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. 2010 Mar;47(Suppl 1):S151–S172. doi: 10.1353/dem.2010.0002

Some macroeconomic aspects of global population aging

Ronald Lee 1,2,3,4,✉, Andrew Mason 2
PMCID: PMC3470908  NIHMSID: NIHMS318711  PMID: 21302431

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.

Keywords: Human Capital, Labor Income, Demographic Transition, Support Ratio, Equity Premium

Footnotes

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.

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