Working paper

The impact of demographic change on labour supply and economic growth: can APEC meet the challenges ahead?

17 Feb 2017

This report analyses the components of economic growth in 21 APEC economies in the past 25 years and the next 35. Written to contribute to discussions at APEC Senior Officials’ meetings in the run up to APEC ministerial and leaders meetings, it highlights the critical role played by population ageing and discusses relevant policy interventions. 

The analysis adopts a supply-side, GDP accounting framework to decompose the contribution of population, participation, and productivity to economic growth. This is similar approach used in the Intergenerational Report for Australia, but economic outcomes are modelled for the whole set of 21 APEC member economies. 

Wheras in the population size and age structure contributed positively to past growth it is expected to contribute less, or indeed act as a headwind to growth in future. Historically high rates of productivity growth are expected to decline as emerging economies converge toward rates seen in advanced economies.

Between 2015 and 2050, declines in the size of labour forces are expected in China, Hong Kong, Japan, Korea, Russia, Thailand, and Chinese Taipei. A deceleration in the growth of labour forces is expected in other economies. And only Mexico, Peru, Philippines, and Papua New Guinea are projected to see labour forces grow at above 1% per annum over the next 35 years.

This will have profound effects on economic growth, with average real GDP growth declining from an unweighted 4.1% per annum between 1990 and 2015, to a projected 2.2% between 2015 and 2050. China, for instance, is expected to grow at a modest 3.4% per annum over the next 35 years, compared to about 10% over the last 25. Those projected to grow fastest, with rates of 4% or above, include Indonesia, Philippines, and Papua New Guinea. Average growth in the standards of living in APEC, as measured by GDP per capita, is also expected to slow.

Various policy levers can affect the population, participation and productivity. Several scenario analyses in the paper show that attracting permanent migrants and increasing international flows of labour, or increasing participation rates of older workers and women can benefit economic activity, raising standards of living and offsetting some of the economic headwinds of population ageing. Such policies are complementary responses; all should be on the table if APEC is to meet the demographic challenges ahead.

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