Abstract
Across the demographic transition, declining mortality followed by declining fertility produces decades of rising support ratios as child dependency falls. These improving support ratios raise per capita consumption, other things equal, but eventually deteriorate as the population ages. Population aging and the forces leading to it can produce not only frightening declines in support ratios but also very substantial increases in productivity and per capita income by raising investment in physical and human capital. Longer life, lower fertility, and population aging all raise the demand for wealth needed to provide for old-age consumption. This leads to increased capital per worker even as aggregate saving rates fall. However, capital per worker may not rise if the increased demand for wealth is satisfied by increased familial or public pension transfers to the elderly. Thus, institutions and policies matter for the consequences of population aging. The accumulation of human capital also varies across the transition. Lower fertility and mortality are associated with higher human capital investment per child, also raising labor productivity. Together, the positive changes due to human and physical capital accumulation will likely outweigh the problems of declining support ratios. We draw on estimates and analyses from the National Transfer Accounts project to illustrate and quantify these points.
Similar content being viewed by others
References
Acemoglu, D. and S. Johnson. 2007. “Disease and Development: The Effect of Life Expectancy on Economic Growth.”Journal of Political Economy 115: 925–85.
Arthur, B.W. and G. McNicoll. 1978. “Samuelson, Population and Intergenerational Transfers.”International Economic Review 19: 241–46.
Barro, R.J. 1991. “A Cross-Country Study of Growth, Saving, and Government.” Pp. 271–304 inNational Saving and Economic Performance, edited by B.D. Bernheim and J.B. Shoven. Chicago: University of Chicago Press.
Becker, G. and R. Barro. 1988. “A Reformulation of the Economic Theory of Fertility.”Quarterly Journal of Economics 103: 1–25.
Becker, G. and H.G. Lewis. 1973. “On the Interaction Between the Quantity and Quality of Children.”Journal of Political Economy 84(2, pt. 2): S279-S288.
Becker, G.S. and K.M. Murphy. 1988. “The Family and the State.”Journal of Law & Economics XXXI: 1–18.
Becker, G. and N. Tomes. 1976. “Child Endowments and the Quantity and Quality of Children.”Journal of Political Economy 84(4, pt. 2): S143-S162.
Bloom, D.E. and D. Canning. 2001. “Cumulative Causality, Economic Growth, and the Demographic Transition.” Pp. 165–99 inPopulation Matters: Demographic Change, Economic Growth, and Poverty in the Developing World, edited by N. Birdsall, A.C. Kelley, and S.W. Sinding. Oxford: Oxford University Press.
—. 2003. “How Demographic Change Can Bolster Economic Performance in Developing Countries.”World Economics 4(4): 1–14.
—. 2008. “Global Demographic Change: Dimensions and Economic Significance.”Population and Development Review 34(S): 17–51.
Bloom, D.E. and J.G. Williamson. 1998. “Demographic Transitions and Economic Miracles in Emerging Asia.”World Bank Economic Review 12: 419–55.
Board of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. 2008. “2008 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds.” Washington DC: U.S. Government Printing Office.
Bommier, A. and R. Lee. 2003. “Overlapping Generations Models With Realistic Demography.”Journal of Population Economics 16: 135–60.
Borsch-Supan, A., A. Ludwig, and J. Winter. 2006. “Ageing, Pension Reform and Capital Flows: A Multi-Country Simulation Model.”Economica 73: 625–58.
Card, D. 1999. “The Causal Effect of Education on Earnings.” Pp. 1802–63 inHandbook of Labor Economics, edited by O.C. Ashenfelter and D. Card. Amsterdam: Elsevier/North Holland.
Costa, D.L. 1998.The Evolution of Retirement: An American Economic History, 1880–1990. Chicago: University of Chicago Press.
Cutler, D., J. Poterba, L. Sheiner, and L. Summers. 1990. “An Aging Society: Opportunity or Challenge?”Brookings Papers on Economic Activity Vol. 1: 1–56.
Deardorff, A.V. 1976. “The Growth Rate for Population: Comment.”International Economic Review 17: 510–15.
Diamond, P.A. 1965. “National Debt in a Neoclassical Growth Model.”American Economic Review 55: 1126–50.
Fogel, R.W. 1997. “New Findings on Secular Trends in Nutrition and Mortality: Some Implications for Population Theory.” Pp. 433–81 inHandbook of Population and Family Economics, edited by M.R. Rosenzweig and O. Stark. Amsterdam: Elsevier.
Gale, D. 1973. “Pure Exchange Equilibrium of Dynamic Economic Models.”Journal of Economic Theory 6: 12–36.
Goldin, C. and L.F. Katz. 2008.The Race Between Education and Technology. Cambridge: Harvard University Press.
Gruber, J. and D. Wise. 1998. “Social Security and Retirement: An International Comparison.”American Economic Review 88: 158–63.
Heckman, J.J., L.J. Ochner, and P.E. Todd. 2008. “Earnings Functions and Rates of Return.” NBER Working Paper No. 13780. National Bureau of Economic Research, Cambridge, MA.
Jones, C.I. and R.E. Hall. 2007. “The Value of Life and the Rise of Health Spending.”Quarterly Journal of Economics 1: 39–72.
Kelley, A.C. and R.M. Schmidt. 2005. “Evolution of Recent Economic-Demographic Modeling: A Synthesis.”Journal of Population Economics 18: 275–300.
—. 2007. “Evolution of Recent Economic-Demographic Modeling: A Synthesis.” Pp. 39–72 inPopulation Change, Labor Markets and Sustainable Growth: Toward a New Economic Paradigm, edited by A. Mason and M. Yamaguchi. Amsterdam: Elsevier.
Kotlikoff, L.J. and L.H. Summers. 1981. “The Role of Intergenerational Transfers in Aggregate Capital Accumulation.”Journal of Political Economy 89: 706–32.
Lee, R. 1994a. “The Formal Demography of Population Aging, Transfers, and the Economic Life Cycle.” Pp. 8–49 inThe Demography of Aging, edited by L. Martin and S. Preston. Washington, DC: National Academy Press.
—, with the assistance of T. Miller. 1994b. “Population Age Structure, Intergenerational Transfer, and Wealth: A New Approach, With Applications to the United States.”Journal of Human Resources XXIX: 1027–63.
Lee, R., S.-H. Lee, and A. Mason. 2008. “Charting the Economic Lifecycle.”Population Aging, Human Capital Accumulation, and Productivity Growth, edited by A, Prskawetz, D.E. Bloom, and W. Lutz, a supplement toPopulation and Development Review 34:208–37.
Lee, R. and A. Mason. 2010. “Fertility, Human Capital, and Economic Growth Over the Demographic Transition.”European Journal of Population 26: 159–82. DOI10.1007/s10680-009-9186-x.
Lee, R., A. Mason, and T. Miller. 2000. “Life Cycle Saving and the Demographic Transition in East Asia.”Population and Economic Change in East Asia, edited by C. Chu and R. Lee, a supplement toPopulation and Development Review 26:194–222.
—. 2003. “Saving, Wealth, and the Transition From Transfers to Individual Responsibility: The Cases of Taiwan and the United States.”The Swedish Journal of Economics 105: 339–57.
Mason, A. and R. Lee. 2006. “Reform and Support Systems for the Elderly in Developing Countries: Capturing the Second Demographic Dividend.”Genus LXII(2): 11–35.
—. 2007. “Transfers, Capital, and Consumption Over the Demographic Transition.” Pp. 128–62 inPopulation Aging, Intergenerational Transfers and the Macroeconomy, edited by R. Clark, N. Ogawa, and A. Mason. Cheltenham, United Kingdom: Edward Elgar.
Mason, A., R. Lee, A.-C. Tung, M.S. Lai, and T. Miller. 2009. “Population Aging and Intergenerational Transfers: Introducing Age Into National Accounts.” Pp. 89–122 inDevelopments in the Economics of Aging, edited by D. Wise. Chicago: NBER and University of Chicago Press.
Ogawa, N., A. Mason, A. Chawla, R. Matsukura, and A.-C. Tu. 2009. “Declining Fertility and the Rising Cost of Children: What Can NTA Say About Low Fertility in Japan and Other Asian Countries.”Asian Population Studies 5: 289–307.
Samuelson, P. 1958. “An Exact Consumption-Loan Model of Interest With or Without the Social Contrivance of Money.”Journal of Political Economy 66: 467–82.
—. 1975. “The Optimum Growth Rate for Population.”International Economic Review 16: 531–38.
Sanchez-Romero, M. 2009. “Demographic Transition and Rapid Economic Growth: The Case of Taiwan.” Unpublished manuscript. Department of Demography, University of California, Berkeley.
Solow, R.M. 1956. “A Contribution to the Theory of Economic Growth.”Quarterly Journal of Economics 70: 65–94.
Tobin, J. 1967. “Life Cycle Saving and Balanced Economic Growth.” Pp. 231–56 inTen Economic Studies in the Tradition of Irving Fisher. New York: John Wiley & Sons.
Williamson, J. and M. Higgins. 1997. “Age Structure Dynamics in Asia and Dependence on Foreign Capital.”Population and Development Review 23: 261–94.
Willis, R. 1973. “A New Approach to the Economic Theory of Fertility Behavior.”Journal of Political Economy 81(2, pt. 2): S14-S64.
—. 1987. “Externalities and Population.” Pp. 661–702 inPopulation Growth and Economic Development: Issues and Evidence, edited by D.G. Johnson and R.D. Lee. Madison, WI: University of Wisconsin Press.
—. 1988. “Life Cycles, Institutions and Population Growth: A Theory of the Equilibrium Interest Rate in an Overlapping-Generations Model.” Pp. 106–38 inEconomics of Changing Age Distributions in Developed Countries, edited by R. Lee, W.B. Arthur, and G. Rodgers. New York: Oxford University Press.
World Health Organization, Commission on Macroeconomics and Health. 2001. “Macroeconomics and Health: Investing in Health for Economic Development.” Report. World Health Organization, Geneva.
Author information
Authors and Affiliations
Corresponding author
Additional information
Research for this article was funded by parallel grants from the National Institutes of Health to Lee and Mason (NIA R37 AG025247 and R01 AG025488), as well as by grants from MEXT Academic Frontier (2006–2010) and United Nations Population Fund (RAS5P203) to Nihon University Population Research Institute in Japan. During the final preparation of this article, Mason was Visiting Professor, Department of Global Health and Population and the Center for Population and Development Studies, Harvard University.
Rights and permissions
About this article
Cite this article
Lee, R., Mason, A. Some macroeconomic aspects of global population aging. Demography 47 (Suppl 1), S151–S172 (2010). https://doi.org/10.1353/dem.2010.0002
Issue Date:
DOI: https://doi.org/10.1353/dem.2010.0002