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Demographic Dividends: Past, Present, and the Future: 

Demographic Dividends: Past, Present, and the Future Andrew Mason University of Hawaii and East-West Center Support: NIA R01-AG025488-01

Key Ideas: 

Key Ideas Changes in age structure interact with the economic life cycle to influence per capita income growth Two demographic dividends Share of the productive population Demand for wealth

Questions: 

Questions How large is the dividend? How pervasive? How are the magnitude and duration of the dividend influenced by demography? Was the dividend important historically? What will be its role in the future? What is the role of policy?

Recent Research: 

Recent Research Bloom and Canning (various); Bloom and Williamson (various) Kelley and Schmidt (various) Lee, Mason, and Miller (various); Mason (various); Mason and Lee (forthcoming) Recent research builds on many important studies conducted during the last 40 years.

Useful Identities: 

Useful Identities

Modeling the First Dividend: 

Modeling the First Dividend Growth of the support ratio measures growth in the productive share of the population: the first dividend Given labor productivity (Y/L), an increase in the growth rate of the support ratio produces an equal increase in the growth rate of output per effective consumer.

Data for constructing the support ratio and the first dividend: 

Data for constructing the support ratio and the first dividend Population data Various sources for historical series UN Population Prospects (2005) UN long-term projections (2004) Economic lifecycle US production and consumption age-profiles (Mason et al. forthcoming).

Slide8: 

Consumption Labor Income

Slide9: 

US 1850 India 2040 Japan 2070

1st Dividend Summary: 

1st Dividend Summary Varied historical importance Important in US 1850-1950 Negligible in India and Japan pre-1950 Baby boom and double dip Varied intensity Japan’s dividend is short and intense Negative dividends in the future Japan (very strong) and the US

The Second Dividend: 

The Second Dividend Definition: The growth in productivity induced by an increase in the demand for lifecycle wealth. Compositional effect: population is concentrated at older, high wealth ages Behavioral effect: increase in duration of life and retirement lead to greater accumulation of wealth

Calculation of Second Dividend: 

Calculation of Second Dividend Demand for capital is proportional to lifecycle wealth of those 50+ Lifecycle wealth of those 50+ W(50+) = PV[C(50+)] – PV[Yl(50+)] Cross-sectional age profiles of consumption and production shift proportionately over time Productivity growth is constant

Implementation: 

Implementation Data Same as for first dividend Other assumptions Interest rate: 3% Productivity growth: 1.5% Elasticity of output wrt capital: 0.33

Cohort aged 50-54 in 2000, Japan: 

Cohort aged 50-54 in 2000, Japan Population Labor Income Consumption

Calculation of wealth for cohort aged 50-54 in 2000, Japan: 

Calculation of wealth for cohort aged 50-54 in 2000, Japan

2nd Dividend, Summary: 

2nd Dividend, Summary Demography is leading to an increase in the demand for lifecycle wealth Effects are large Effects are persistent although becoming small in Japan

Observations: 

Observations Importance of policy Relationship between capital and lifecycle wealth Output per effective consumer is not welfare Dividends are realized, in part, by shift to smaller families. Capital accumulation requires reduced consumption, i.e., no free lunch.

Unanswered Questions: 

Unanswered Questions How do age profiles of consumption and production vary across countries and over time? How importance is capital relative to lifecycle wealth? Is it becoming more important or less? What is the role of public policy? The role of family support systems?

THE END: 

THE END

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