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Impact of an Aging Population on the Economy

An aging population is a situation where the proportion of older people is increasing at a higher rate than younger people—the aging population results from people living longer (more extended life expectancy, and having fewer children (birth rate decline). According to Borsch (2008), life expectancy increases due to an improved lifestyle, including access to a good diet, exercise, and quality health care. A decline in birth rate is influenced by factors such as availability, education, and effectiveness of contraceptives, the rising cost of living affecting people to have children and how many, and changing social attitudes and lifestyles, for example, people choosing not to have children (Martin, 2008). it has left the population with a decline in the younger generation.

An aging population’s social and economic implications have become evident in industrialized countries. The aging population is increasing in North America, Western Europe, and Japan (Haper, 2006). As a result, economists face a series of interconnected challenges, including a decline in the working-age population, increased healthcare expenditures, and changing demand drivers within the economy.

The main impact of an aging population is stagnant economic growth due to a lack of younger, diligent, and energetic workers. For example, Japan, the most populated country, is facing an aging population (Watanabe, 2016). As a result of these challenges, industries are forced to scale down their production or relocate their activities to other countries where they can access the workforce required to continue production (Muramatsu & Akiyama, 2011). Other sectors are forced to narrow their presentation because they do not have access to a younger workforce, who may do the work better than the older employees. As the young workers’ gap shrinks, it becomes challenging to have enough taxpayers, the primary source of income, to develop and grow the economy. Additionally, a shortage of younger workers causes technical innovation to decline. To curb this challenge, countries look into immigration to keep their labor force afloat.

There are different demand drivers in an economy with a large share of aging people in the population. For example, an aging population tends to have an increased demand for healthcare services. Economies are challenged to shift to markets driven by goods and services linked to older people (Haper et al., 2006). Consequently, there is lower consumer demand, thus threatening economic growth. Older people tend to save more but spend less on consumer goods; therefore, the consumer market is severely affected.

The need for countries with aging populations to allocate money and resources to their healthcare systems is paramount in response to the increased demand for healthcare services from the older population. It includes giving free or cheaper medical care and providing health facilities with resources to stabilize the demand. It calls for a large share of the gross domestic product, which is also facing the challenge of production due to the aging population (Arnott & Chaves, 2012). All these become cost escalators, affecting the economy negatively because there is a minimal force to balance the same.

In conclusion, the aging population has continued to challenge the modern economy. The governments are forced to spend vast sums of money trying to find a solution to these negative implications on the economy. Possible solutions to these shortcomings include pushing the elderly to continue participating in production activities and improving their living standards. Immigration of experienced workers from other countries helps fill the labor market void, thus enhancing production continuity.


Arnott, R. D., & Chaves, D. B. (2012). Demographic changes, financial markets, and the economy. Financial Analysts Journal, 68(1), 23-46.

Börsch-Supan, A. H. (2008). The impact of global aging on labor, product, and capital markets. Population and Development Review, 34, 52-77.

Harper, S., Khan, H. T., Saxena, A., & Leeson, G. (2006). Attitudes and practices of employers towards aging workers: Evidence from a global survey on the future of retirement. Aging horizons, 5, 31-41.

Muramatsu, N., & Akiyama, H. (2011). Japan: super-aging society preparing for the Future. The Gerontologist, 51(4), 425-432.

Watanabe, M. (2016). new religions, depopulation, and the aging population. Journal Of Religion in Japan5(2-3), 263-305.


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