Why an ageing population slows economic growth

A new report explains why an ageing population slows the growth rate of an economy's GDP.

How much does an ageing population affect economic growth?

Economists have long assumed there’s an effect, as a smaller labour force works with reduced productivity.

Source: Citi ResearchNow new research has measured this by looking at ageing effects in US states. Its conclusion: “A 10 per cent increase in the fraction of the population aged 60-plus decreases the growth rate of GDP per capita by 5.5 per cent.”

The graph above, from a 2016 Citi report on pensions, shows one driver of the problem: worsening (i.e. falling) “dependency ratios”, as those in work have to support an increasing number of retired people.

This is a particular problem for countries with generous government-paid pensions. It’s also a problem for nations with a “bubble” of ageing workers, such as China.

Read next: Ageing at home? How Australia can cope with 1.2 million over-85s

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October 2016
October 2016

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