labor force, possibly by raising labor supply during the traditional working years but more likely by extending time in the labor force and retiring later.

The fundamental issue that society faces is how to allocate the increased costs of population aging across these four sources. Each of the options has different implications for which age groups and which generations will bear the costs and enjoy the benefits. If benefits of the elderly are cut now, then this group will be permanently worse off because they will not recoup this loss in a later period. If, instead, benefits for the elderly are preserved by raising taxes, then current workers will consume less. They may gain later on from the higher benefits once they themselves are old, but how much depends on economic growth. The same will be true of later generations. If we ask current workers to save more, this would help reduce taxes and benefits in the long run, but it will not help pay the rising costs of benefits for the current elderly.

The longer our nation delays making changes to the benefit and tax structures associated with entitlement programs for older individuals, the larger will be the “legacy liability” that will be passed to future generations. The larger this liability, the larger the increase in taxes on future generations of workers, or the reduction in benefits for future generations of retirees, that will be required to restore fiscal balance. The same is true for raising retirement ages. The remaining chapters in this report discuss these and related issues in more depth. The purpose of this chapter is to present a coherent view of the primary findings discussed in the following chapters, where supporting evidence and references may be found.

Of course, population aging has other consequences that are not explicitly addressed in this report. It has many social effects, from impacts on families and household structure through needs for the redesign of transportation networks and the built environment. But here our focus is more narrowly on the long-term consequences for the macroeconomy.

DEMOGRAPHIC CHANGE

Population Aging Is Global

Populations are aging all over the world, but the pace and timing vary by country and region. In the wealthier nations, the aggregate median age has risen from 29 years in 1950 to 39 in 2010 and is projected to reach 48 by 2050. In the developing countries, the median age now is 27, but they too are aging, and their median age is projected to reach 37 by 2050. This aging of populations will influence the U.S. economy through globalized markets for goods, capital, and labor. U.S. wages, profit rates, and capital per worker depend in part on national factors, but also on these international ones. The old age dependency ratio is the ratio of the population



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