Age and Productivity

Do Older Workforces Contribute to Low Economic Growth?

A pensioner argues with an official as he tries to enter a National Bank branch to receive part of his pension in Athens, Greece, July 6, 2015. Christian Hartmann / Reuters

It is well known that Western societies are aging and that the relative paucity of young workers will come with all sorts of budgetary challenges. But the real problem is worse than most people imagine: Grey societies are intrinsically less productive than green ones. What’s now at stake is the economic prosperity of the West and the ability of governments to provide for a growing share of inactive people. 

For years, a productivity slowdown has haunted the advanced economies. In the 1960s and 1970s, the G-7 economies saw, on average, a 4.4 percent increase in output per hour worked every year. Between the fall of the Berlin Wall and the 2008 financial crisis, productivity growth decelerated to 1.8 percent. And now its pace of expansion is a mere 0.4 percent. It might be time to start worrying, as Angel Gurria, head of the Organization for Economic Cooperation and Development, said, “We are now entering a period of poor growth and low job creation.”

Economists have looked to structural and cyclical factors to explain the mystery. Some, such as Federal Reserve Chair Janet Yellen, blame the dearth of private investment. Others, such as Robert Gordon of Northwestern University, point out that current innovations are less transformative than any of the major technologies of the second Industrial Revolution such as electrification, cars, and wireless communications. Still others, such as Erik Brynjolfsson and Andrew McAfee from MIT, argue that standard productivity statistics do not capture changes in the quality of new products and so the productivity slowdown might just be a measurement error. Few, such as James Feyrer of Dartmouth College, look to aging populations. The greying of many developed societies is almost irreversible in the medium term, which makes it the factor that, more than anything else, could permanently drag down productivity. 

Retiree Madeline Barcelo swims at the beach with her granddaughter in Varadero, Cuba, August 26, 2015.
Retiree Madeline Barcelo swims at the beach with her granddaughter in Varadero, Cuba, August 26, 2015. Alexandre Meneghini / Reuters

Demographic changes are slow to play out. For example, it took more than 60 years for declining fertility and rising longevity in rich countries to push the world average old-age dependency ratio—

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