How Aging Populations Influence Economic Growth

There’s no escaping the trend: the United States is aging.

America’s median age hit a new high of 39.4 in 2025, according to population estimates from the U.S. Census Bureau, up from 35.6 in 2001. Nearly one in three Americans is over 55, compared with about one in four in 2010.

At first glance it might seem that longer lifespans are driving this shift; however, data show that this is the smaller of two main forces. Life expectancy rose from 78.1 in 2007 to 79.0 in 2024, a gain of just over 1 percent, while the general fertility rate—the number of births per 1,000 women aged 15–44—dropped by 22 percent over the same span. So even though people live a bit longer, American women have been giving birth at the lowest rate of any cohort since the late 1970s, and demographic patterns are responding accordingly.

An aging population brings with it unavoidable questions about future economic growth, especially as the labor force shrinks and firms seek ways to sustain output with fewer workers. In addition, the entire baby-boom generation is nearing the standard retirement age of 67, which will intensify pressure on entitlement programs like Social Security and Medicare.

That prognosis may look grim, but there are reasons for optimism as well. Even as conventional thinking links aging populations to slower growth, fresh research is revealing surprising ways economies adapt to demographic change.

Scholarly work has long suggested that an aging population can drag on a country’s per-capita GDP—the total output divided by the number of people. A recent study covering 1980–2010 found that for every 10 percentage-point rise in the share of people over 60, U.S. per-capita GDP fell by 5.5 percent, driven by slower employment growth and weaker productivity. The authors concluded that aging reduced the growth rate of the United States’ per-capita GDP by about 0.3 percentage points during that period.

A common way to frame this is via the “support ratio.” This metric compares a country’s working-age population (for example, those aged 20–64) to its total population. A higher support ratio signals more earners supporting fewer dependents, such as children and retirees; a lower ratio means the economy has a harder time sustaining non-working segments. As the United States trends toward a lower support ratio, the net effect is expected to be a drag on growth metrics.

“I think it’s clear, even without invoking AI, that slower population growth tends to translate into slower GDP growth almost in a one-to-one fashion,” Ronald Lee, professor emeritus of economics and demography at the University of California, Berkeley, told The Dispatch. Yet Lee noted that while GDP growth drives much of the aging-economy conversation, more precise measures of living standards—such as per-capita income—tell a different story, where the impact is not at all straightforward.

Economists, including Lee, have argued that slower growth in the labor force could boost the amount of capital available per worker, potentially lifting productivity and wages. Lee has also argued that a lower birth rate can increase the capital invested per child, partially offsetting the economic effects of fewer workers.

But above all, perhaps the most hopeful factor is that technological innovation could neutralize many of the downsides of an aging population.

A new working paper published by the National Bureau of Economic Research this month analyzes seven decades of demographic change across dozens of countries. The authors find that, contrary to common assumptions, lower birth rates have increased GDP per working-age adult enough to fully offset the negative implications of a shrinking population, leaving aggregate GDP broadly unchanged.

Keelan Beirne, an MIT Ph.D. candidate and one of the paper’s co-authors, told The Dispatch that the results surprised the team but that the evidence is robust across nations and across various regions of the United States. “Across the board, we found that these lower birth rates led to faster adoption and progress in technology,” Beirne said. In short, when countries confronted a thinner workforce, they leaned more into tech-driven solutions and enjoyed higher productivity as a result.

Fresh findings from Harvard Business School professor Joseph Fuller also point to technology as a crucial factor in offsetting aging. Fuller suggested that artificial intelligence could help older Americans stay in the workforce longer if firms invest in midcareer retraining and permit seasoned workers to take on roles emphasizing judgment. “We must stop assuming older workers can’t adapt to new technology and begin viewing them as reservoirs of knowledge and perspective essential to unlocking technology’s potential,” Fuller said in a Harvard Business School interview.

Yet, even with the upside tech offers, innovation cannot solve every economic issue created by aging—most notably the mounting pressure on Social Security from its growing pool of beneficiaries. “While this has been the pattern in the past, and perhaps the way the economy works, aging may unfold differently in the future for a variety of reasons,” Beirne said about the limits of technology’s mitigating role. “One reason is certainly the government’s fiscal position.”

The bright side for the United States is that, when compared with many Western peers, America’s elderly population relies far less on public transfers like Social Security, welfare, and pensions. In countries such as Belgium, France, and Finland, individuals over 65 derive more than 70 percent of their retirement income from public sources, whereas Americans in the same age bracket draw less than 40 percent from government funds. The United States has higher labor force participation among seniors and a sizable share of retirement income comes from private pension plans like 401(k)s. And although America’s birth rate is shrinking, it remains higher than the majority of European nations.

The bad news is that this might not be enough to avert Social Security’s looming financial crisis, which could shave about $16,900 off annual benefits per retiree, according to a recent report by the Committee for a Responsible Federal Budget. The Social Security trustees’ annual report projects insolvency in 2032 if current trajectories persist. “We have to do something,” Lee said. “That’s obvious. It’s been obvious for decades, but now the urgency is growing.”

The trustees’ report estimates the actuarial deficit for Social Security over the next 75 years at 4.42 percent of taxable payroll, or about 1.5 percent of GDP. Yet Lee argued that such revenue could be better used for children and proposed raising the retirement age for those with high lifetime earnings. He also suggested automatic stabilizers to ensure the benefit structure adapts reliably to demographic and economic shifts, pointing to Sweden and Germany as examples of automatic stabilization in pension systems.

“I think it’s crucial that we accept that people are living longer,” Lee said. “They’re healthier for longer, they retain cognitive strength longer, and they should be able—indeed, they should be encouraged—to work longer as well.”