The Impact of Global Aging on Labor, Product, and Capital Markets

The expected change in population age structure in virtually all industrialized countries—as well as in many developing countries—will lead to a substantially higher proportion of older people in the world. The aging process deeply affects future labor, financial, and commodity markets. On a macroeconomic level, labor is becoming relatively scarce in the aging countries while capital becomes relatively more abundant. This precipitates changes in the relative price of labor, will lead to higher capital intensity, and might generate large international flows of capital from the faster to the slower aging countries. On a microeconomic level, the changing age composition of the labor force might affect labor productivity. Consumption and savings patterns are likely to alter when the elderly become a larger proportion of consumers and savers, with widespread implications for capital and goods markets. While aging is global, there are marked international differences in the speed and extent of the aging processes. Even within the industrialized countries, differences are large. Europe and Japan already have much older populations than North America; Italy and Germany are aging faster than France and Great Britain. In Asia, some countries start from a relatively young population, but aging is very rapid. A particularly dramatic example is China. Given the globalization of economies, no study of aging can disregard these differential changes. International flows of capital, goods and services, and labor—in descending order of mobility—will be important mechanisms moderating the effects of population aging in each individual country. A central question for economists and politicians alike is how demographic change will affect the wealth of nations. Which countries will gain, which countries will lose in the international pecking order? Equally important is the question how these gains and losses can be influenced by public policy. With these two core questions in mind, this chapter reviews the most important economic challenges and opportunities posed by global aging.