The “graying of America” will substantially increase the fraction of the population that is retired in the decades to come. To illustrate the implications for U.S. living standards, suppose that over the 53 years following 2013 the share of the population that is working returns to its 1960 level, while average labor productivity increases at the same rate as it did during 1960–2013. Under this scenario, what would be the net change in real GDP per person between 2013 and 2066?

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In 1960, there were 35% fewer Americans (as against the entire populace) in the workforce than in 2013. During this same period, average labor productivity increased 125%. If in 2066 the same percentage of the population is working as in 1960, while average labor productivity increases at the same 125%, the net change in GDP per person will be a wash, nil. That is, as a matter of math, the one change cancels the other. However, the math functions in dollars that are not adjusted for inflation. In real dollars, GDP per person will decline sharply over the period of 2013-2066, with much of the GDP flowing to high-cost nursing homes and hospitals instead of, say, per-school education programs. This will be the quantitative shift, but the qualitative shift (due to the fact that the population was not gray in 1960 but that women were only 32% of the labor force) will be as or perhaps even more significant.

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Oct 1st, 2015

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