Macroeconomic Impacts Of Demographic Change

Macroeconomic Impacts Of Demographic Change Presented by: Prof. Dr. Michalski Date: 8 October 2023 Law Demography is destiny… - Ongoing demographic changes bring about a substantial shift in the size and age composition of the populations, which are having a significant impact on the global economy. - Despite potentially grave consequences, demographic changes usually do not take center stage in many macroeconomic policy discussions or debates. - For example, most growth models assume that population grows at a constant ratesometimes zero for simplicity-and many business cycle models fix the size of population in analyzing aggregate demand. 3 Ways Of Seeing The Relationship Between Economy And Demography - Population growth... - D.E. Bloom, D. Canning, J. Sevilla, The Demographic Dividend. A New Perspective on the Economic Consequences of Population Change, Rand, 2003. • 1. „Pessimistic Theory" - limits economic development - The Population Bomb (Ehrlich), Limits to Growth • 2. „Neutral Theory" - concentrated rather on market mechanism' potential to stimulate economy, leaving aside demographic issues • 3. „Optimistic Theory" - Julian Simon, Herman Kahn, Ester Boserup, Deepak Lal, D. Lam „Pessimistic Theory" - Global 2000 Report to the President • "If present trends continue, the world in 2000 will be more crowded, more polluted, less stable ecologically, and more vulnerable to disruption than the world we live in now. Serious stresses involving population, resources, and environment are clearly visible ahead. Despite greater material output, the world's people will be poorer in many ways than they are today. For hundreds of millions of the desperately poor, the outlook for food and other necessities of life will be no better. For many it will be worse. Barring revolutionary advances in technology, life for most people on earth will be more precarious in 2000 than it is now-unless the nations of the world act decisively to alter current trends". (1980, p. 1). "Optimistic Theory" - The Resourceful Earth • "If present trends continue, the world in 2000 will be less crowded (though more populated), less polluted, more stable ecologically, and less vulnerable to resource-supply disruption than the world we live in now. Stresses involving population, resources, and environment will be less in the future than now... The world's people will be richer in most ways than they are today... The outlook for food and other necessities of life will be better life for most people on earth will be less precarious economically than it is now". (Simon and Kahn 1984, p. 2) Economics and Demography - Becker, The Role of The Family in Modern Economic Life, 2007, p. 5. • ,,(...) we economists (in particular the neo-Malthusians among us) have concentrated on a few potentially harmful effects of population growth on the economy, and ignored what are often - indeed, I think, usually - more important, positive effects. (...) population growth has positive effects and has demonstrated increasing returns, as in the beneficial incentives to medical innovation of larger populations. Unfortunately, insufficient academic attention has been devoted to these positive effects, and this oversight should be corrected." - "A society which devotes a disproportionate amount of its life and energy to the exchange system may find this system eventually undermined". (K. Boulding 1968, p. 236-7.) - „The most decisive mark of the prosperity of any country is the increase of the number of its inhabitants" (Adam Smith, Wealth of Nations, p. 59.) - „From the point of view of economics the basic concept is permanence. We must explore the economics of permanence. Any activity which in the long run leads to absurd cannot be economically justified". (E.F. Schumacher, Small is beautiful. Economics as if People Mattered) „Optimistic Theory" Economimsts - Becker - human capital, altruism and economy - Simon, Kahn - positive influence of population growth on economy - Kuznets - innovation' potential of human communities - Boserup - increasing pressure on more effective use of resources as the population grows - Fogel, Costa - Theory of Techno-physio Evolution Context we have today: Demography + Technology + Culture = Economy - Demographic changes - expected to accelerate in coming years • low fertility rate over the last four decades • continued increase in longevity • decrease of the proportion of the working-age population in the developed countries. • - - ...gradual decline of the EU's population and labor force is expected to continue. Technological developments reshaping the macroeconomic context • online work and education • digitalization of society and economy • Al, robots and automation Cultural shifts reshaping families, communities and societies • individualization and de-familism/post-familism • loneliness pandemics • relationships - cyber vs. real world A Decreasing And Ageing Population Brings New Challenges - Shrinking working-age population - puts pressure on labor markets and welfare states; - increases the old-age dependency ratio; - raises the per-capita burden of public debt. - puts pressure on implementing technological advancements - To sustain economic growth, the working-age population must increase, labor-force participation rates must go up and/or productivity has to increase through technological advances and/or skills development. - Population ageing also entails additional needs • including the need to adapt our workplaces, • welfare and public health systems to accommodate the increased demand • for accessible and affordable quality health care and long-term care. Demographic Effects On Macroeconomic Processes... - There are broadly two approaches to analyzing the macroeconomic impact of demographic changes: • The standard approach assumes a constant age-specific behavior with respect to employment, earnings, consumption and savings and assesses implications of demographic changes. While this approach is useful for capturing the so-called accounting effects of demographic transitions, the outcomes could be misleading, as economic behaviors can be altered and institutional aspects can be adjusted. CONCLUSIONS - Dominating approach to Demographic challenges seems to concentrate on QUANTITY rather than QUALITY - In terms of QUALITY there is the issue of CULTURAL SHIFTS which already influence ECONOMY in such aspects as: - • Human Capital formation • Social Capital effectiveness • Relationships crisis - its costs and consequences The problem of „Sending capital into future" seems to be neglected • how to guarantee enough wealth/capital in the 30/40/50 years...? • and that shifts in capital' value will not make us poorer...?