# 1. Productive longevity in an aging world<sup>1</sup>

_Old age is like everything else. To make a success of it, you've got to start young._ _Theodore Roosevelt_

**The world’s population is aging at a dramatic speed, raising concerns about how to maintain income and productivity growth, improve the welfare of older people, and help them contribute to society** . By 2050, one in six members of the world’s population will be at least 65 years of age, compared to fewer than one in 10 today. Nearly four out of five of these seniors will be living in what are currently low- and middle-income countries (L/MICs).<sup>2</sup> Aging will imply shrinking working populations relative to dependents, which will reduce economic growth if other factors—particularly productivity and employment rates—do not change. Aging is also likely to require higher public and private expenditures for health and long-term care (LTC) services. These demographic tides prompt a need for policies that can sustain welfare levels and ensure that welfare is equitably distributed across generations and socioeconomic groups. Labor market policies that help extend productive working lives and increase the labor force participation and productivity of older workers – “productive longevity” – are part of this important agenda. This paper identifies a set of labor market-related policies that can address key constraints to productive longevity in L/MICs and provides some preliminary evidence on their effectiveness.

**Policies supporting aging populations in remaining healthy, skilled, and economically active have**

**positive impacts across generations.** Seniors who are in good physical and mental health and remain in the labor force help maintain the size of the workforce and prevent labor dependency ratios – the ratio of the population not working to that of the population working – from increasing. Harnessing the productivity of these mature workers boosts the pool of human capital, that is, the health and skills that ensure productive work. The gains can be substantial: estimates suggest that Greece could increase GDP by a staggering 23 percent by increasing employment levels of the 55+ age group to those of New Zealand.<sup>3</sup> And productive longevity does not appear to crowd out younger workers from labor markets, what economists refer to as the “lump of labor fallacy.” Looking at Organisation for Economic Cooperation and Development (OECD) countries, higher employment rates for seniors in fact coincide with higher employment rates for youth,<sup>4</sup> and there is some evidence from the United States and Japan that higher senior employment is correlated with higher wages for younger workers.<sup>5</sup> At the firm level, mixed-age teams have been shown to have higher productivity than agehomogeneous teams, supporting the notion that older and younger workers are, on average, complements rather than substitutes.<sup>6</sup> Conversely, if seniors leaving employment deplete the market

> 1 The authors are grateful to Victoria Strokova and George A.O. Alleyne for comments and suggestions on a draft version of the paper and to Gustavo Demarco, Elena Glinskaya, and Victoria Levin for very helpful comments and suggestions on an early version. An earlier version of this paper was prepared as a background paper for the Healthy Longevity Initiative.

> 2 United Nations 2019.

> 3 PWC 2018.

> 4 Böheim and Nice 2019, Gruber et al. 2009, and Munnell and Wu 2013.

> 5 Kalwij et al. 2010.

> 6 Göbel and Zwick 2013.

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