Healthy Ageing: The Implications of Health Improvements for Economic Performance in Ageing Societies

• Applicant: Dr. Rainer Kotschy
• Subject Area: Economic Policy, Applied Economics
• Term: from 2021 to 2024
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 471897412

The twenty-first century will be characterised by substantial population ageing. People will live much longer than their parents thanks to medical advances and improved living conditions. As societies grow older, population shares will significantly shift from young age and working age to old age.These demographic changes can be expected to have considerable effects on countries’ economic development. In the past, demographic change created the opportunity for a phase of fast economic growth due to a healthy and growing workforce, high educational investment, and high savings. For the future, this suggests a phase of slow economic growth due to a shrinking workforce, dissaving, and fiscal stress in social welfare. This perspective misses, however, that health improvements extend the scope of economic activity to older ages and thus paints an overly bleak picture of prospective economic development. To obtain a realistic perspective on the economic consequences of population ageing, it is necessary to take a new perspective of healthy ageing that focusses on functional rather than chronological age.This project aims to empirically assess the economic consequences of healthy ageing at the individual and at the country level. In this context, the project addresses three questions that remain open in the existing literature. First, can health improvements among the elderly offset the negative effects of chronological ageing on economic development at the aggregate level? Second, to what extent does healthy ageing promote individual market and non-market activity at old age? And, third, how does healthy ageing shape individuals’ educational attainment and labour supply over the life cycle?In order to address these questions, the project provides three methodological contributions. The first contribution develops a framework to estimate the economic consequences of demographic change in the past and to simulate the effects of population ageing on economic growth for the future. The central aspect of these simulations is the distinction between chronological and functional measures of ageing, which will reveal to what extent health improvements can offset adverse effects of ageing. The second contribution is the introduction of a health-based concept of ageing to analyse if health improvements promote economic activity at old age. This contribution analyses the relation between aggregate mortality and individual morbidity to produce a health-based benchmark for assessing the extent to which economic activity can be extended to older ages. The third contribution examines the implications of longevity for educational attainment and labour supply over the life cycle. This contribution tests to what extent healthy ageing changes economic activity at old ages and if these changes are in line with the health-based perspective on activity in old age.

• DFG Programme: WBP Fellowship
• International Connection: USA
• Host: Professor David E. Bloom, Ph.D.