher medical costs (Ferrero, 2005). In return, it makes it difficult for them to save, leading to slower international capital flows leading to low economic growth. He strengthens this argument by highlighting research that was conducted by Kim and Lee in 2007 the effect of demographic changes on the Unites States and other six G-7 countries in the past years, which results showed that increased dependency of the elderly ratio reduces their saving rates (Kim & Lee, 2007). As a result, this worsens their account balances which are used to promote international trade.
Data Section
States population counts by age ranging from 2000, 2010, and 2020 are used in constructing measures of age structure in a country using the 2009 to 2019 American Community Surveys (ACS) and the Census Integrated Public Use Microdata Series (IPUMS). Besides population counts, the ACS and census contain personalized data measuring labor earnings, hours worked, and employment status in the preceding years (Can & Terziev, 2017). These data are aggregated to state-year level to determine the total labor earnings, total hours worked, and state employment rates. A parallel set of labor and population market is constructed to enhance sub-analyses by sector and measures at the level of the year, state, and two-digit industry. Additionally, the GDP by year and state is acquired from the Bureau of National Statistics to facilitate aggregate output measurement (Broniatowska, 2018). National Gross Domestic Product (GDP) is the value that capital and labor add to a country's production measured in dollars.
According to the Bureau of National Analysis (BEA), the national data of aggregate output generates a holistic measure of production's national state. National GDP data also entails industrial-based output statistics to examine aging differential impacts on various sectors and the state economy's aspects. Moreover, the BEA includes national-level statistics on employee's total compensation, including salaries, wages, and noncash benefits (Broniatowska, 2018). However, salaries and wages are the most fundamental components of compensation, and they include vacation and sick pay, overtime pay, severance pay, voluntary contributions to compensation programs, and incentive payments such as bonuses, tips, and commissions. On the other hand, noncash benefits include but are not limited to health insurance plan, contribution to pension schemes, social insurance programs, and in-kind benefits. The BEA employees’ reimbursement data is used as a census earnings data complement and a country's total labor compensation measure.
Table 1 represents a 10-year growth GDP growth rate by the state where aging is a variable, whereas t represents the percentage change from t to 10. The bottom panels illustrate the data by decade, while those indicate all pooled Census years (Merkulova, 2019). The table shows a substantial variation across countries in the population's economic growth rate and size with 60+ ages in all decades. The fraction in the pooled sample ages 60 years and above ranges across census years and states from about 0.095 to 0.313, with a standard deviation of 0.029 and mean of 0.24 (NAGARAJAN et al., 2017). Besides, the economic growth rate within ten years of the fraction over 60 ranges from 9 to 47%, with a standard deviation of 8 per cent and a mean of 4 per cent.
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