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Embracing the economic beauty of aging

Birth rates are falling, and people are living longer. At the 2023 SIEPR Economic Summit, demographics experts discussed what this means for the economy — and for society.

When it comes to aging, we often hear maxims like “60 is the new 40.” Andrew Scott, an economics professor at the London Business School, is having none of it.

“Fifty-seven,” he said, citing his own professed age, “is the new 57.”

The policymakers, business leaders, and academics attending the 2023 SIEPR Economic Summit laughed at the remark. But they got his more serious point: People are living longer — and that poses significant economic challenges — but the “doom and gloom” narrative around aging is all wrong.

“One of the challenges for economics,” said Scott, a featured speaker at the Summit session on changing demographics, “is that we don’t have a good theory of aging.”

Adrien Auclert, an assistant professor of economics at the Stanford School of Humanities and Sciences and SIEPR faculty fellow, pointed out that increasing longevity, coupled with falling birth rates, touches all aspects of the economy — from labor supply, productivity, and innovation to education, health care, and immigration.

“It changes the ages at which we learn, we work, we save, we have children, we start a business, we become ill,” Auclert said. “And that has major macroeconomic implications.”

Ayşegül Şahin, an economics professor at the University of Texas at Austin, and fellow panelist, put some numbers behind the labor market effects. “For every young worker, we now have two workers who are older than 55,” she said.

But it’s not just the labor force that is aging. Businesses are also generally older — and bigger — than they were in the 1980s. Today, 80 percent of U.S. workers are employed by firms that have been around for more than 10 years, up from around 66 percent in 1987. And only 2 percent of U.S. workers are employed by startups, which is half the rate of 40 years ago, suggesting that the pace of innovation may be falling, too.

Why is the startup rate declining? “You could think about regulation, lack of ideas, decline in immigration,” Şahin said. “But the main reason is the declining population growth rate.”

Şahin pointed to one silver lining. As firms age, they also become more stable, and this means their “job destruction rates” once they reach the age of 10 fall by half compared to younger businesses. Put another way, she said, a younger worker is nine times more likely to become unemployed compared to someone over the age of 55.

“An aging society is both a challenge and an opportunity,” Şahin said.

To Scott, the opportunity lies in what he called the “evergreen” economy. Citing the AARP, he said that total spending by U.S. consumers over 55 is large enough to equal the size of the world’s fifth largest economy. “This is a huge emerging market,” he said.

The key, he said, is to stop underestimating older people — and to develop policies, products, and services that help people to age better in health, work and life.

“If I need adult diapers, I’ll spend money on them,” Scott said. “But I would spend a lot of money to avoid needing them.”

Watch the full discussion.