How Does the Age Structure Affect Local Economies in the US?

Abstract

This study examines the impacts of population aging on a wide range of economic indicators from a regional perspective. Many countries, including the United States, are experiencing demographic aging. This may have a dramatic impact on both the national and sub-national economies. However, there is little consensus about its impact on local sub-national economies. This study uses regional variation in age structure to explain economic outcomes at the metropolitan statistical areas (MSAs) level. In order to identify causal effects, Mahalanobis distances were calculated to identify the matched cities as instrumental variables. The study finds that regions with older age structures tend to have higher growth rates of GDP per capita and lower growth rates of unemployment, but such positive effects are likely to fade away in the long run. Additionally, there is no significant impact of age composition on income. The choice of variables is critical as it can lead to mixed results. The results are robust before, during and after the economic recession. Quantile regression is also used to explore potential heterogeneous effects among MSAs. The results show that MSAs, regardless of their size, are uniformly affected by the age structure.

The Effects of Aging Populations on U.S. Communities

“…Understanding the potential effects of these regional disparities in population aging on the regional economy is crucial. Businesses might curtail their investments in areas with a high percentage of retirees, potentially leading to slower productivity growth due to a shortage of eligible workers (Maestas et al 2023;Zhang 2021). Additionally, intergenerational conflicts over investment decisions could arise (Ahlfeldt et al 2019).…”

“…To our knowledge, no studies have specifically examined the impact of regional population aging on the economy within a spatial equilibrium context. Some research focusing on state-level analysis (Maestas et al 2023;Zhang 2021) has found a pronounced negative effect of population aging on local economic growth, GDP per capita, and employment growth. For instance, Maestas et al (2023) found that a 10 percent increase in the population aged 60 or older leads to a decline of over 5 percent in the growth rate of GDP per capita, using a macroeconomic model.…”