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Evan Horowitz | Analysis

How do we sustain growth with an aging population?

For you and me, aging is inevitable. For the population as a whole, it doesn’t have to be. Throughout the 1950s and 60s, the US population was actually getting younger. But as the baby boomers have aged, our society has aged along with them. This poses some unique challenges for the US and for Massachusetts. How can we sustain economic growth if the number of workers is shrinking? Might the strain on government budgets be too much? What if our response to aging ends up hurting vulnerable groups, like the poor?

How old have we gotten?

Back in 1970, half the people in the US were under 28 and half were over 28. In other words, 28 was the median age. Today, the US median age is 37.


The trends in Massachusetts are quite similar. Seniors make up a growing share of the state population, while the number of children continues to shrink. The attached charts give the details to date, but there may be even more dramatic changes ahead. Moody’s analytics projects that by 2025 nearly 20 percent of the Massachusetts population will be 65 or older.

What does this mean for the budget?

The federal budget is going to be profoundly affected by the aging of our population. That’s because a substantial share of federal money goes to support social security and Medicare, two programs that primarily serve older people. As that population grows, the cost of those programs will too. Generally speaking social security is in better shape than people generally acknowledge but long-term Medicare costs are a real concern. One of the forgotten initiatives of the Affordable Care Act (a.k.a Obamacare) was to introduce a number of pilot programs designed to reduce long-term health care costs.

In Massachusetts, the impact is likely to be less worrisome. Most state dollars go to either education, where the population has been shrinking, or Medicaid, which is primarily for the poor rather than the elderly. To be sure, there are some elderly care programs that we may need to expand, but the overall effect on the state budget should be far more manageable.


What does aging mean for our economy?

More elderly people means more retirees, which also means fewer workers. And that can make it harder to sustain economic growth.

Imagine there are 100 workers in Massachusetts today and that these 100 workers produce $1,000 worth of stuff (goods, services, etc.) As the population gets older and more people retire, there might be just 80 workers in 2025. In order to keep our economy from shrinking, those 80 workers would have to produce the same $1,000 worth of stuff, and if we actually want our economy to grow, they’d have to make even more. Theoretically, at least, this could be a very serious problem.

The good news is that there are a range of possible solutions (both for the US and for Massachusetts).

- Recruit more workers. Just because the number of people under 65 is shrinking doesn’t mean the number of workers has to shrink. At the moment, there are a lot of unemployed and underemployed people who would be eager to rejoin the workforce. Beyond that, more women might enter the labor force, and more people over 65 could put off retiring and continue in their jobs.

- Immigration. We could encourage younger people to move here, and if they came in sufficient numbers that would help offset the aging of the baby boomers.


- Productivity growth. With the right innovations, those 80 workers might easily produce that $1,000 worth of stuff. Advances in robotics and artificial intelligence, for instance, could greatly increase efficiency and output.

So, yes, the aging of the population does pose a challenge for the economy, but it’s the kind of challenge that market economies are adept at solving. If there are businesses that can’t find workers, they can invest in new machinery and they can attract new people by raising wages.

Also, it’s worth noting that when the baby boomers were under 18, the US faced a similar situation, not because the population was too old but because it was too young. Schools were flooded with students and the population of workers was relatively small. Yet, the post-war economy was remarkably strong.

Are there any other concerns?

Inequality is everywhere. You can see it in wages, health outcomes, higher education, and also life expectancy.

I’ve been talking about the role of baby boomers, but there’s another reason our population is aging: people are living longer. Life expectancy has grown by 10 percent since 1970.

Increasingly, though, researchers are finding that not everyone is living longer. The richer you are, the better your chances. In fact, a recent study actually found that life expectancy for poor women may be shrinking.

Here’s one reason this matters: The official retirement age for collecting social security is being gradually increased from 65 to 67. It seems like a reasonable change, given that people are living longer, but it doesn’t affect all people equally. If you live until 80, that two-year delay in benefits adds up to a fairly small portion of your social security benefits. But if you only live to 70, it’s a much larger share. And the research is now telling us that the people dying earlier and losing that larger share are disproportionately poorer.


Everyone may age but even in aging there is inequality. As we craft policies to ensure continued economic growth, keep our budgets in order, and otherwise accommodate our aging population, we need to be alert to the differential impact these policies may have on rich and poor.

More by Evan Horowitz:

-- Yesterday’s recession will haunt us tomorrow

-- Who Pays More in Taxes?

-- Nine things you need to know about unemployment insurance

Evan Horowitz digs through data to find information that illuminates the policy issues facing Massachusetts and the U.S. He can be reached at evan.horowitz@globe.com. Follow him on Twitter @GlobeHorowitz