So far, the 2010s have been a disappointing decade for economic growth. Since the economic recovery began in 2009, the US economy has grown at an average, inflation-adjusted rate of just 2.1 percent per year. That’s much slower than other recent recoveries.

People have advanced any number of theories to explain the slowdown. Maybe the world is running out of new innovations. Maybe the government isn’t doing enough to stimulate demand. Maybe excessive regulation — or too much debt — is holding the economy back.

But there’s another important factor that often gets overlooked: America is getting older, and an aging population is bad for growth. The Administration on Aging estimates that the fraction of the United States population age 60 or older will increase from 18.4 percent in 2010 to 22.2 percent in 2020. This change — driven by increased longevity and the demographic bulge of the baby boom — represents the biggest percentage point increase in the over-60 population that America has ever seen.

An aging workforce "can hit the economy in a lot of different ways," argues economist Adam Ozimek. Most obviously, a lot of workers retire in their 60s, and having fewer workers will mean a loss of economic output.

But there’s also evidence that older workforces tend to be less productive — though the exact reason isn’t well understood. And as America gets older, we’ll also face bigger fiscal burdens as more Americans become eligible for programs like Social Security and Medicare, which could itself become a drag on growth.

This explanation suggests that the slowdown of the US economy doesn’t necessarily reflect some kind of big economic policy mistake. America’s economic machine isn’t broken. It’s just running a little slower than it used to because millions of workers aren’t as young as they used to be.

The older the population is, the slower the economy grows

How much does an aging population lower economic growth? In a recent study, a team of researchers at the RAND Corporation tried to answer this question by comparing growth rates across different states. Some states have older populations than the nation as a whole, while others are younger. By comparing these states’ relative growth rates (while controlling for factors like people moving between states), they were able to estimate how much having an older population held back economic growth.

They came up with a surprisingly large number. "Our results imply annual GDP growth will slow by 1.2 percentage points this decade due to population aging," the authors write. For comparison, the economy only grew at an average rate of about 1.8 percent over the past 50 years, once you adjust for population and inflation.

That rate has fallen to about 0.5 percent per year over the past decade (a period that includes the negative growth of the Great Recession) and 1.3 percent per year since 2010. So the RAND researchers’ estimate suggests that an aging population could be the primary reason economic growth has been slower than average during the 2010s.

Another surprising finding: This growth slowdown was not primarily because older people are less likely to be in the workforce. True, older people are more likely to be retired, and fewer people working is going to translate into less output. But this effect accounted for only about a third of the observed reduction in economic output.

The larger factor is that older workforces are less productive on a per-worker basis. Nicole Maestas, the study’s lead author and a professor of health care policy at Harvard Medical School, tells me the team's research method can’t show why older workforces are less productive. (I’ll explore this question more in the next section.) But the effect accounts for about two-thirds of the overall reduction in economic output attributable to an aging population.

Another recent study from the International Monetary Fund also found that older workforces are less productive. The IMF focused on nations in Europe rather than states in the US, and on the fraction of workers over 55 instead of the fraction of all people over age 60.

But it reached a similar, if less dramatic, conclusion. It found that an aging workforce was likely to reduce productivity growth in the eurozone by about 0.2 percentage points per year over the next 20 years — meaning that European economies will be about 4 percent less productive by 2035 than they would have been if their age profile had remained unchanged.

And the IMF study doesn’t include the effects of older workers retiring, so the overall effect of an aging population on European economies could be even larger.

The good news, at least for the United States, is that these headwinds won’t last forever. The last baby boomers will enter their 60s around 2025. After that, the graying of America’s workforce will slow down.





Older workers mean lower productivity, and we don’t know why

The RAND study showed that states with older populations were less productive per worker. But the data they examined doesn’t provide much insight into why this happens.

The most obvious theory is that workers become less effective at their jobs as they get older. "Maybe people process information more slowly," Maestas told me. "Maybe their bodies aren't as physically fit as they once were. There's all kinds of ways — both cognitively and physically — our basic capacities to do things change with age."

The productivity decline might reflect more subtle factors. For example, young workers are often more inclined to take big career risks like starting a new business or switching to a new career. So we should expect an older workforce to start new businesses at a slower rate — which is exactly what we see in the current US economy.

But Maestas says declining productivity could also cut in the opposite direction: Maybe the economy is losing some of its most valuable workers to early retirement. The most productive workers may also have the most savings, which could allow them to retire — or cut back their hours — in their 50s or early 60s. And with fewer younger workers coming up the ranks, it might be harder for companies to find and train suitable replacement for these retiring superstars.

A aging population could also affect the economy in their role as consumers. Older customers are more likely to prefer products from established companies, making it harder for new brands and products to gain traction. They also demand different kinds of products — health care, leisure activities, and so forth — that might be less susceptible to technological improvement.

And then there’s government policy. Once workers retire, the government provides them with pricey Medicare and Social Security benefits. An aging population will mean more people collecting these benefits and fewer workers to pay the taxes that fund them. This rising tax burden could itself become a drag on economic growth.

This story is part of The new new economy, a series on what the 21st century holds for how we live, travel, and work.