Workforce elasticity neutralises demographic ageing’s impact on the economy

Jane O'Sullivan, School of Agriculture and Food Sustainability, University Of Queensland

Concern for the economic implications of demographic ageing have become a dominant feature of population-related policies in low-fertility countries. The overriding concern is for a shrinkage in workforce. Many analyses have modelled future workforce assuming that age-specific workforce participation rates remain the same in scenarios that differ in their population growth rate and extent of ageing. They do not allow for the natural feedbacks in a tightening labour market, which might cause greater recruitment, retention and redeployment of workers, reducing unemployment and underemployment. Since a number of OECD countries have past the high-point of working-age proportion decades ago, the hypothesis of diminishing workforce can now be tested against their actual experiences. Among OECD countries, no correlation was found between extent of demographic ageing and proportion of people employed, nor hours worked per capita. Nor do ageing populations appear to suffer any productivity penalty. In contrast, the proportion of underutilised youth and the extent of income inequality was lowest where working-age population was contracting. Projecting varying levels of population growth rate, we find that fiscal impacts of ageing are off-set by reduced costs associated with infrastructure expansion and education. Unwarranted concerns about demographic ageing should not overshadow the social and environmental benefits of population stabilization or decline.

Keywords: Age structure, Population ageing, Politics and demography, Human capital and labour markets

See paper.

  Presented in Session P6.