Can OECD Countries Afford Demographic Change?

This article provides new calculations on the effects of demographic change on living standards in all 30 OECD countries using the latest demographic projections up to 2050 from the United Nations, World Population Prospects, 2004 Revision. The calculations include several potential dividends that could offset, at least in part, the costs of a lower working age population share. The effects of demographic change calculated here are mechanical in that there is no explicit optimising behaviour. In the worst case scenario, which assumes zero potential dividends and no increase in labour force participation rates, the negative effect of demographic change on living standards among OECD countries over the whole period from 2006 to 2050 ranges from zero to 28 per cent, with an average over all countries of 15.5 per cent. In the best case scenario the average effect is zero. About half of the difference between the best and worst case scenarios is accounted for by higher labour force participation and about half by the potential dividends from demographic change.