Macroeconomic effects of demographic aging: Impact on productivity growth and macroeconomic variables in selected industrialized countries. Potential gains offered by labor-saving technological progress Bertelsmann Stiftung Focus Paper April 2020.

Within most developed industrialized countries, demographic change means that populations are shrinking and growing older. This expected shift in population structure, especially the aging and shrinking of the working-age population, has significant consequences for an economy’s macroeconomic development. Areas affected include the country’s aggregate productivity, savings and investment rates, price-level trends, gross domestic product (both absolute and per capita) and current account balance. This focus paper outlines the most important findings of a comprehensive study conducted by the Austrian Institute of Economic Research (WIFO) on behalf of the Bertelsmann Stiftung (see also Bertelsmann Stiftung 2019). The study analyzes the influence of expected demographic developments on key macroeconomic variables in seven selected industrialized countries (Austria, France, Germany, Italy, Japan, Spain and the United States). The calculations performed for the simulation run through the year 2050. Particular attention is given to determining the relationship between demographic aging and technological progress. It emerges here that some of the negative effects of demographic aging on the average level of gross domestic product per capita (GDP per capita) can be mitigated by labor-saving technological progress that is driven by expectations of demographic aging, insofar as more investment in the future is focused on automation and digitalization. This focus paper summarizes important key findings of our study “Macroeconomic consequences of ageing and directed technological change.” In Chapter 2, we sketch key interdependencies that illustrate how a change in a society’s age structure influences its macroeconomic development. Following the description of these theoretically expected relationships, Chapter 3 presents the results of regression analyses that empirically estimate these relationships on the basis of past developments. Chapter 4 initially presents the main findings of the population projections for all seven industrialized countries under examination. It then details some of the results of the macroeconomic simulation calculations, in which the empirically estimated effects of a changed age structure from Chapter 2 are combined with current population projections through 2050. For the purposes of clarity, the comparisons will focus on Germany, Japan and the United States. These simulations show how demographic aging can be expected to change key macroeconomic variables in the three countries through 2050, and how GDP (absolute and per capita) will develop in all seven industrialized countries. Finally, we look at the potential for gain offered by labor-saving technological progress.