Impact of aging population on the economy

By on January 30, 2013

A recent article in the reputed daily ‘The Economic Times’ claimed that the life expectancy (LE) ratio in India has improved over recent years. Where males are living for 15 more years, the total life span for females has increased by around 18 years between 1970 and 2010. Now on an average Indian men stay alive till the age of 63 years while women till the age of 67.5 years. From a layman’s point of view, this is certainly joyous news, but economists consider it to be a matter of serious concern. How can the improved life span of population be a reason of worry for the economy? Let’s discuss it here.

Is population aging a problem of developed countries?

Before moving any further, it is important to discuss the scope of the problem of aging population. Though a large number of studies claim that only developed countries are confronted with the issue of aging population, the reality is quite different. A study by Accenture compared the picture of both developed and developing countries and offered that more than 30% of Japan’s population is above 60 years of age and in United Kingdom, the percentage of population above 60 years is higher compared to those belonging to 16 years or below. There is no doubt that developed economies are facing critical economic challenges due to the age composition of their population but the developing economies are also not free from this. The study at Accenture confirmed the fact by establishing that in 2010, around 12% of China’s population, 10% of Brazil’s population and 9% of Mexico’s population was above 60 years of age. Thus, it can be concluded that aging population is a global problem.

How the aging of population impacts economy?

Now, before discussing the impacts it is important to understand the causes of aging population. The two basic factors that lead to aging population are:

  • Increased Life Expectancy
  • Decreased Fertility Rate

The improved state of medical facilities across globe has been an important factor in rising life expectancy; while the awareness among people to give birth to only 1 or 2 children has resulted into fall in the population of young. Both these factors together contribute to aging of the population. Coming up to the impacts of aging population, it is quite obvious that larger proportion of elderly in the population means a larger dependent population because they do not usually have any source of regular income. But the problems do not end here. Since there is no regular income, the disposable incomes of this population are also quite low leading to lower consumption and savings resulting into an economic imbalance. Moreover, aging population also creates shortage in the workforce both in numbers and output. It is because the number of persons available for work and the output per capita both record a decrease when the population is aging in a country. Apart from this, the burden of social security measures increases as more resources need to be diverted for elderly care.

How to overcome the challenges of aging population?

Though aging of the population slows down economic development of a country, this problem does not emerge all of a sudden. Population aging takes place over several years and this gives enough time to such economies to plan remedial measures. A few such remedies have been suggested categorizing them on the basis of various challenges posed by aging population here below.

Remedies to overcome workforce shortage

  1. Rising the general age of retirement: Retirement should not be based on age; it should rather be based on individual well-being and choice.
  2. Creating jobs for elderly: The economies should concentrate on generating such employment means where even the elderly can find a place.
  3. More women in the workforce: Shortage of labor often occurs because women do not contribute equally to the economy. Thus, involving more women in the workforce would increase the size of total workforce.

Remedies to overcome the economic imbalance

  1. Adapt production and promotion to elderly: The emphasis should be laid on producing such commodities which are demanded by the elderly. Also, the promotion must aim at creating awareness and liking for such products among them.
  2. Motivation for savings: Apart from providing regular income sources for elderly, the workforce should be motivated to save and invest from an early age in employment. This will leave them with enough funds to sustain consumption in the old age.

These remedies will help maintaining the production-consumption-investment cycle in the economy.
Remedies to improve productivity:

  1. Provide education to the young: Efforts to improve literacy levels of young population would ensure better overall productivity which will help to nullify the effect of reduced productivity in old age.
  2. Correct Staffing and Training: The elderly should be placed to jobs that require more of experience and lesser physical work. Also, training activities should be designed to enhance productivity levels of elderly in the workforce.
  3. Healthcare Facilities: Emphasis should be laid on improving overall well-being of the aging population so that long life is accompanied by good health. Regular healthcare studies should be conducted to keep a track of changing reasons of mortality like earlier communicable diseases were the common reason for deaths but now cardiovascular ailments, cancer and AIDS cause significant numbers of deaths.

Thus, it can be said that aging population is not always a burden on economy; if managed properly.


  • Erfurt, J., Peppes, A. & Purdy, M. (February 2012). “The Seven Myths of Population Aging: How Companies and Governments Can Turn the “Silver Economy” into an Advantage. Retrieved from:
  • “Indians now live longer, but in poor health in old age: Study.” (December 14, 2012). Retrieved from: