The Strategist

OECD: Robots can't save aging population

07/19/2019 - 11:01

The increase in labor productivity due to automation cannot compensate for the negative effects of population aging and preserve the previous level of per capita income - at least at its current rate, the Organization for Economic Cooperation and Development (OECD) report says.

The OECD recalls that developed countries are undergoing a process of rapidly aging population. The share of citizens older than 65 years from 2001 to 2014 increased from 19% to 23% in 1,669 regions of TL3 level – these are administrative and territorial units of the third level; there were 2,251of them in the OECD in 2018. This process has a negative effect on per capita GDP growth due to a reduction in the size of the labor force. Theoretically, this can be compensated by productivity growth, but it has been lagging below the necessary level in most regions in recent years. On average, aging reduced GDP growth per capita by 1.5 percentage points (pp) in TL2 regions (states, provinces) in 19 OECD countries in 2006–2014. In almost half of the regions, productivity growth was insufficient to compensate for losses.

At the same time, aging itself has a negative effect on productivity growth. In the TL3 regions, where the speed of this process in 2001–2014 was ahead of the national level by 10 pp, productivity growth was 1.5 points lower. Paradoxically, productivity suffered more from aging in urban than rural regions, although the population there is on average younger: the main losses were not in the manufacturing sector (easier to automate), but in the service sector disproportionately concentrated in urban areas and requiring non-routine tasks.

Two strategies have been proposed to overcome the effects of aging: to stimulate involvement of the population in the labor force, or to focus on productivity growth. In the first case, we are talking about more active involvement of women (by expanding the infrastructure of kindergartens, rather than tax preferences, so as not to reduce fertility) or raising the retirement age (but this can adversely affect productivity if it is not accompanied by lifelong learning). Attempting to raise productivity through automation will require substantial capital expenditures and investment in the training of older digital skills.


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