Labor Productivity Growth And Aging Of The Population Response

Ageing of population is a serious challenge faced by China in future. The aging population will grow fast in the 1st half of this century according to the projection of UN. The proportion of aging population over 60 years old is going to 31.1%, which means there will be 1 elderly among 3 people. The aging trend will lead to an inevitable dent on the economy and society of China."Aging before getting rich" is a remarkable characteristic of current trend of aging population, which has passive impact on Economy of China that has been emerging already. How to keep the growth of economy by transferring the trend of "aging before getting rich" to aging while getting rich" is a hot-issue. This essay is based on this issue.The ageing of population is the consequence of demographic transition. By constructing an overlapping-generations model, this essay demonstrates the mechanism of demographic bonus generation during the transition and proves the inevitability of changing from bonus to debts. China is going to enter a new stage of population ageing following the escalation of total dependency ratio, which is called ageing without bonus (or ageing with demographic debt). In this stage, continued development of economy demands continued improvement of labor productivity. At the same time, the improvement of labor productivity is also crucial to the PAYG system which is the basement of aging society. This is demonstrated by a pension finance balance model under the system of cash basis.Analysis of the economy growth since the China Reform shows that the improvement of labor productivity is the major driving force for economy growth while there are still many limitation factors. 1) Perspective of structure analyzing: First of all, labor productivity is mainly promoted by secondary industry and the other 2 industries increase slowly; secondly, the effect of employment structure transfer is not obvious due to the low education level of rural labors and insufficient civilization. 2) Perspective of factors analysis: The productivity is mainly droved by material capitals. However, the Neo-Economy Growth theory and the experiences of developed country told us that the long-term growth of economy is supported by the TFP based on human capital.In an ageing society, promotion of labor productivity means that the huge wealth requirements by ageing society can be met by small labor population. Consequently, transforming the growth pattern to promote the labor productivity is the only way to produce sufficient material as the basement for the challenge of ageing society in the future of China.