Population Aging, Retirement, and Aggregate Productivity

Most industrialized countries today are facing historical demographic changes, paring increasing retirement with a declining labor force. We study the consequences of an increasing pensioner-worker ratio in a macroeconomic framework, which suggests a negative effect on total factor productivity. Using newly collected longitudinal data on pensioners, we quantify this effect by exploiting variation in the pre-determined component of retirement. We find that a 10-point increase in the pensioner-worker ratio decreases factor productivity by 5-6%. The effect is stronger when production is labor intensive and automation potential is low. Economic aging also impedes the creation of innovation at the technological frontier.