{"id":1668,"date":"2026-07-30T17:56:46","date_gmt":"2026-07-30T17:56:46","guid":{"rendered":"https:\/\/valutednews.com\/?p=1668"},"modified":"2026-07-30T17:56:46","modified_gmt":"2026-07-30T17:56:46","slug":"baby-busts-and-gdp-booms-demographic-change-and-the-macroeconomy","status":"publish","type":"post","link":"https:\/\/valutednews.com\/?p=1668","title":{"rendered":"Baby Busts and GDP Booms: Demographic Change and the Macroeconomy"},"content":{"rendered":"
\"Baby<\/div>

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Yves here. In the dry realm of macroeconomics, this study presents cheery news. It\u2019s taken as a truism that an aging population, aka demographic decline, is a death kneel to economic growth. The assumption has been that the dependency ratio, as in the proportion of workers compared to those not engaged in deemed-to-be-productive activity, as in children and oldsters, is fundamental to increasing output. Can\u2019t have too many useless eaters!<\/p>\n

This article documents what many have argued: that technology can offset the perceived drag of having an increasing level of the population not engaging in paid employment.<\/p>\n

By Daron Acemoglu, Institute Professor in the Department of Economics Massachusetts Institute of Technology; David Autor, Ford Professor of Economics Massachusetts Institute of Technology; Keelan Beirne, PhD candidate in Economics Massachusetts Institute of Technology; and Andrew Scott, Senior Director of Economics Ellison Institute Of Technology, Oxford; Professor of Economics London Business School. Originally published at VoxEU<\/a><\/strong><\/em><\/p>\n

Globally declining birth rates have, over the last seven decades, slowed population growth and raised average ages. This column argues that despite widespread economic pessimism, historical cross-country and US commuting zone data point to no impact of ageing populations on aggregate GDP or earnings growth. Countries with lower birth rates have higher GDP growth per working-age adult, and US commuting zones with lower birth rates have faster wage growth. The growth-reducing potential of demographic slowdowns is countered by faster technological change. While future demographic changes will occur at greater speed and scale, the economic record suggests that current pessimism is premature.<\/em><\/p>\n

Editors\u2019 note: This column is based on CEPR Discussion Paper 21673 \u201c<\/em>Baby busts and growth booms: Demographic change and the macroeconomy<\/em><\/a>\u201d.<\/em><\/p>\n

Over the past seven decades, birth rates have declined sharply across the globe, as seen in Figure 1. In 1950, the global average number of births per 100 people (the \u2018crude birth rate\u2019) was 3.78. By 2025, it had more than halved to 1.71. As a consequence, the United Nations forecasts an absolute fall in the global human population in the second half of the 21st century, the first sustained drop since the bubonic plague of the 14th century. The countries with the lowest birth rates today \u2013 China at 0.63, Japan at 0.60, and the Republic of Korea at 0.46 \u2013 are projected by 2050 to see their populations decline by 20\u201330%, their share of the population aged 65+ reach 30\u201340%, and their older working populations (45+) come to encompass 60% of their workforces.<\/p>\n

Figure 1<\/strong> Global trends in birth rates<\/p>\n

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Source:<\/em> UN Population Prospects 2024.<\/h6>\n

These demographic trends are a source of widespread concern to economists and policymakers. Older workers are widely assumed to be less productive, less innovative, less entrepreneurial, and less technologically adept than younger adults. Accounting for these factors, long-term scenario analyses project slowing economic growth (e.g. IMF 2025, OECD 2025, Coelli et al. 2025) and worsening public finances (e.g. Cooley et al. 2024, Favero and Srivastava 2025).<\/p>\n

These concerns rest largely on forward projections. But the global economy has already experienced sharp demographic changes over the past decades. This historical evidence can attest to whether this widespread pessimism concerning the impact of ageing and declining populations is warranted.<\/p>\n

That is the exercise we undertake in Acemoglu et al. (2026), in which we study two complementary sources of evidence. The first is from cross-country variation in the timing and extent of birth rate fluctuations. The sample includes all countries with populations over 1 million, excluding tax havens and crisis-affected states, and covers the period 1950 to 2020. The second is regional US variation across 722 commuting zones covering the contiguous US, with the workforce partitioned into \u2018younger\u2019 (aged 20\u201345) and \u2018older\u2019 (aged 45\u201370) adults.<\/p>\n

To isolate exogenous variation in fertility (that is not caused by contemporaneous or future anticipated economic conditions), the key variable of focus is birth rates from decades earlier. These affect current populations but are not caused by current conditions. For instance, the 1950 birth rate is used as a source of variation for analysing the impact of declining fertility on GDP and wage growth between 1970 and 2020.<\/p>\n

Figure 2 documents the central findings from analysis of cross-national and cross-US-regional data: countries with lower birth rates have higher growth in GDP per working-age adult, and commuting zones with lower birth rates experience faster average wage growth. There is no evidence of significant impact from lower birth rates on aggregate GDP growth or aggregate earnings \u2013 meaning that the increases in per capita GDP and wage growth associated with falling birth rates are sufficient to offset any decline in population. The cross-country magnitude of this effect from falling birth rates is economically (as well as statistically) significant: a one-percentage-point lower birth rate is associated with an approximately 22% higher GDP per worker 40 years later and 29% after 60 years.<\/p>\n

Figure 2<\/strong> Birth rates and growth<\/p>\n

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Notes<\/em>: This figure reports event study estimates of the impact of birth rates on income growth across countries and US commuting zones, allowing for initial income and population share of younger and older adults. See Acemoglu et al. (2026) for details.<\/h6>\n

The positive impact on growth in GDP per working-age adult and average wages combined with no overall impact on growth in GDP or aggregate earnings is inconsistent with canonical models of economic growth. The standard Solow\/Neoclassical growth model predicts an initial increase<\/em> in GDP per worker that dissipates as the capital stock adjusts, and unambiguously predicts a decline in GDP \u2013 neither of which is supported by our results.<\/p>\n

These estimates account for many factors expected to impact GDP and wage growth, including initial income and wages and initial demographic structure. Additionally, we drill down on several leading candidate explanations. Falling birth rates could raise growth by drawing more women into the formal workforce; by shifting child-rearing from \u2018quantity\u2019 to \u2018quality\u2019, with greater human capital investment per child; or by reallocating workers from low-productivity agriculture into higher-productivity manufacturing. For each of these channels, we find no consistent support in either cross-country or across commuting zone data. This, and the long lasting nature of our result across multiple decades (Kotschy and Bloom 2023), suggests our results are distinct from previous results articulating a \u2018demographic dividend\u2019.<\/p>\n

Instead, the economic origin of the positive association between low birth rates and rising GDP per worker appears to be technological change that is itself induced by labour scarcity. Countries with the largest declines in fertility experience the largest shifts toward high-tech exports and high-tech employment. Similarly, in US commuting zones, lower birth rates spur an employment shift toward R&D intensive industries and an increase in labour-saving patenting (Figure 3).<\/p>\n

Figure 3<\/strong> Response of employment across commuting zones<\/p>\n

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Notes<\/em>: This figure reports event study estimates of the impact of birth rates on employment composition across US commuting zones. See Acemoglu et al. (2026) for details.<\/h6>\n

Because lower birth rates simultaneously reduce population growth and raise the share of older people, our primary results are silent on the relative importance of population decline versus population ageing. Wars offer a grim natural experiment for separating the two. WWII casualties allow us to distinguish the economic effects of civilian deaths (which primarily reduce population without changing the age structure) from military deaths (which both reduce population and raise the average age of the workforce).<\/p>\n

Figure 4 shows that total war deaths are associated with lower future GDP per worker, while military deaths predict higher GDP per worker, suggesting that it is the scarcity of younger workers that induces the positive productivity response. This pattern parallels Bergeaud et al. (2025), who document that French regions with higher WWI military mortality experienced increased patenting in labour-saving technologies.<\/p>\n

Figure 4<\/strong> Response of GDP to WWII deaths<\/p>\n

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Notes<\/em>: This figure reports event study estimates of the impact of WWII death rates on future GDP growth across countries. See Acemoglu et al. (2026) for details.<\/h6>\n

These findings build on earlier work documenting that changes in the ratio of older to younger workers stimulate the development and adoption of labour-saving technologies (Acemoglu 2010, Acemoglu and Restrepo 2017). To our knowledge, however, no prior research documents the striking long-run increase in income per worker that accompanies falling birth rates.<\/p>\n

Seven decades of macroeconomic and demographic data do not support the conventional view, hard-baked into much economic analysis of demographic change, that slowing fertility means falling living standards. We cannot however rule out that the decades ahead could confirm the conventional wisdom that evidence so far fails to support. One key source of uncertainty is that countries will experience demographic changes at a speed and magnitude rarely seen in historical data. China, for instance, is expected to see its population aged 15 to 64 years decline from a peak of 1 billion to around 300 million by 2100.<\/p>\n

Perhaps not by coincidence, China is also far ahead of other nations in its development and adoption of robotics. China\u2019s count of industrial robots doubled between 2021 and 2024 and now accounts for nearly 50% of the global stock (Financial Times <\/em>2026). That suggests that the channel of directed technological change is very much at work, but it remains an open question whether, given the scale of China\u2019s demographic challenge, this will be sufficient to stabilise GDP growth in the manner our results indicate has happened over the last several decades.<\/p>\n

Additionally, the dramatic demographic changes currently underway are co-occurring with rising life expectancy (Scott 2021, 2024), which may itself spur institutional changes, policies, and additional human capital investments that complement longer lifespans.<\/p>\n

While our demographic futures are relatively assured, our economic possibilities are still uncertain and will evolve according to technological and human investments, including in the field of artificial intelligence. Based on the last seven decades, it is these reactions that will determine our economic future.<\/p>\n

See original post<\/a> for references<\/em><\/p>\n

\"Print<\/a><\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Yves here. In the dry realm of macroeconomics, this study presents cheery news. It\u2019s taken as a truism that an aging population, aka demographic decline, is a death kneel to economic growth. The assumption has been that the dependency ratio, as in the proportion of workers compared to those not engaged in deemed-to-be-productive activity, as…<\/p>\n","protected":false},"author":1,"featured_media":1669,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"https:\/\/www.nakedcapitalism.com\/wp-content\/uploads\/2026\/07\/00-demographic.png","fifu_image_alt":"","footnotes":""},"categories":[19],"tags":[889,3204,3113,796,3205,3203,3206],"class_list":["post-1668","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economy","tag-baby","tag-booms","tag-busts","tag-change","tag-demographic","tag-gdp","tag-macroeconomy"],"_links":{"self":[{"href":"https:\/\/valutednews.com\/index.php?rest_route=\/wp\/v2\/posts\/1668","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/valutednews.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/valutednews.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/valutednews.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/valutednews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1668"}],"version-history":[{"count":0,"href":"https:\/\/valutednews.com\/index.php?rest_route=\/wp\/v2\/posts\/1668\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/valutednews.com\/index.php?rest_route=\/wp\/v2\/media\/1669"}],"wp:attachment":[{"href":"https:\/\/valutednews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1668"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/valutednews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1668"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/valutednews.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1668"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}