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Assessing the Impact of Demographic Composition on Productivity

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  • Justin-Damien Guénette
  • Lin Shao

Abstract

We examine how demographic factors influence potential output, focusing on how the age distribution of the working-age population and the old-age dependency ratio affect aggregate productivity. Following Feyrer (2007), we emphasize that the contribution to aggregate productivity varies by age group, with middle-aged individuals (aged 40 to 49) being the most productive. Our analysis shows that changes in demographic composition could explain some of the productivity trends observed in China and the United States over the past few decades. This demonstrates why it is important to incorporate the impact of demographic composition when estimating potential output. In particular, demographic factors are expected to narrow the differential in trend labour productivity (TLP) growth between China and the United States by nearly 1 percentage point between 2024 and 2030. On average, TLP growth in China could be reduced by 0.8 percentage points, while that in the United States could rise by 0.1 percentage point. Moreover, demographic factors in Canada portray a similar story to that of the United States. After averaging about 1 percentage point per year from 2010 to 2019, demographic headwinds are expected to dissipate fully through the 2020s, which could signal an upside risk to Canadian TLP growth.

Suggested Citation

  • Justin-Damien Guénette & Lin Shao, 2025. "Assessing the Impact of Demographic Composition on Productivity," Discussion Papers 2025-03, Bank of Canada.
    • Handle: RePEc:bca:bocadp:25-03
    DOI: 10.34989/sdp-2025-3
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    More about this item

    Keywords

    Productivity; Potential output; International topics;
    All these keywords.

    JEL classification:

    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada

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