A looming issue facing the U.S. economy is the impact that an aging population can have on labor productivity. Long-term forecasts of GDP growth in the U.S. need to account for changes in the age composition on the population. The dynamic changes in the age composition of the U.S. population are illustrated by this graph^[i] on the AEI website.

Maestas, Mullen and Powell (2016)^[ii] estimate the impacts of the aging labor force on the U.S. economy using state-wide data. They estimate that “a 10% increase in the fraction of the population ages 60+decreases the growth rate of GDP per capita by 5.5%. Two-thirds of the reduction is due to slower  growth in the labor productivity of workers across the age distribution, while one-third arises from slower labor force growth.”

Ozimek, DeAntonio and Zandi (2018)^[iii] confirm those findings but offer little insight into the cause and potential remedies other than suggesting “older workers may resist productivity-improving technologies.”

Burtless (2013)^[iv] estimates that the current impact of aging on productivity in the United States is lessened by the fact that today’s aging labor force is better educated than the labor force of the past. Aiyar, Ebeke and Shao (2016)^[v] recognize this issue regarding Europe and recommend increased worker training to offset the negative impacts of aging.

A broader study by the McKinsey Global Institute(2015)^[vi] recognizes that this is a global problem and suggests ten “enablers”, or policy recommendations, to help offset the negative impact of an aging workforce. Essentially these recommendations boil down to promoting the following:

Competition, Transparency, Efficiency in the Public Sector, Promote Innovation through R&D, Better Use of Big Data, Digital Technology, Labor Force Participation, Skills Training, Job Matching, Free Trade.

That is a lot to tackle, and well-intentioned but misguided policy makers could make mistakes even while following these suggestions. For example, McKinsey warns that “The goal of raising youth employment should not take precedence over productive education.” And a rigid, backward-looking approach to education should be avoided since “About one-third of the new jobs created in the United States over the past 25 years were types that did not exist, or barely existed, 25 years ago.”

Putting these recommendations into practice requires prudence on the part of policy makers, and perhaps more importantly, personal initiative on the part of the general population. The impact of an aging population on the standard of living is not only a macroeconomic phenomenon but a micro- one as well. Falling productivity, and income as a result, as one ages has been well documented by the data for generations. This decline need not occur. Learning new job skills could be a life-long endeavor for all. Embracing the added productivity that new technology and capital provide can lead to higher earnings even as the population ages.

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^[i] https://www.aei.org/carpe-diem/chart-us-population-distribution-by-age-1900-through-2060/

^[ii] Maestas, Mullen and Powell, “The Effect of Population Aging on Economic Growth, the Labor Force and Productivity.” NBER working paper 22452 (2016)

^[iii] Ozimek, DeAntonio and Zandi, “Aging and the Productivity Puzzle.” Moodys.com (2018)

^[iv] Burtless,“The Impact of Population Aging and Delayed Retirement on Workforce Productivity.” Center for Retirement Research at Boston College, working paper 2013-11 (2013)

^[v] Aiyar, Ebeke and Shao, “The Impact of Workforce Aging on European Productivity.” working paper 16/238 (2016)

^[vi] McKinsey Global Institute, “Global Growth: Can Productivity Save The Day In An Aging World?” (2015)