Demography and the Economy
edited by John B. Shoven
University of Chicago Press, 2010
Cloth: 978-0-226-75472-7 | Electronic: 978-0-226-75475-8


Demographics is a vital field of study for understanding social and economic change and it has attracted attention in recent years as concerns have grown over the aging populations of developed nations. Demographic studies help make sense of key aspects of the economy, offering insight into trends in fertility, mortality, immigration, and labor force participation, as well as age, gender, and race specific trends in health and disability.

Demography and the Economy
explores the connections between demography and economics, paying special attention to what demographic trends can reveal about the sustainability of traditional social security programs and the larger implications for economic growth. The volume brings together some of the leading scholars working at the border between the two disciplines, and it provides an eclectic overview of both fields. Contributors also offer deeper analysis of a variety of issues such as the impact of greater wealth on choices about marriage and childbearing and the effects of aging populations on housing prices, Social Security, and Medicare.


John B. Shoven is the Charles R. Schwab Professor of Economics at Stanford University, the Wallace R. Hawley Director of the Stanford Institute for Economic Policy Research, and a research associate of the NBER.



- John B. Shoven
DOI: 10.7208/chicago/9780226754758.003.0001
[economic demography, economy, gender composition, racial composition, exponential population growth, agricultural output, health and disability, mortality, fertility, immigration, marriage, divorce]
Demography includes not only fertility, mortality, and immigration, but also the racial and gender composition of the population, living arrangements, marriage, divorce, the timing of the entry and exit from the workforce and age-, gender-, and race-specific health and disability. Economic demography is a vast topic and just a tip of the iceberg is provided by discussing the important connections between the two fields. This book offers deeper analysis of a variety of issues such as the impact of greater wealth on choices about marriage and childbearing and the effects of aging populations on housing prices, Social Security, and Medicare. (pages 1 - 10)
This chapter is available at:
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- Samuel H. Preston, Caroline Sten Hartnett
DOI: 10.7208/chicago/9780226754758.003.0002
[American fertility, demography, evolutionary biology, birth control technology, zero-population growth level, Hispanic population, marriage, religion, education, female labor, fertility variation]
This chapter reviews major factors that are affecting levels of American fertility and its future. The subject covers a vast disciplinary range including demography, economics, sociology, public health, reproductive biology, evolutionary biology, political science, and psychology. There is no single, widely accepted framework for analyzing the determinants of fertility at the level of a population. Roughly, American fertility, the average number of children that a woman has over her childbearing lifetime, has hovered at or slightly below the zero-population growth level. This chapter also reviews the history of American fertility, the connection between fertility and marriage, religion, education, female labor force participation, ethnicity, the relative earnings of women and men, birth control technology, and even the composition of the Supreme Court. (pages 11 - 36)
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- Larry E. Jones, Alice Schoonbroodt
DOI: 10.7208/chicago/9780226754758.003.0003
[fertility theories, negative fertility-income relationship, economic models, high income people, higher opportunity cost, quality child care services, richer populations, cross-sectional relationship]
This chapter explains the observed negative relationship between income and fertility within a standard utility maximizing economic model. The observation that richer populations have lower fertility has been repeatedly made, whether the evidence is across countries or within countries. Richer people buy more houses, cars, clothes, and gadgets—why then do they not have more children? Are children literally an “inferior good?” This chapter examines the leading economic models that attempt to explain the negative relationship between income and fertility and finds that the models are fragile and less than convincing. The chapter looks at models that trade off the quality of children (the amount of time that is invested in children by parents) and the quantity of children, to see whether these models can be made consistent with the observed cross-section results. (pages 43 - 106)
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- Adam Isen, Betsey Stevenson
DOI: 10.7208/chicago/9780226754758.003.0004
[women's education, family behavior, marriage trends, divorce trends, fertility trends, college-educated women, educational distribution by race, remarriage patterns, marriage gap]
This chapter examines the trends in marriage, divorce, and fertility among American women. It shows that over the past sixty years, marriage rates have fallen, divorce rates have increased, and fertility has fallen, and argues that the fundamental nature of marriage has changed. This chapter shows that this gradual switch in the predominant economic gain from marriage from production to consumption is consistent with the observed marriage trends. For instance, in recent years, the marriage rate for college-educated women has been roughly as high as for those who did not go to college. In addition to marriage and divorce, the chapter looks at changes in the pattern of remarriage and changes in the timing of childbirth. (pages 107 - 140)
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- John B. Shoven, Gopi Shah Goda
DOI: 10.7208/chicago/9780226754758.003.0005
[government policies, eligibility ages, public programs, Social Security, Medicare, Individual Retirement Accounts, life expectancy, mortality risk, age inflation, age adjustments, demographic groups, mortality improvement, age indexation]
This chapter suggests that the concept of years since birth is a flawed way of measuring age and suggest four different ways of moving from nominal age (years since birth) to real age. It draws a parallel to the way that economic statistics and economic policies are often indexed for inflation and states in terms of real dollars. The four alternative ways that this chapter proposes to adjust nominal ages to arrive at real ages are based on remaining life expectancy, mortality risk, percent of life expectancy at birth completed, and percent of life expectancy at age twenty completed. This chapter looks at several key ages in important legislation and show how those ages would have changed if they had been stated in terms of real ages rather than nominal figures. The chapter also looks at how age indexation would differentially affect African Americans and Caucasians. The general result is that mortality improvement has been quite comparable for whites and blacks and therefore the appropriate age adjustments are about the same. (pages 143 - 162)
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- Axel Börsch-Supan, Alexander Ludwig
DOI: 10.7208/chicago/9780226754758.003.0006
[old Europe ages, reforms, indirect behavioral effects, direct quantity, economic growth, living standards, labor markets, population aging, per capita consumption, secular growth path, European continent]
This chapter looks at the macroeconomic implications of population aging in Europe. Europe was considered for this study because fertility rates are lower in Europe than in America, mortality rates are slightly lower, and therefore the European age structure is similar to the future American demographic composition. This chapter examines a number of possible reforms and the likely behavioral responses to them. Examples of behavioral responses are that married men may work less if child care is provided to encourage the labor force participation of mothers. Another example is that the demand for part-time work may increase as mandatory retirement ages are raised. The chapter looks at the impact of labor and pension reforms using a multicountry overlapping generations' general equilibrium model. The chapter concludes that the reforms, if correctly designed and coordinated, can have a very significant impact on future living standards in these three European countries. (pages 169 - 204)
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- Shripad Tuljapurkar
DOI: 10.7208/chicago/9780226754758.003.0007
[final inequality, age at adult death, mortality change, risk factors, economic analyses, pattern of adult death, socioeconomic inequalities, education, income]
This chapter examines what the author calls “the final inequality”—the variance in the age at death. While it is well known that life expectancy at birth and life expectancy conditional on age ten or age twenty has increased in almost every country of the world, what is less well known is what has happened to the inequality of the age of death. This chapter studies what happened in Sweden between 1950 and 2000. Over this fifty-year period, life expectancy at birth grew by 12 percent and remaining life expectancy, conditional on reaching age sixty-five, grew by 33 percent. This chapter then examines death inequality in a variety of large developed countries (Canada, Denmark, France, United Kingdom, Japan, Sweden, and the United States) and finds that, once again, the United States stands out as exceptional. The United States has the highest level of inequality of the age of death of all of these countries. The chapter also includes a brief analysis of life expectancy and inequality for Americans with different levels of education and income. (pages 209 - 221)
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- James M. Poterba, Steven F. Venti, David A. Wise
DOI: 10.7208/chicago/9780226754758.003.0008
[demographic trends, housing/home equity, financial security, future retirees, social security wealth, pension accumulations, cohort analyses, rainy day fund]
This chapter explores one of the largest asset categories for present and future retirees, namely the equity in their homes. For most people, the big three asset categories in retirement are social security wealth, pension accumulations, and home equity. This chapter does similar cohort analyses for home equity. It is found that the likelihood of home ownership by age changed very little over the past twenty-five years for married couples, single women, and single men. It is well known that most retirees stay in their home and retain their home equity until late in retirement, when shocks such as the death of a spouse or entry into a nursing home may cause the home to be sold. In a way, the house serves as a “rainy day fund” for potential life changes or expensive developments later in life. This raises the natural question about whether home equity is a safe store of wealth for the rainy day fund. (pages 227 - 292)
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- Sylvester J. Schieber
DOI: 10.7208/chicago/9780226754758.003.0009
[aging populations, pension operations, potential economic disappointment, demographic evolution, advanced countries, per capita gross domestic product, GDP, pension policies, pay-as-you-go funding, national Social Security systems, national saving rates]
This chapter examines the demographic evolution of some advanced countries and predicts a visible slowdown in the growth of per capita gross domestic product (GDP). Pension policies can be considered as alternative methods for allocating the disappointing output due to the aging of the populations. Switching from pay-as-you-go funding for national Social Security systems to funded systems may not do much in terms of alleviating the disappointing levels of output growth. Finally, the chapter reviews the literature on the issue of whether demographics alone can lead to a dramatic decline in national saving rates and possibly a decline in asset values. (pages 293 - 332)
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- Orazio Attanasio, Sagiri Kitao, Giovanni L. Violante
DOI: 10.7208/chicago/9780226754758.003.0010
[financing Medicare, equilibrium analysis, fiscal pressure, overlapping-generations model, U.S. economy, demographic structure, health costs, face risk, health insurance, labor tax rate, health status, household productivity, mortality rates, health expenditure]
This chapter deals with the long-term financing of Medicare in the United States. The chapter provides a model that features employer-provided health insurance, Medicare for the elderly, and Social Security. It is calibrated to match key statistics for the U.S. economy. It has both taxes on capital income and labor income. The model has a changing demographic structure and exogenous increases in health costs. Individuals face risk in terms of their own health status and health determines household productivity, mortality rates, and health expenditure. The chapter looks at three possible policy reforms and their impact on 2080 tax rates: increases in Medicare premiums, changes in Medicare coverage, and changes in retirement age. Each of them has the potential to lower future labor tax rates, but the demographics and increases in health costs still result in a future of higher taxes. (pages 333 - 366)
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- Francesco C. Billari, Guido Tabellini
DOI: 10.7208/chicago/9780226754758.003.0011
[adulthood, lifetime economic opportunities, economic demography, fertility rate, parental home, labor force, Italian men, lifetime earnings]
This chapter explores the question of whether a late transition into adulthood reduces the lifetime economic opportunities of individuals. Italians provide a case study in economic demography. Their fertility rate is among the lowest in the world. Italian men study longer or at least complete college later, they enter the labor force later, and they leave the parental home later than men in any other developed country in the world. It is not unusual for Italian men to live with their parents late into their twenties and sometimes into their thirties. The chapter summarizes the situation by characterizing Italian men as entering adulthood later than men in other countries. They start all adult activities at a much later age than is common in other countries at comparable levels for development, from working, to living alone, to marrying, to having children. This chapter looks at whether this lateness reduces the lifetime economic opportunities of individuals or not. The chapter examines survey data for Italians in their mid-thirties. The key finding is that the age of leaving the parental home is quite important in terms of earnings several years later. (pages 371 - 418)
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Author Index

Subject Index