The Demographic Deficit

There has been a slowdown in growth in the world’s most advanced economies. In this paper we argue that changing demographics, in particular aging populations combined with increased life expectancy, may be part of the explanation for why we observe slower growth, falling interest rates and falling productivity growth. Using Japan and the U.S. in the years prior to the financial crises as a case study, we provide estimates of the growth deficit that arises from an aging cohort structure and increasing life expectancy. We also provide projections of the impact of predictable demographic changes on future growth in the U.S. and Japan.