Lesson 6 Continuation: Population, Labour Force & Old-Age Income Security

Fertility decline impact in Korea

South Korea's TFR declined from 5.6 (1960) to 1.2 (2000–2005).

Female LFPR change in Korea

Korean female LFPR (25–39) rose from 26.6% to 54.5%.

Pure Solow effect definition

Lower fertility → smaller population → GDP per capita rises mechanically.

Pure Solow effect magnitude

Pure Solow effect increases GDP per capita by +36%.

Age structure effect mechanism

Lower TFR reduces child dependency, increasing working-age share.

Age structure effect magnitude

Age structure improves GDP by +47% above the Solow effect.

Female LFPR response effect

Lower fertility frees time → more women join labour force → +21% GDP.

Total GDP gain from TFR decline (Korea)

TFR decline raises GDP per capita by +141% above baseline.

Growth contribution from TFR decline

TFR decline added +1.9% annual growth (1960–1990) and +1.2% (1990–2020).

Why real-world effects reduce the 141%

Lower mortality, ageing, and elderly LFPR decline reduce the simulated 141%.

TFR–LFPR relationship universality

No; some countries show a positive or zero TFR–LFPR correlation.

Human capital channel from lower TFR

Lower fertility → more resources per worker → higher labour quality.

Savings and retirement extension channel

Fewer children → more need for self-sufficiency → higher savings & later retirement.

Main takeaway of Bloom et al. (2007)

Large GDP gains come from population size decline, DD, and female LFPR.

Trend in elderly LFPR (Gruber & Wise)

LFPR for men 60–64 fell from >70% to <20% across OECD except Japan.

Early-retirement age effect

Early benefit eligibility signals 'old age' and encourages retirement.

SSW accrual concept

SSW measures retirement benefit value at different retirement ages.

When SSW discourages work

If SSW at age a+1 is lower than SSW at a, working longer is penalised.

Two mechanisms causing early exit

Early-retirement age + negative SSW accrual push workers out early.

Why early exit is harmful

Early exit reduces lifetime income, efficiency, tax base, and pension sustainability.

Canada study research question

Whether rising older worker share reduces productivity in Canada.

Older worker share effect

Each 1% increase in older worker share reduces productivity growth by 0.07%.

Capital intensity effect

Capital deepening strongly boosts productivity and offsets ageing.

Human capital effect

Skilled labour mitigates ageing’s negative productivity effects.

Unemployment effect on productivity

Productivity is procyclical; unemployment reduces it.

Key insight from Canada productivity study

Ageing lowers productivity, but capital and skills can offset fully.

Sources of income for elderly groups

Working elderly rely on wages, investment, rental; retired rely on pensions, family.

ILO evidence on elderly adequacy

80% of global elderly lack adequate resources; US baby boomers save 1/3 of needs.

Factors worsening retirement adequacy

Decline in informal support, medical inflation, longer lives, weak labour markets.

Effect of rising life expectancy on adequacy

Longer lifespans stretch retirement resources, worsening adequacy.