A new study by UO researchers finds that a rising share of older adults in the workforce could have troubling effects on the economy.

People are living longer and birth rates are declining, and that could hamper growth of the U.S. gross domestic product, the monetary sum of goods and services, according to an April 2023 paper published in American Economic Journal: Macroeconomics.

From 1980 to 2010, the authors found that each 10 percent increase in the fraction of the population age 60 and older decreased the growth of per capita GDP by 5.5 percent, as reported in the study, “The Effect of Population Aging on Economic Growth, the Labor Force, and Productivity.”

“When people get older, you’re going to have more retirees, so fewer people as a percentage of the population are working,” said Kathleen Mullen, one of the authors and an associate professor and Petrone Chair of Economics in the University of Oregon’s College of Arts and Sciences. “That’s obviously going to have a negative effect on economic growth.”

The two other authors on the study were Nicole Maestas of Harvard University and David Powell of the RAND Corporation.

Authors of the study researched available state-level population data over the three decades. They adjusted the data to account for relocations, such as younger people moving out of state for job opportunities and retirees relocating for retirement.

In the paper, the authors estimate that an aging population reduced the per-capita GDP growth rate by 0.3 percentage points per year from 1980 to 2010. The decrease in GDP is due partly to older populations not participating in the labor market and partly to the effect of an aging population on average productivity. 

The authors also found that two-thirds of the effect older populations have on GDP was due to slower growth in productivity and one-third was from slower growth in overall employment.

The projections could change if federal policies change, like raising the full retirement age for Social Security. That could lead to older workers staying on the job longer, which would alleviate the GDP decrease.

“You’d have higher participation rates,” Mullen said. 

Whether older workers are less productive has been the subject of debate among researchers, because older workers tend to have more experience but at the same time also tend to face declining health. So which effect dominates is unclear.

“The fact that we’re coming down in the negative is interesting and meaningful and non-obvious,” Mullen said.

The authors found that an older population has no effect on the number of younger workers, but it does hurt their wages. They said the departure of older workers with institutional knowledge of a workplace or industry could hurt their younger replacements, who could be less productive because they lack mentors.

Factors that have resulted in lower wages should be considered in future research, they said.

“It does suggest that there’s an interaction between older and younger workers,” Mullen said. “When there’s fewer workers, it does negatively affect younger workers who remain behind. That’s interesting to know even if we don’t know why.”

—By Henry Houston, College of Arts and Sciences