20 August 2018
This new international report explores the relationship betewen life expectancy and producitivity in developed countries.
This report is part of a series of short ILC publications exploring the relation between demographic forces and macroeconomic outcomes. In this paper, the author explores the effects of life expectancy on productivity across developed countries since the 1970s. For this, we utilise the demographic and macroeconomic data collected by the OECD for 35 countries.
Productivity is measured in terms of GDP per hour worked, per worker and per person (per capita).
1 minute summary
- Based on our analysis of OECD data we find life expectancy is positively associated with productivity. As life expectancy rises, this leads to increased output per hour worked, per worker and per capita
- Using an instrumental variables approach, we find the relationship to be robust to different productivity measures, the inclusion of a range of explanatory and control variables and different instruments
- In our analysis, life expectancy is a more powerful determinant of productivity than either the young or old age dependency ratios
- When investigating the channels through which life expectancy boosts productivity, we find education to be more important than employment. In this context, rising life expectancy raises the returns to education
- Overall, our analysis suggests that there may well be a longevity dividend, whereby improvements to health result in wider economic and productivity gains in developed countries
- Improving health and raising life expectancy must therefore remain a key goal not only for a nation’s health and wellbeing but also for the wider economy
- Public policy and economic forecasters should consider how best to take into account the potential fiscal benefit of better health and not neglect it in discussions of our long run sustainability
Ben Franklin, Assistant Director, Research and Policy said:
‘Our analysis is important, since in many debates about long run government spending, health spending is simply seen as a drain on fiscal resources, yet if by raising life expectancy it results in productivity improvements, this could support increased tax revenue for the exchequer.
Public policy and economic forecasters should consider how best to take into account the potential fiscal benefit of better health and not neglect it in discussions of our long run sustainability.’
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