Many countries with aging workers also have growing economic productivity. What’s behind this counterintuitive finding?
Demographics are shifting: The number of people globally age 65 and older will soon eclipse the number who are five years old and younger, according to recent U.S. Census Bureau data. This shift is being met with economic anxiety in many quarters, with theories that an aging population is a threat to economic prosperity. Some argue that an older workforce will be less productive, lacking the dynamic skills of younger workers. Others speculate that an older population will create an excess of savings over investment, leading to slow growth and secular stagnation. Others say that a wave of retirees is likely to take important skills out of the marketplace.
Our recent research suggests that much of this panic may be overblown. In our empirical work, we find no evidence that countries with rapidly aging populations are experiencing slower growth. Many, such as Germany, are growing rapidly instead.
As our baseline measure for population aging, we studied gross domestic product (GDP) per capita from 1990 to 2015 — the period commonly viewed as the beginning of the adverse effects of aging in much of the advanced world. Within that period, we compared the change in the ratio of the population above age 50 to those between the ages of 20 and 49. We included 169 countries in the sample.
The results were surprising. Even when we control for initial GDP per capita, initial demographic composition, and differential trends by region, there is no evidence of a negative relationship between aging and GDP per capita. On the contrary, the relationship is significantly positive in many specifications.
Our findings raise new questions: What can explain these patterns in the data? What explains the vibrancy of many aging societies?
Automation Technology Is Easing the Effects of Demographic Changes
The most plausible explanation is that this counterintuitive finding reflects the rapid adoption of automation technologies in countries with more pronounced demographic changes. In other words, technology not only might be able to offset potential negative effects of aging populations, it already is. The post-1990s saw the arrival of a range of labor-replacing technologies that help companies automate the production process. The most recent of these are robotics and artificial intelligence (AI).
Our research shows that countries with demographic shifts in populations, including Japan and South Korea in addition to Germany, are also at the forefront of the adoption of one important type of automation technology: industrial robots. This insight comes from data from the International Federation of Robotics (IFR), which provides information on industrial robots across a range of industries in 49 countries.
This research builds on our previous research on the implications of technology for growth and employment. In that study, we found that labor markets have generally responded to an aging labor force by automating more jobs. In fact, when capital is sufficiently abundant and cheap, a shortage of younger and middle-aged workers can trigger so much adoption of new automation technologies that the negative effects of labor scarcity on GDP can be completely neutralized or possibly reversed. If so, an aging workforce can turn into an impetus for switching to higher-tech production processes rather than a drag on productivity.
Could Your Workforce Benefit From Robotic Technologies?
What should business leaders glean from these trends when it comes to business planning?
The study results should offer additional incentives for investments in robotic technologies, short term, and also may provide broad insights into the dynamics of today’s global workforce demographics. Of course, each enterprise needs to examine its own unique labor and productivity needs, especially where international operations exist.
In addition, the impact of technology on growth and labor are unfolding daily with every new app and innovation. While the nature of new technology has important implications for economic growth and the labor-market fortunes of workers, there is still great need for empirical evidence on the impact of automation and robotics on employment.