Population ageing is fast becoming a global phenomenon. Even regions currently enjoying youthful demographics will eventually undergo demographic transition – and this is increasingly relevant for developing countries too.
Conventional wisdom holds that population ageing inevitably leads to labour shortages, which in turn constrain productive capacity. But new research is casting fresh light on this assumption.
Two key findings stand out. First, the so-called silver dividend – whereby older workers remain in the labour market longer – could mitigate ageing’s drag on economic growth. Second, the adverse effects of ageing arise not from a shrinking labour force per se, but from its detrimental impact on total factor productivity (TFP) growth.
TFP refers to an economy’s ability to generate outputs or income from inputs such as labour and capital; it is higher when a country raises its income without using more inputs, or sustains its income level with fewer.