Tuesday, August 20, 2013

Predictable Variations in Economic Growth

Along the lines of the demographic issues I've been thinking about recently, I wonder how we can make the appropriate adjustments to our standard measures of economic activity.

In 1995, 12.5% of the population was above 65 years old.  In 2015, it will be up to 14.4%, and by 2035, it will be up to 20.7%.  Compared to the boom times of the 1990's, an additional 8% of the population will be of retirement age.  Whether we measure the effect of this change on the economy through consumption or production, there will be a tremendous drag on the standard measures of economic growth.

But, the point I would make is that this will be a purely statistical drag.  For those 60 million retirees, this will be a perfectly predictable part of their life plan.  They worked harder and saved when they were younger so that they could enjoy a long life of retirement.  The coming reductions in GDP growth will be a reflection of success, a product of an incredible time in history where we can expect to spend much of our lives being economically unproductive.

It seems like there should be some adjustment for that, similar to an adjustment we would make for inflation:  "Real GDP grew at a rate of 1.5% this quarter.  Nominal GDP grew at 2.5%.  And, lifecycle adjusted GDP grew at 3.5%."

I am afraid that we are looking at a 20 year period where there will be a constant clamoring for poor solutions to problems that only exist in the minds of lazy or opportunistic consumers of statistics.


  1. If you're segmenting GDP based on demographic age group, I'd guess your GDP figure for the under 30 crowd looks pretty bad right now fwiw.

  2. I'm not really sure how you would adjust it, because there will be so many effects. There will be a transition from being at the peak earnings level of employment with some savings, to little or no employment earnings and a draw down of savings. There will be a lot of complicated things going on in terms of production & consumption.

    I think you're right about under 30, or at least under 25. The BLS has a great beta site that is full of information. I'm just getting comfortable with trying to extract things from it, but here are the earnings levels for a few age groups. These are averages for full time workers, so unemployment isn't factored in. The sticky wage problem is evident here, as the wage levels give little sign of the recession (except for the 16-24 group). The drop in income comes through unemployment. The other interesting thing is, and I'm not quite sure what to make of it, that the 16-24 earnings level flattens out coincident with the minimum wage increases. As much as I dislike minimum wages, I would have expected the remaining workers to see some increase. Most MW workers are part time, so I'm not sure if there is some sort of complicated substitution effect going on or what.

    16-24: http://beta.bls.gov/dataViewer/view/timeseries/LEU0252886300
    25-34: http://beta.bls.gov/dataViewer/view/timeseries/LEU0252888500
    35-44: http://beta.bls.gov/dataViewer/view/timeseries/LEU0252889100

    1. PS. It looks like you'll have to adjust the time frames on the graphs to see the full history of the data back to 2000.