Some Macroeconomic Consequences of the
Demographic Transition
Ronald LeeUC Berkeley
October 27 and 28, 2008Research supported by NIA R37 AG025247
Thanks to Andy Mason and NTA country teams
Ronald Lee Oct 2008; based on NTA for each country
Main points, using National Transfer Accounts data
1. Demographic transition first raises support ratio, then with population aging reduces it.
2. Per capita consumption is proportionate to Support ratios, other things equal. “First dividend”, pop aging.
3. Longer life, lower fertility, slower pop growth and older population all raise capital/labor ratio, raising labor productivity. “Second dividend”.
4. This depends on importance of assets vs transfers. 5. Lower fertility goes with greater investment in human
capital per child, raising labor productivity.6. Effects on physical and human capital accumulation
are more important than on dependency.
Ronald Lee Oct 2008; based on NTA for each country
I. Demographic Transition
Ronald Lee Oct 2008; based on NTA for each country
Ronald Lee Oct 2008; based on NTA for each country
Pre fertility decline; child dependency ratio rises During fertility decline, child
dependency ratio declines
Population aging: old age dep ratio rises
Ronald Lee Oct 2008; based on NTA for each country
The total dep ratio rises, falls, then rises again, ending up where it started.The changes in the total dependency ratio are transitory.
Ronald Lee Oct 2008; based on NTA for each country
But there is a big permanentchange: At start, many children and few elderly.At end, few children and Many elderly.
Ronald Lee Oct 2008; based on NTA for each country
Support ratio
• Effective workers per effective consumers
• Like inverse of dependency ratio
• But based on age profiles of labor income and consumption (more on this later)
Ronald Lee Oct 2008; based on NTA for each country
Support Ratio for China, 1950-2100, Based on UN population projections and average LDC age profiles from NTA
0.5
0.6
0.7
0.8
0.9
1
1950 1970 1990 2010 2030 2050 2070 2090
Year
Eff
ecti
ve
Pro
du
cers
Per
Co
nsu
mer
2007
Population aging
First Dividend
Ronald Lee Oct 2008; based on NTA for each country
II. The economic life cycle:
• Concern about pop aging is mostly about old age dependency.
• Sharpest concerns for age-sensitive public sector programs– pensions– health care– Long term care
• But should place these in broader context– Full range of public programs– Private consumption– Labor across the life cycle
Ronald Lee Oct 2008; based An-Chi Tung, Taiwan NTA
A Typical Asian Economic Lifecycle: National Transfer Accounts estimates for Taiwan, 1998
0
100
200
300
400
500
600
0 20 40 60 80
Age
Per
Cap
ita
Co
nsu
mp
tio
n a
nd
L
abo
r In
com
e
Consumption
Labor Income
Includes both private expends and in-kind public transfers (health, education, long term care)
Includes self employment, wages,unpaid family labor, & fringe benefits.
Averages 0’s and both male and female.
Ronald Lee Oct 2008; based An-Chi Tung, Taiwan NTA
A Typical Asian Economic Lifecycle: National Transfer Accounts estimates for Taiwan, 1998
0
100
200
300
400
500
600
0 20 40 60 80
Age
Per
Cap
ita
Co
nsu
mp
tio
n a
nd
L
abo
r In
com
e
Consumption
Labor Income
Flat cons age profile in adult years reflects extended family sharing.
Quite different than most industrial nations.
Ronald Lee Oct 2008; based An-Chi Tung, Taiwan NTA
A Typical Asian Economic Lifecycle: National Transfer Accounts estimates for Taiwan, 1998
0
100
200
300
400
500
600
0 20 40 60 80
Age
Per
Cap
ita
Co
nsu
mp
tio
n a
nd
L
abo
r In
com
e
Consumption
Labor Income
Large deficits at young and old ages.
Ronald Lee Oct 2008; based An-Chi Tung, Taiwan NTA
A Typical Asian Economic Lifecycle: National Transfer Accounts estimates for Taiwan, 1998
0
100
200
300
400
500
600
0 20 40 60 80
Age
Per
Cap
ita C
on
su
mp
tio
n a
nd
Lab
or
Inco
me Consumption
Labor Income
Reallocations from surplus to deficitages required.
Ronald Lee Oct 2008; based An-Chi Tung, Taiwan NTA
A Typical Asian Economic Lifecycle: National Transfer Accounts estimates for Taiwan, 1998
0
100
200
300
400
500
600
0 20 40 60 80
Age
Per
Cap
ita C
on
su
mp
tio
n a
nd
Lab
or
Inco
me Consumption
Labor Income
Other income comes from assets, foreign loans, and remittances from abroad—it’s not all labor income.
Ronald Lee Oct 2008; based An-Chi Tung, Taiwan NTA
A Typical Asian Economic Lifecycle: National Transfer Accounts estimates for Taiwan, 1998
0
100
200
300
400
500
600
0 20 40 60 80
Age
Per
Cap
ita
Co
nsu
mp
tio
n a
nd
L
abo
r In
com
e
Consumption
Labor Income
Asset income is particImpt for old age
Ronald Lee Oct 2008; based on NTA for each country
Age Profiles of Labor Income and Consumption: averaged for Four Rich and Four Poor Countries (Relative to average labor income)
0
0.2
0.4
0.6
0.8
1
1.2
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91
Age
Rat
io t
o a
v y
l(3
0-49
)
Rich: US, Japan, Sweden, Finland
Poor: India, Indonesia, Philippines, Kenya
Ronald Lee Oct 2008; based on NTA for each country
Age Profiles of Labor Income and Consumption: averaged for Four Rich and Four Poor Countries (Relative to average labor income)
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91
Age
Rat
io t
o a
v y
l(3
0-49
)
Rich: US, Japan, Sweden, Finland
Poor: India, Indonesia, Philippines, Kenya
Ronald Lee Oct 2008; based on NTA for each country
Components of US Consumption, 2003
Public Other
Private Other
Private DurablesPrivate Health
Private Edu
Public Edu
Public Health
0
20000
40000
0 10 20 30 40 50 60 70 80 90
Age
Do
llar
s (U
S,
2000
)
Later I will measure HK investmentAs sum of pub and priv spendingon hlth and educ as shown here.
Unlike Taiwan and other Third World, in US cons rises strongly with age. True in other industrial too.
Ronald Lee Oct 2008; based on NTA for each country
• Levels of age profiles change fast with economic development.
• Shapes of age profiles change slowly,
• Are broadly similar across countries at very different levels of development.
Ronald Lee Oct 2008; based on NTA for each country
Many policy possibilities to change the age profiles
• labor income– Later retirement (pension structure)– Earlier entry into labor force– Higher female labor force participation– Reform seniority system
• Change the age profile of consumption– In many industrial nations, the elderly consume much
more than younger adults.– Makes population aging more costly– Role of public transfer policy: pensions, health care,
long term care
Ronald Lee Oct 2008; based on NTA for each country
III. Support Ratios
• Effective labor is weighted sum of pop using labor income age profile.
• Effective consumers is similar.• Ratio of effective labor to effective consumers is
the “Support Ratio” (with fixed age profiles).• Other things equal, consumption per effective
consumer is proportional to the support ratio.
0
0
Effective WorkersSupport Ratio
Effective ConsumerslPop x y x
Pop x c x
Ronald Lee Oct 2008; based on average NTA data
Support Ratios for Five Less Developed Countries, 1950-2100, Based on UN population projections and average LDC age profiles from NTA
India
Brazil Niger
ChinaS. Korea
0.5
0.6
0.7
0.8
0.9
1
1950 1970 1990 2010 2030 2050 2070 2090
Year
Eff
ecti
ve
Pro
du
cers
Per
Co
nsu
mer
20072008
Ronald Lee Oct 2008; based on average NTA data
Support Ratios for Five Less Developed Countries, 1950-2100, Based on UN population projections and average LDC age profiles from NTA
India
Brazil Niger
ChinaS. Korea
0.5
0.6
0.7
0.8
0.9
1
1950 1970 1990 2010 2030 2050 2070 2090
Year
Eff
ecti
ve
Pro
du
cers
Per
Co
nsu
mer
2007
Niger S. Korea China India Brazil2050/08 1.20 0.78 0.86 1.09 0.96
Rate %/yr 0.43 -0.59 -0.35 0.22 -0.09
Ronald Lee Oct 2008; based on average NTA data
Spain
Italy
US
Japan
Germany
Spain, Low Fert.
Italy, Low Fert.
0.5
0.6
0.7
0.8
1950 1970 1990 2010 2030 2050 2070 2090
Year
Eff
ecti
ve P
rod
uce
rs P
er C
on
sum
erSupport Ratios for Five More Developed Countries, 1950-2100, based on UN long term population projections and the NTA age profile for the US.
Ronald Lee Oct 2008; based on average NTA data
Spain
Italy
US
Japan
Germany
Spain, Low Fert.
Italy, Low Fert.
0.5
0.6
0.7
0.8
1950 1970 1990 2010 2030 2050 2070 2090
Year
Eff
ecti
ve P
rod
uce
rs P
er C
on
sum
erSupport Ratios for Five More Developed Countries, 1950-2100, based on UN long term population projections and the NTA age profile for the US.
US Spain Italy Japan Germany2050/08 0.91 0.72 0.75 0.75 0.81
Rate %/yr -0.2 -0.8 -0.7 -0.7 -0.5
Ronald Lee Oct 2008; based on NTA for each country
IV. The Life Cycle Deficit
Indonesia NTA Maliki; Japan NTA Ogawa
Per capita consumption and labor income by age for Indonesia and Japan
-
200,000
400,000
600,000
800,000
1,000,000
0 20 40 60 80 100
Age
Per c
apita
co
nsum
ptio
n or
labo
r in
com
e
-
100,000
200,000
300,000
400,000
500,000
0 20 40 60 80 100
Age
Per
cap
ita
con
sum
pti
on
o
r la
bo
r in
com
e in
Yen
Indonesia, 2002
Japan, 2004
Indonesia NTA Maliki; Japan NTA Ogawa
Here are the aggregate flows: population by age times per capita age profiles
Aggregate Life Cycle Deficit for Indonesia (2005) in Rupiah
(30,000)
(20,000)
(10,000)
-
10,000
20,000
30,000
40,000
0 20 40 60 80 100
Age
Ag
gre
gate
d C
on
su
mp
tio
n -
Lab
or
Inco
me
Aggregate Life Cycle Deficit for Japan (2004) in Yen
(5,000)
(4,000)
(3,000)
(2,000)
(1,000)
-
1,000
2,000
3,000
4,000
5,000
0 20 40 60 80 100
Age
Ag
gre
ga
ted
Co
ns
um
pti
on
- L
ab
or
Inc
om
e
Indonesia NTA Maliki; Japan NTA Ogawa
Aggregate flows
Aggregate Life Cycle Deficit for Indonesia (2005) in Rupiah
(30,000)
(20,000)
(10,000)
-
10,000
20,000
30,000
40,000
0 20 40 60 80 100
Age
Ag
gre
gat
ed C
on
sum
pti
on
-
Lab
or
Inco
me
Aggregate Life Cycle Deficit for Japan (2004) in Yen
(5,000)
(4,000)
(3,000)
(2,000)
(1,000)
-
1,000
2,000
3,000
4,000
5,000
0 20 40 60 80 100
Age
Ag
gre
ga
ted
Co
ns
um
pti
on
- L
ab
or
Inc
om
e
• Green arrows show transfers from surplus of prime working years.
• Red arrows show asset income consumed by elderly out of earlier savings.
Ronald Lee Oct 2008; based on NTA for each country
Life cycle deficit
• Consumption at age x not funded by labor income at that age
• c(x) – yl(x) is per capita LCD
• C(x) – Yl(x) is aggregate LCD
• Or for an age segment:
• C(65+) - Yl(65+), consumption by all those over 65 minus labor income for same.
• Now measure as ratio to total consumption
Ronald Lee Oct 2008; based on NTA for each country
Life Cycle Deficit (LCD) by Population Share 65+
0
0.05
0.1
0.15
0.2
0.25
0 0.05 0.1 0.15 0.2 0.25
Proportion of population 65+
LC
D 6
5+
Kenya
Japan
Ronald Lee Oct 2008; based on NTA for each country
Life Cycle Deficit (LCD) by Population Share 65+ Compared to Simulated with Actual Population but Age Profile Av of Four Poorest
0
0.05
0.1
0.15
0.2
0.25
0 0.05 0.1 0.15 0.2 0.25
Proportion of population 65+
LC
D 6
5+
Actual is 50% higher for oldest, Japan
Ronald Lee Oct 2008; based on NTA for each country
The rising LCDs as the population ages translate into a rising demand
for wealth.
Individuals need some kind of claim on future resources to consume more than they expect in labor
income.
These claims are called “wealth”
Ronald Lee Oct 2008; based on NTA for each country
Why does the demand for wealth rise over the demographic
transition?
• Pure demographic composition effect – Older people need more wealth and hold more weatlh– in old population, there are more of them.
• Also behavioral effects driven by demographic change:– Longer life means workers need to accumulate more
wealth for longer old age (or work longer).– Lower fertility means adults consume more and need
to save more to maintain in old age.
Ronald Lee Oct 2008; based on NTA for each country
VI. The role of intergenerational transfers
• Wealth can be held in two forms: – Transfer wealth (expected future transfers
received minus expected future transfers made)
– Assets or Capital
Ronald Lee Oct 2008; based on NTA for each country
NTA data gives shares of old age support from different sources
• Asset income (land, equities, interest, etc.)
• Family transfers (not including bequests at death)
• Public transfers (Pay As You Go pensions, health care, and long term care)
• Triangle graph shows shares, not levels, so must add to 100%.
• Bequests not included; just old age cons.
Ronald Lee 2008; from Andy Mason, NTA
Old-age Reallocation System, Selected Countries.
0
50
75
100
75
75
50
50
25
25
0
0
25
100
100
Asset-based (%)
Public transfers (%)
Family Transfers (%)
US
Thailand
Costa Rica
JapanTaiw an
Korea
Familial transfers equally important in Thailand, Korea, and Taiwan (36-
40%). Net familial
transfers near zero in US, CR, and J. Large
public transfers in CR and J
Net public transfers to elderly are zero in
Thailand; about 25% in Taiwan and Korea.
Ronald Lee 2008; from Andy Mason, NTA
Old-age Reallocation System, Selected Countries.
0
50
75
100
75
75
50
50
25
25
0
0
25
100
100
Asset-based (%)
Public transfers (%)
Family Transfers (%)
US
Thailand
Costa Rica
JapanTaiw an
Korea
Public transfers: Thailand none,
Japan and Costa Rica around 70%
US, Korea, Taiwan, middling
Ronald Lee 2008; from Andy Mason, NTA
Old-age Reallocation System, Selected Countries.
0
50
75
100
75
75
50
50
25
25
0
0
25
100
100
Asset-based (%)
Public transfers (%)
Family Transfers (%)
US
Thailand
Costa Rica
JapanTaiw an
Korea
Reliance on assets : Japan, Taiwan, C.R.
are low; Thailand high; US middling
Ronald Lee Oct 2008; based on NTA for each country
VII. Demographic Transition and Capital Accumulation
• Changing dependency gets most attention for ec dev and pop aging.
• Changes in capital accumulation may be more important.
Ronald Lee Oct 2008; based on NTA for each country
Simulating the demand for wealth and capital over the demographic transition
• There are different theoretical approaches. We have used several.– Social Planner maximizing discounted social
welfare function.– Individuals saving and consuming over their
life cycles to maximize their life time utility, given different transfer systems.
• Yield qualitatively similar result: capital intensity rises strongly over the demog transition.
Ronald Lee Oct 2008; based on NTA for each country
Here take a different approach – no optimization--emphasizes institutional
setting• Assume
– share of old age consumption supported by asset income stays constant over time.
– altruistic sharing maintains the shape of the cross sectional consumption age profile.
– Demography is known in advance.
• Can solve recursively for unique growth path and asset holdings.
Ronald Lee Oct 2008; based on NTA for each country
Two scenarios: high level of transfers to elderly (65%) or low level (35%) as
share of life cycle deficit.
• Other assumptions– Productivity growth raises income age profile by 2%
per year.– Open economy, so wages, interest rates are given.– rate of return on assets is 3%.
• Aggregate saving is calculated to maintain asset share of old age consumption support.
• Results will be shown relative to a 2% growth trajectory from prod gr.
Ronald Lee Oct 2008; from Mason, Lee and Lee, 2008
0
0.05
0.1
0.15
0.2
0.25
1940 1960 1980 2000 2020 2040 2060
Net
Savin
g R
ate
High IG Transfers
Low IG Transfers
Simulated Saving Rate, ASEAN (S.E. Asian countries), 1950-2050
Ronald Lee Oct 2008; from Mason, Lee and Lee, 2008
Simulated Assets/Labor Income, ASEAN
0
2
4
6
8
1940 1960 1980 2000 2020 2040 2060
Ass
ets/
Labo
r In
com
e .
Low IG Transfers
High IG Transfers
Ratio of assets to labor income rises greatly in any case, but 3 or 4 times as much with low IG transfers.
Ronald Lee Oct 2008; from Mason, Lee and Lee, 2008
Simulated Consumption, ASEAN
60
80
100
120
140
160
1940 1960 1980 2000 2020 2040 2060
Co
nsu
mp
tio
n In
dex
(19
50=
100)
.
Low IG Transfers
High IG Transfers
With low IG transfers, saving is higher from 1990 to 2020, reducing consumption.
Thereafter, consumption is higher.
Ronald Lee Oct 2008; based on NTA for each country
These sorts of results are qualitatively like those from optimization approaches
• Timing of swings differs• Level of savings rates differs• Capital/labor income ratios differ
Big picture is the same:1. The demographic transition leads to a major increase
in capital per worker.2. The greater the role of transfers to the elderly, the
smaller is the increase in capital intensity.3. Eventually consumption rises with lower transfers, but
initially it is lower.4. Population aging leads to a decline in savings
rates but an increase in capital intensity.
Ronald Lee Oct 2008; based on NTA for each country
VIII. Human capital and the demographic transition
• Measure public and private expenditures on health and education at each age.– Sum these for health ages 0-18– Sum for education ages 0-26– Gives synthetic cohort HK investment per
child
• Construct ratio of HK to average yl(x)= , ages 30-49.
• Plot log of HK/ against log of TFR.ˆly
Ronald Lee Oct 2008; from Lee and Mason, 2008, NTA
Figure 1. Per Child HK Spending (Public and Private) vs. Fertility
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40
ln(TFR)
ln(H
K p
er C
hild
/Av
Lab
Inc
30-
49)
Ronald Lee Oct 2008; from Lee and Mason, 2008, NTA
Figure 1. Per Child HK Spending (Public and Private) vs. Fertility
AustBrz
Chl
CR
Fin
FrHng
India
Indonesia
Jpn
Mex
Phil
Slv
Kor
SwdTwn
Thai
Urg
US
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40
ln(TFR)
ln(H
K p
er C
hild
/Av
Lab
Inc
30-
49)
Ronald Lee Oct 2008; from Lee and Mason, 2008, NTA
Figure 1. Per Child HK Spending (Public and Private) vs. Fertility
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40
ln(TFR)
ln(H
K p
er C
hild
/Av
Lab
Inc
30-
49)
y = -1.05*x + 1.92R2 = 0.62
Ronald Lee Oct 2008; from Lee and Mason, 2008, NTA
Now calculate total HK spending on all children
• Multiply TFR times HK per child, and plot its log against log(TFR).
Ronald Lee Oct 2008; from Lee and Mason, 2008, NTA
Figure 5. Total Expenditures Per Woman for All Children's HK vs. Fertility
for 18 NTA countries (log scale)
0.00
0.50
1.00
1.50
2.00
2.50
0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40
ln(TFR)
ln(T
FR
X P
er C
hil
d H
K S
pen
din
g/
Av
Lab
In
c 3
0-49
)
6.8 years of labor income are invested in total HK on average.
1/12 of lifetime labor income for a couple.
Ronald Lee Oct 2008; from Lee and Mason, 2008, NTA
The standard Quantity-Quality model
• Assume that the share of total labor income spent on HK is fixed, consistent with scatter plot.
• Draw budget constraints for differing levels of income.
• Quantity and quality interact multiplicatively in the budget constraint, both with positive income elasticities for constant price.
Ronald Lee Oct 2008; from Lee and Mason, 2008, NTA
The Standard Model: Rising Income Leads to Choice of Lower Fertility and Higher HK Investment per Child
0
1
2
3
4
5
6
7
1 2 3 4 5 6 7 8
Number of children
Hu
man
Cap
ital
In
vest
men
t p
er
chil
d
Yn=1
Yn=6
Yn=4
Nonlinear Quantity-Quality budget constraint.
Yn = lifetime income of a couple.
Lines show different combinations of number and HK that = Yn/12
Ronald Lee Oct 2008; from Lee and Mason, 2008, NTA
The Standard Model: Rising Income Leads to Choice of Lower Fertility and Higher HK Investment per Child
0
1
2
3
4
5
6
7
1 2 3 4 5 6 7 8
Number of children
Hu
man
Cap
ital
In
vest
men
t p
er
chil
d
Yn=1
Yn=6
Yn=4
B
A
C
With same data, plot ln(HK/w) instead of HK, against ln(TFR) instead of n.
The budget lines collapse onto a single straight line.
Ronald Lee Oct 2008; from Lee and Mason, 2008, NTA
Ln(n)
Ln(pqq/w)
A
C
B
D
ln(d)
Figure: The transformed budget constraint showing different quantity-quality choices.
Ln(HK)/Yn
Ln(TFR)
Ronald Lee Oct 2008; from Lee and Mason, 2008, NTA
Ln(n)
Ln(pqq/w)
A
C
B
D
ln(d)
Figure: The transformed budget constraint showing different quantity-quality choices.
Slope (elasticity) = -1
Similar to empirical cross-national scatter plot.
Ronald Lee Oct 2008; from Lee and Mason, 2008, NTA
Association is non-causal
• We don’t know whether fertility decline causes rising HK investments per child.
• Desire to make bigger HK investments causes fertility decline.
• Some other factor like rising income causes both fertility and HK changes as in quantity-quality theory.
Ronald Lee Oct 2008; from Lee and Mason, 2008, NTA
Production and Human capital
• Human capital (HK)– Portion of wage, W(t),
workers invest in their children is inversely related to their fertility, F(t)
– Human capital of workers one period later is
– HK(t+1) = h(F(t)) W(t)
• Wage (W)– Wage is increasing in
human capital– W(t) = g(HK(t))
112
W tHK t
F t
.33W t HK t
Baseline Specifications
Ronald Lee Oct 2008; from Lee and Mason, 2008, NTA
Model—basic structure
• Take fertility variations as given, trace out consequences for HK, wage, consumption.
• 3 generations: children, workers, retirees; usual accounting identities.
• No saving or physical capital.
• HK drives wage growth; wage growth drives HK growth. (Lee and Mason 2008)
Ronald Lee Oct 2008; from Lee and Mason, 2008, NTA
Figure 6. Macro Indicators: Baseline Results
60.0
70.0
80.0
90.0
100.0
110.0
120.0
130.0
0 1 2 3 4 5 6
Period
Va
lue
(p
erc
en
t o
f y
ea
r 0
)
Support ratio
C/ EA
Boom (demoraphic
dividend)
Fertility bust, but consumption remains high
Fertility recovers: modest effect on C/EA
Bottom line: Low fertility leads to higher consumption. Human capital investment has moderated
the impact of fertility swings on standards of living.
Ronald Lee Oct 2008; from Lee and Mason, 2008, NTA
Figure 6. Macro Indicators: Baseline Results
60.0
70.0
80.0
90.0
100.0
110.0
120.0
130.0
0 1 2 3 4 5 6
Period
Va
lue
(p
erc
en
t o
f y
ea
r 0
)
Support ratio
C/ EA
During first dividend phase, consumption does not rise as much as support ratio.
The difference is invested in HK.
That is why ih later periods, consumption is proportionately higher than the support ratio.
Ronald Lee Oct 2008; based on NTA for each country
IX. Conclusions for changes over the transition
• Support ratios change over demographic transition; ending where started, roughly. – Importance in long view may be exaggerated. – In shorter view, pop aging is a painful payback phase.
• Bigger effect is on capital intensity– Raises productivity per worker– Raises wealth and asset income
• However, increased demand for wealth can be met either by increased asset holdings or through increased transfer wealth.
• Major role for policy and institutions at every point; nothing inevitable.
• Increased human capital results from low fertility—so closely related to aging: same cause for both.– Raises productivity.
Ronald Lee Oct 2008; based on NTA for each country
END