The Consequences of Aging Populations


  • Can our economy adapt to longer lifespans?
  • Can the young populations in emerging markets help?
  • Carl Tannenbaum takes a deep dive into demographics.

While I’m not especially old, I can’t call myself young anymore. When I go to the gym, it takes me longer to stretch than to work out. People my age debate the best vitamin supplements, not the best burger joints. When I am asked for identification at the market, it isn’t to confirm I am old enough to buy beer; it’s to see whether I am eligible for a senior discount.

Signs of aging aren’t confined to my personal life. We see them everywhere: Populations in developed nations are collectively getting older, a trend that will have a tremendous influence on economic performance in the years ahead.

Politics and policy have tended to dominate economic discussions of late. Recent swings on both fronts have created uncertainty for the near-term outlook. By contrast, demographics work gradually and subtly, with a powerful long-term influence. Demographic change may be the most underappreciated economic issue facing the world today.

Weekly Commentary 6/20/19 - Chart 1

Roots of the Problem

An economy’s development is powered by a combination of growth in the labor force and growth in productivity. The former is the product of trends in fertility, longevity and immigration.

As an undergraduate, I was exposed to the research of the Nobel Prize-winning economist Gary Becker, who analyzed the economics of fertility (the rate of child-bearing). His study of international data across time and place revealed a startling truth: richer families have fewer children, and poorer families have more. The same is broadly true for richer countries and poorer countries.

This might initially seem counter-intuitive, as wealthier families can theoretically afford to have more children. But children are expensive, both explicitly and implicitly. The opportunity cost of caring for kids (time taken away from work or leisure time) can be substantial, more so for parents with higher incomes. And as with other consumption goods, we tend to substitute away from having children as their costs rise. (I know this sounds heartless, but it is a useful way of explaining the data.)

“The richer the country, the lower its birth rate.”

For families of more modest means, the costs of child-raising are lower. And in many societies, children start contributing to the family’s income at an early age. These conditions favor larger families.