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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
 
Final Report Year 2024

Final Report Abstract

Population ageing will be the dominant demographic trend of the twenty-first century. The societies in many countries will become older because fertility remains below replacement levels and people live much longer than previous generations thanks to medical advances and improved living standards. Barring compensating immigration to those countries, the population shares of older age groups will increase at the expense of working-age groups. This demographic trend is expected to exert considerable effects on economic performance at the individual and aggregate levels. Compared to people in working ages, older people tend to work and save less, rely more on private and public transfers for their income, and consume more health-related services. These age patterns of economic behavior suggest that population ageing might slow economic growth on the strength of a shrinking workforce, dissaving, and fiscal stress in public health insurance and old-age income security. However, this view of population ageing, which only focuses on chronological age, is overly simplistic. Many people do not only live longer but also healthier. An accurate assessment of the economic implications of population ageing thus also requires an account of people’s health as they age: their functional capacities. This research empirically analyzes the economic implications of population ageing at the individual and aggregate levels through the lens of healthy ageing. It examines the extent to which health shapes people’s functional capacities and productive activities at older ages and throughout the life cycle; and it quantifies the extent to which improvements in population health can offset negative effects of population ageing on aggregate economic performance. In examining these questions, the research connects individual economic behavior with aggregate trends in health and ageing to assess the implications of healthy ageing for economic performance and to explore policy responses directed at boosting economic activity at older ages and at protecting the fiscal integrity of social insurance systems. The individual-level analysis documents that people with higher functional capacities are more likely to perform productive market and non-market activities and to report high individual wellbeing. Moreover, longevity promotes economic performance; but longer lives do not guarantee that people will remain in the labor market for longer. Rather, that outcome must be fortified by institutions and policies that enable and incentivize old-age employment. The aggregate-level analysis demonstrates that population ageing will slow economic growth throughout much of the world. However, expansions of labor potential due to improved functional capacities among older people can cushion much of this demographic drag, indicating sizable gains for policies that enable older people to remain economically active.

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