The economic impacts of modern elder health and new metrics for the 21st Century
The world's population is aging across almost every nation. In our recent IZA Discussion Paper, we examine if this aging trend might turn the past demographic benefits into future demographic challenges and discuss potential countermeasures.
Traditional ways of measuring population age structure depend on chronological age, typically marked by a set age, such as 60 or 65, to categorize individuals as "old". This method is inadequate for cross-country or historical comparisons. For instance, it treats a person aged 65 in 1953 the same as one in 2023, overlooking significant functional improvements in elder health over these years. Just think of the advancements wrought by new medical knowledge and practice and health system reforms.
Given the ongoing improvements in health and increasing global life expectancy, today's 65-year-old is likely to contribute economically for many more years, both formally and through roles like caregiving and volunteering. To address this, we introduced a different criterion for defining “old” in economic projections: a flexible prospective old-age threshold. This method categorizes the elderly based on an age where their remaining life expectancy is less than 15 years, rather than chronological age.
We constructed a model using data from 145 countries to forecast economic growth between 2020 and 2050. The evidence indicates that population aging significantly impacts economic growth via labor supply and productivity. Indeed, our projections predict a deceleration of economic growth, regardless of whether we measure population age structure retrospectively or prospectively. However, acknowledging the gains in functional capacity of older people in the 21stcentury substantially mitigates the grimmest estimates. While the degree of mitigation varies by country, prospective measures that seek to reflect functional capacity show a slowdown of only half the magnitude when compared to retrospective measures. Japan offers an especially interesting example: it is estimated to see a reduction of 0.91 percentage points in annual growth rates of income per capita in the retrospective projection, but only a 0.13 percentage point drop in the prospective projection.
If these prospective measurements accurately represent the actual improvements in elder health, they showcase the vibrancy of modern aging that was once unimaginable. Acknowledging the health improvements of our aging population will lead to more precise economic analyses. It will guide policies promoting healthier aging, resulting in more opportunities for age-friendly employment, technological progress, and fortified health and social security systems.
© Rainer Kotschy and David Bloom
Rainer Kotschy is Postdoctoral Research Fellow at Harvard School of Public Health
David Bloom is Professor at Harvard School of Public Health and IZA Research Fellow
Please note:
We recognize that IZA World of Labor articles may prompt discussion and possibly controversy. Opinion pieces, such as the one above, capture ideas and debates concisely, and anchor them with real-world examples. Opinions stated here do not necessarily reflect those of the IZA.
Related IZA World of Labor content:
The impact of aging on the scale of migration by Anzelika Zaiceva
The complex effects of retirement on health by Andreas Kuhn
Is training effective for older workers? by Matteo Picchio
How does grandparent childcare affect labor supply? by Giulio Zanella
Photo by John Moeses Bauan on Unsplash