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Title Vol. 116 The Effects of Demographic Changes on Economic Growth: The Case of OECD Countries
Views 89 Date 2021-12-29

OECD countries are undergoing a demographic change as the working-age population decreases while the elderly population increases. In countries with a rapid aging population, such as South Korea and Japan, economic growth and the share of working-age population are positively correlated. In contrast, in countries such as the UK and US, this correlation has weakened since the 2010s. This indicates that the negative effects of population aging have been offset by increased labor force participation rates and automation-driven productivity improvements.A panel regression analysis of OECD countries shows that the share of people in the core working-age group (aged 30-64) have the greatest impact on economic growth. If the share of people aged 65 and over grows by 1 percentage point and those aged 30-64 falls by 1 %p, the annual economic growth rate will decrease by 0.38 %p. Since 2000, the negative impact of aging on economic growth has decreased. This is because the labor productivity gap between the core working-age and the elderly has narrowed due to automation and policies to increase labor participation.
As a response to demographic changes, OECD countries have 1) promoted the inflow of immigrants to expand the working-age population, 2) continuously fostered automation of production and services to enhance labor productivity, and 3) implemented policies for family care, labor market flexibility, and retirement age extension to boost labor participation rate. However, an influx of immigrants entails social conflicts and integration costs and automation may create sectoral and regional inequalities.