Age Dependency and Labor Productivity Divergence

This study finds strong empirical evidence in favor of the hypothesis that age composition of population matters for labor productivity growth. We applied the fixed effects panel model using data of large number of countries over the period 1980-2005. Our results suggest that higher age dependency impacts the labor productivity negatively not only directly but also modifies the impact of other determinants of labor productivity. Child dependency has more adverse effect on labor productivity as compared to old age dependency. We specifically find that marginal effect of gross capital formation, labor market reforms and information and communication technology investment on labor productivity is high and significant at lower level of age dependency. However, the marginal effect of financial development on labor productivity increases at high level of age dependency in developing economies. Diversity in size and nature of age dependency across regions and different income groups helps to explain labor productivity differential across them.