Friday, 10 April 2015

So it's all endogenous

There has been much comment around the traps about a study that claims that ageing populations  hinder economic growth.The study predicts the effect of demographic change on growth rates in the current decade and shows that an ageing population will knock over a percentage point off growth rates for some countries, including New Zealand - see the graphic below.

But now James Zuccollo at the TVHE blog points out that the effect may be endogenous. Zuccollo writes,
In a ray of light, this morning’s FT (£) reported a study of over 15,000 German employees that examined the relationship between ageing and productivity. One of the authors is quoted saying:
As workforces age, employers are concerned that productivity will decrease. That is not so. What matters is not chronological age but subjective age.
The research suggests that older people are systematically excluded from training activities, and are relegated to less creative and meaningful work, which renders them less productive. As the workforce ages, that may begin to change. As it changes, the relationship between growth and age structures is likely to weaken.
Getting cause and effect right is important. This highlights why when thinking about topics like productivity you need to think at the firm level. How firms react to changes in the demographics of their workforce will help determine the rate of productivity growth. Just looking at aggregate data can obscure such effects.

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