Economic and labor market responses to demographic changes
Date
2022
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Publisher
University of Delaware
Abstract
China is turning into an aging society and there is a growing percentage of older people in this country. Currently, the country has the world’s largest older population (persons who are over or equal to the age of 65) and the United Nations also projects that there will be 366 million older population by the year 2050. It seems that the country is experiencing population aging on an unprecedented scale. ☐ Generally speaking, population aging is assumed to have an adverse impact on economic growth since it will reduce the proportion of the population that is economically active. In addition, given the fact that institutional care and community-based care are far from satisfying the needs of older people, families have been the primary sources of care for the older population. The working-age labor force need to provide caregiving to their older parents and may choose to live near them, and thus it may affect the labor market outcomes of their working-age children. ☐ For China, there is little empirical evidence exploring the magnitude of the population aging effect on economic growth or the labor market. In this study, I construct a city panel dataset where the data was observed every 5 years in 2000 to 2015. Specifically, I use the predicted variation in the rate of population aging across Chinese cities to estimate the impact of population aging on city level GDP per capita and labor market outcomes. I find that a 10% increase in the extent of population aging (extent is measured by the fraction of the population aged over or equal to 65 years) would decrease GDP per capita by 2.42 %. On the other hand, a 10% increase in the extent of population aging would increase the average wage by 1.67%. There is heterogeneity in the effect across different periods and across different regions — with the effect more significant in less-developed cities. When decomposing the effect of population aging on economic growth into labor participation and labor productivity, I find that the effect of age composition mainly operates through the decrease in the labor-to-population ratio. When decomposing the effect by sector, I find there is a significant adverse effect on the secondary sector output, but there is no clear trend of how population aging would affect the development path of a city.
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Keywords
Economic responses, Labor market responses, Demographic changes, China