Over the past few years, I have had the opportunity to immerse myself in a field that was once unfamiliar to me: productivity. Initially, it seemed almost too “economically driven” for someone without a formal background in economics. Yet the deeper I ventured into the literature, the more I discovered how expansive and intellectually stimulating the topic truly is. Productivity is not merely a technical ratio or a statistical outcome; it is a lens through which we can observe how societies organise work, allocate resources, and ultimately shape their future.
As my understanding developed, I became increasingly familiar with the economic tools used to measure productivity. Along the way, I encountered a reflection that has stayed with me. In The Age of Diminished Expectations, the economist Paul Krugman famously wrote: “Productivity isn't everything, but in the long run it is almost everything” (Krugman, 1994). This sentence captures, with elegant simplicity, why productivity matters: over time, it is the foundation of living standards.
More recently, my research has brought productivity into dialogue with another theme that is particularly close to my interests: ageing. What happens to productivity as societies grow older? How can we meaningfully investigate this relationship without reducing it to simple demographic arithmetic? This blog offers a set of reflections on these questions. Rather than attempting to provide an exhaustive account of all mechanisms at play, I focus on the aspects I find most compelling and policy-relevant.
A useful starting point is what might be called the arithmetic of demography. Across advanced economies, fertility rates have fallen persistently below replacement level, while life expectancy has increased markedly (United Nations, 2022). The result is a steady rise in the proportion of individuals above traditional working age relative to those in employment. In technical terms, the old-age dependency ratio increases, while the share of prime-age workers declines (OECD, 2023a).
Recent parliamentary analysis in the United Kingdom has similarly highlighted the structural and long-term nature of this demographic shift (House of Lords, 2024).
This demographic shift has a direct and unavoidable connection with productivity. Since productivity is commonly measured as output per worker or per hour worked, slower labour force growth implies that improvements in living standards must rely increasingly on doing things better, not simply on having more people doing them. In ageing societies, productivity growth becomes not just desirable, but essential — the primary engine of sustainable prosperity.
Several mechanisms link ageing and productivity. I will highlight two that illuminate both the potential challenges and the opportunities embedded in demographic change.
First, the composition of the workforce evolves. An older workforce brings valuable experience, tacit knowledge, and often greater employment stability. At the same time, ageing may be associated, on average, with lower mobility across firms and regions, and potentially with a slower diffusion of new technologies. Younger workers tend to change jobs more frequently, facilitating the reallocation of labour towards more productive firms and contributing to the circulation of ideas. If demographic ageing dampens this dynamism, aggregate productivity growth may weaken.
Second, demographic structure can influence patterns of innovation. Some empirical evidence suggests that radical innovation is often driven by younger and mid-career cohorts. As the population ages, the relative weight of these groups declines. This does not imply that older workers are less creative. Rather, it suggests that demographic composition may affect risk-taking, entrepreneurial entry, and technological experimentation at the aggregate level (Aksoy et al., 2019).
Importantly, however, demography is not destiny — a point repeatedly emphasised by the Organisation for Economic Co-operation and Development (OECD, 2019). Policy choices and institutional design play a decisive role in shaping outcomes.
Labour market participation is one crucial dimension. Extending working lives through flexible retirement pathways, lifelong learning opportunities, and age-friendly workplace practices can mitigate many of the economic pressures associated with ageing (OECD, 2023b). In several countries, statutory pension ages have increased, yet effective retirement ages often remain below what improvements in health and longevity would allow (OECD, 2019). If individuals live longer and healthier lives, there is clear scope for longer — and more productive — careers.
This, however, requires sustained investment in human capital throughout the life course. Training opportunities remain disproportionately concentrated at the beginning of working life. An ageing workforce calls for continuous upskilling, particularly in digital competences (Acemoglu & Restrepo, 2017). Without such investment, technological progress risks deepening inequalities between firms and workers, ultimately weakening both productivity growth and social cohesion.
Migration also forms part of this broader discussion. Younger migrants can alleviate labour shortages, contribute to fiscal sustainability, and support innovation ecosystems (OECD, 2022). Yet migration is not a universal remedy. Its effectiveness depends on successful integration policies, appropriate skill matching, and the maintenance of public trust.
The empirical literature on ageing and productivity remains nuanced, and findings are often mixed (Maestas, Mullen & Powell, 2016). Nonetheless, one conclusion stands out: if productivity growth remains subdued while populations age, living standards are likely to stagnate and fiscal pressures will intensify. Pension systems and healthcare services may come under increasing strain, and intergenerational tensions could sharpen as a smaller working-age population supports a larger retired cohort.
Yet an alternative trajectory is equally plausible. Ageing can coexist with prosperity if institutions adapt. Healthier older workers, inclusive labour markets, robust human capital systems, and vibrant innovation ecosystems can offset demographic headwinds. In some respects, ageing societies may even benefit from accumulated wealth, institutional stability, and deep reservoirs of experience — provided they remain open to change.
Ageing is not a temporary shock but a structural transformation. Productivity, in turn, is the fulcrum upon which future prosperity will rest. The question is not whether our societies will age — they already are — but whether we will demonstrate the foresight and determination required to respond effectively.
Demographic trends unfold slowly and often quietly. The policy choices we make in response, however, will decisively shape the quality of life for generations to come.
References
Acemoglu, D., & Restrepo, P. (2017). Secular stagnation? The effect of aging on economic growth in the age of automation. American Economic Review, 107(5), 174–179.
Aksoy, Y., Basso, H., Smith, R., & Grasl, T. (2019). Demographic structure and macroeconomic trends. American Economic Journal: Macroeconomics, 11(1), 193–222.
House of Lords (2024). Preparing for an Ageing Society 2024–26. London: House of Lords, UK Parliament.
Krugman, P. (1994). The Age of Diminished Expectations: U.S. Economic Policy in the 1990s. MIT Press.
Maestas, N., Mullen, K. J., & Powell, D. (2016). The effect of population aging on economic growth, the labor force, and productivity. American Economic Review, 106(5), 87–92.
OECD (2019). Working Better with Age. Paris: OECD Publishing.
OECD (2022). International Migration Outlook 2022. Paris: OECD Publishing.
OECD (2023a). OECD Economic Outlook. Paris: OECD Publishing.
OECD (2023b). Pensions at a Glance 2023. Paris: OECD Publishing.
United Nations (2022). World Population Prospects 2022. New York: United Nations.
About the Author:
Dr Sara Zella is a part-time Senior Research Fellow at the Oxford Institute of Population Ageing. She works with Professor Sarah Harper on research examining the relationship between life events and health and wellbeing in later life, using a comparative and longitudinal life course approach.
Opinions of the blogger is their own and not endorsed by the Institute
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