Global demographic change: dimensions and economic significance

This paper argues that transitions from high mortality and fertility to low mortality and fertility can be beneficial to economies as the large baby boom cohorts enter the workforce and save for retirement. Rising longevity has perhaps increased both the incentive to invest in education and to save for retirement.

The authors present estimates of a model of economic growth that highlights the positive effects of demographic change during 1960-95. As exmples they show that Ireland benefited from lower fertility in the form of higher labour supply per capita and how Taiwan benefited through increased savings rates.

The paper emphasises, however, that the realisation of the potential benefits associated with the demographic transition appears to be dependent on institutions and policies, requiring the productive employment of the potential workers and savings the transition generates.

The paper concludes that whilst the ageing of the baby boom cohort potentially promotes labour shortages, creating upward pressure on wages and downward pressure on the real incomes of retirees, a behavioral response to these pressures in developed economies will be in the form of a longer working life, longer working hours and increased labour force participation. Immigration of workers from developing countries will also be a factor.

The argument for a longer working life is supported by the improved health, as well as increased longevity, of the elderly. Countries that possess financial institutions that best channel savings into productive investments, and labour market institutions and policies that best facilitate a supply response to labor shortages and high wages, will be in a position to mitigate to a large extent the adverse consequences of population ageing. [adapted from authors]