Summary
Population aging occurs when fertility declines and life expectancy increases leading to increased dependency because of an overall decrease in labour force. It, therefore, means that population aging is an economic crisis because it affects labour force participation in society.
When population ages, the number of dependants increases due to increased life expectancy, while productive population of young people declines. Hence, consumption capacity outweighs productive capacity of population in the society. Statistics has shown that, in the past century, labour force participation in the United States for men over the age of 65 has changed tremendously from 75% during late 1800s to 16% in late 1900s.
However, in the 20th century, labour force participation among older women increased, thus compensating for the decline in labour force participation of older men. Given that the retirement age is the determinant of labour force participation, increased retirement age would significantly reverse economic crisis due to population aging.
Although population aging has been an impending economic crisis in the United States due to the increasing dependants and decreasing productive capacity of workforce, trends in labour force participation have considerably lessened the economic effect of population aging. In the United States, several factors have led to increased retirement age among older people.
Firstly, technological and skill changes among workforce have significantly increased labour force participation since employees have high job satisfaction due to technology and earn a decent salary because of their skills, making them not to retire early. Secondly, couples who work together yet having different ages do not retire early because an older spouse has to wait for a younger spouse to reach retirement age so that they could retire together.
Thirdly, Social Security reforms, which led to increased retirement age, abolition of penalty at recommended retirement age, and elimination of tax on retirement earnings have made many employees opt to retiring at the age of 67. Lastly, increased life expectancy due to improved health status has made many employers retain their employees even at the ages of 70s because they are physically strong and able to work.
Budget Constraint for US Tax Structure Based on Income Brackets
