How Does the Age Structure Affect Local Economies in the US?

Abstract

This study examines the impacts of population aging on a wide range of economic indicators from a regional perspective. Many countries, including the United States, are experiencing demographic aging. This may have a dramatic impact on both the national and sub-national economies. However, there is little consensus about its impact on local sub-national economies. This study uses regional variation in age structure to explain economic outcomes at the metropolitan statistical areas (MSAs) level. In order to identify causal effects, Mahalanobis distances were calculated to identify the matched cities as instrumental variables. The study finds that regions with older age structures tend to have higher growth rates of GDP per capita and lower growth rates of unemployment, but such positive effects are likely to fade away in the long run. Additionally, there is no significant impact of age composition on income. The choice of variables is critical as it can lead to mixed results. The results are robust before, during and after the economic recession. Quantile regression is also used to explore potential heterogeneous effects among MSAs. The results show that MSAs, regardless of their size, are uniformly affected by the age structure.