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The Demographics of Stagnation

Why People Matter for Economic Growth

Gone gray: a nursing home in Hanover, Germany, January 2013. Kai Pfaffenbach / REUTERS

In every single region of the world, economic growth has failed to return to the rate it averaged before the Great Recession. Economists have come up with a variety of theories for why this recovery has been the weakest in postwar history, including high indebtedness, growing income inequality, and excess caution induced by the original debt crisis. Although each explanation has some merit, experts have largely overlooked what may be the most important factor: the global slowdown in the growth of the labor force.

One way to calculate the world’s potential growth rate is to add the rate at which the labor force is expanding to the rate at which productivity is rising. Since 1960, gains in both factors have contributed equally to potential economic growth. And in the last decade, the gains in both appear to have leveled off. The difference between these two drivers, however, is that there

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