• Workers pay higher taxes (and thus consume less) in order to finance benefits for older people.
  • Benefits (and thus consumption) for older people are reduced so as to bring them in line with current tax and saving rates.
  • People work longer and retire later, raising their earnings and national output.

The fundamental issue that society faces is how to adapt in some or all of these ways to absorb the costs of population aging. Each option has different implications for which generation(s) will bear the costs, or receive the benefits, of an aging population.

Whatever the economic consequences of population aging for the United States, it is important to recognize that the U.S. economy is integrated in the global economy and that population aging is a global, not merely a national, phenomenon. The past 30 years have witnessed important changes in the global economy, with implications for workers’ job security, wages, and benefits. Trade and financial flows produce ever closer linkages across nations. Population aging is even more pronounced in most other high-income countries than in the United States and is progressing very quickly in some developing countries, notably China. In analyzing the consequences of population aging in the United States, one must consider them in the broader context of a globalized economy whose populations themselves are rapidly aging.

Many aspects of population aging are difficult to evaluate, in part because the history of the United States and of other developed nations does not provide many episodes of substantial shifts toward an older population. For example, some have suggested that a future labor force that is older on average than today’s might be less productive and less innovative. The committee examined this issue and concluded that any such effects are likely to be small. Others have suggested that an older population might invest its assets differently than a younger one, leading to a drop in asset prices. Again, the committee concluded that any such effect would be small. An older population, and one in which individuals expect to live longer in retirement, might accumulate more assets. These assets, when invested, could help enhance productivity and generate asset income and thus improve living standards. However, the committee was unsure how such an increase in private assets holdings would be related to a likely increase in public debt as the population ages. There is a great deal of uncertainty about exactly how these and other factors might interact to affect future standards of living. The committee believes that even with a significantly older population, living standards are likely to keep improving albeit more slowly, and that the impact of an aging population on overall living standards is likely



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