Which is better in economic terms: a country with with an aging and declining population or one with a youthful and growing one? Or what about if we are talking about the world as a whole – if a genie asked you to pick one, which would you pick?
The conventional wisdom is that aging populations are a negative thing, but it is a trick question. Kind of.
In Economorphics, I write a lot about demographics, and specifically about the concept of the ‘demographic window’. That is, there is a ‘sweet spot’ for economic growth when the mass of those who are in their working years is growing and there is a nice balance between the youth and elderly populations Taxes are being paid, social programs can be financed, and people are consuming merrily. In North America, for example, this happy state of affairs has been in place since about the early 1970s, and will end in a year or two. After that, growth will be that much more difficult, all things being equal.
Then again, very few things are that cut and dried. Countries can do fine even when they have aging populations and the demographic window is closed. For one thing, productivity gains are a very acceptable substitute for a stagnant working age population, as are a variety of other things such as making your economy more open to trade. Japan is the prime example of an old population (average age of the population is about 45, compared to about 41 in Canada and 37 in the United States) doing surprisingly well in terms of indicators such as wealth and consumer spending.
In fact, according to this blog by Adair Turner from the World Economic Forum, aging populations are in fact an economic positive. As the author correctly point out, a rising working age population often does not happen without the number of young workers rising more quickly than the number of jobs. From Spain through to Nigeria through to the Middle East, it is clear that this phenomenon, which translates through to a rising youth unemployment rate, is not a happy thing.
Indeed, other benefits from aging and declining populations exist as well. Mr. Turner makes the case that an older population is a wealthier one, and that in turn that reduces income inequalities. He even argues that an older population is good for real estate prices, which seems like a more difficult argument to make, considering that a higher proportion of empty-nesters to young families would be likely to send prices lower rather than higher.
The debate about aging populations is a healthy one, given that like it or not they are upon us. If people are living longer, surely that is a good thing. It does however, challenge us to create the best policies that we can to ensure the best economic outcomes all around.