One of the biggest economic issues that we’ll have to deal with in the near future is an aging population. This will result in a shrinking working age population that will have to finance the pensions of a growing retired population. Given the magnitude of this issue, it is quite pressing to know how aging will affect the economy.
It is no surprise that – everything else equal – aging will have detrimental effects on the economy. But everything else is usually not equal: people adjust to new situations and this must be accounted for. What adjustment mechanisms will people take? Furthermore, are pension reforms that are in progress in many developed countries (e.g. raising the retirement age) effective? Can these adjustment mechanisms and reforms help us avoid a crisis?