Friday, July 29, 2016

Slowing Labor Force And Productivity Growth From Retiring Baby Boomers Will Lower GDP Growth By 1.2 Percent

From BloombergMarkets, "Here's a Reason Baby Boomers Will Curb U.S. Growth this Decade: Output per capita will take a hit as workers older than 60 make up more of the labor force" by Jeanna Smialek:
The retirement of baby-boomers in the decade between 2010 and 2020 will lower GDP growth per capita by 1.2 percentage point a year from what would have been the case if the nation's demographics had held steady, according to a National Bureau of Economic Research study out this week. The bright side is that the dent is only half as deep between 2020 and 2030 as the pace of aging slows.

The study is based on a simple idea: population aging is already long underway and has been playing out with varying degrees of intensity across different regions of the country. By looking at variations in state population aging, authors Nicole Maestas at Harvard Medical School, and Kathleen Mullen and David Powell at policy research group RAND Corporation, are able to estimate how a graying workforce affects output, participation rates and productivity.

Slowing GDP Growth From Retirees
Source: BloombergMarkets
The Social Science Research Network link and abstract of the research study paper follows:
"The Effect of Population Aging on Economic Growth, the Labor Force and Productivity" by Nicole Maestas, Harvard Medical School - Department of Health Care Policy, Kathleen Mullen, RAND Corporation and David Powell, RAND Corporation, July 2016, NBER Working Paper No. w22452:

Abstract:

Population aging is widely assumed to have detrimental effects on economic growth yet there is little empirical evidence about the magnitude of its effects. This paper starts from the observation that many U.S. states have already experienced substantial growth in the size of their older population and much of this growth was predetermined by historical trends in fertility. We use predicted variation in the rate of population aging across U.S. states over the period 1980-2010 to estimate the economic impact of aging on state output per capita. We find that a 10% increase in the fraction of the population ages 60+ decreases the growth rate of GDP per capita by 5.5%. Two-thirds of the reduction is due to slower growth in the labor productivity of workers across the age distribution, while one-third arises from slower labor force growth. Our results imply annual GDP growth will slow by 1.2 percentage points this decade and 0.6 percentage points next decade due to population aging.

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