Economics Essay Help on Effects of Aging Population on Economic Output

Effects of Aging Population on Economic Output

The 21st century has been a different century in terms of the structure of the world’s population. During the past centuries, the birth rates have been high unlike this century. Currently, in the rich countries, the birth rates are relatively lower compared to the past years. This implies that the population transiting to old age is bigger than that being born. This change in demography is also evident in the working population and has significant effects on the economy of a country and the world in general. This essay offers an explanation on how the aging population of countries will affect their economic output. It also explains some possible scenarios on what may happen in future due to demographic changes.

The rate at which the aging population is increasing as compared to the youths is worrying. This is worsened by the fact that the ratio of the old to the working population is also on the rise. Considering that the aging population spends more than they earn, their increase will affect the world’s economic growth. The aged will consume more and save less which will lead to slower growth of the economy. The old are not at the investing age; therefore, because they will not save but spend, interest rates will go up and asset prices might fall. As the old working population retires, the government will have the burden of paying pensions to the retirees. Much of this money will not be invested; it will be used up for the individual’s recurrent expenditure. This will further harm the level of economic output since no development projects will be undertaken by the aged.

With the current change in demographics, what will happen in the future? Three possible scenarios may occur. Firstly, there will be a reduced workforce, which will lead to reduced economic growth. If the current birth rates do not improve, it means that once the current working group reaches the retirement age, there will be shortage of the workforce, which will be coupled with reduced economic output. The gross domestic products (GDP) growth rate of countries will be lower. This will call for measures to be taken to curb the shortage. Governments will be forced to draft and implement policies that will ensure the current workforce works for a longer time than expected, for example, increasing the retirement age. The highly skilled workers are more likely to continue working past their retirement age since they are paid relatively well compared to the less skilled workers. They will therefore continue earning and live better lives after retiring.

Secondly, due to the reduced workforce and the increase in the retirement age, there will be a decrease in the productivity of the workers. It is believed that the physical and cognitive abilities of human beings lower at old age. Therefore, should the retirement age be increased, the old workforce will not be as energetic and productive as they were at their youthful working age. The economic outcomes, and the growth in GDP will therefore be lower. Countries will therefore develop technology and educate the workforce to maintain its productivity and economic growth. In addition, the increased retirement age and the cut in pensions by countries to reduce their spending will motivate the old highly skilled workforce to save more as individuals. If the money they save will be well invested, it could lead to an increased growth in the economy. The increased retirement age for the educated and highly skilled will ensure that the amount they accumulate supersedes the amount they will consume once they retire. The saving will further reduce the government spending since it will now spend less per individual who retires and can invest the rest of the money to raise its GDP and boost economic growth.

It is evident that the demographic changes will dictate the policies to be formulated by different countries. This article has revealed a strong relationship between GDP, economic growth, and production curves. The growth of GDP depends on the demographics, skills, and education level of the workforce. An increase in the productivity of the workforce leads to growth in the GDP of a country, which is a big boost to economic growth.