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Ageing, automation and economic growth: robots to the rescue?

Population ageing has conventionally been seen as a drag on productivity and growth. But new research indicating a link between faster ageing and uptake of automation technologies in US metropolitan areas tells a different story

A lot has been written about the economic and fiscal challenges associated with the ageing of populations. Many studies point to negative consequences of ageing such as labour shortages, lower productivity, and intergenerational conflict through higher spending on social security and healthcare programmes, which could lead to inadequate resources for government schemes that mainly benefit the younger population.

There is also concern that we will face greater fiscal deficits and unprecedented debt levels in the future. It has become commonplace for articles and reports featured in media outlets to use apocalyptic terms like ‘grey peril’, ‘demographic tsunami’, ‘generational storm’ or ‘fiscal hurricane’ to describe those negative consequences. Policy makers in high income countries with large and fast-growing older populations are worried that ageing will lead to lower productivity, economic stagnation, fiscal deficits and debt.

A different perspective

Recent work by MIT economist Daron Acemoglu and Boston University economist Pascual Restrepo brings a different perspective to the link between population ageing and economic growth. Acemoglu and Restrepo argue that places that have gone through faster ageing have also adopted technologies with greater automation.

They show empirical evidence on this from both the United States and other countries in a recent working paper from the National Bureau of Economic Research (NBER). They use data on robot installations by industry which come from the International Federation of Robotics (IFR). In a paper published by the American Economic Review, they also show that there is no significant negative relationship between population ageing and growth in GDP per capita. In fact, the relationship is positive in most of their empirical specifications. They argue that this could be explained particularly by the greater adoption of industrial robots in those countries that are going through faster ageing. It is quite possible that some of the aforementioned negative effects of ageing are strongly counteracted by technological progress related to automation.

A positive correlation

I recently started a new research project related to ageing and automation with one of my PhD students, Ege Can. In this new project, we are examining data on the use of industrial robots in 382 US metropolitan areas from 2010 to 2015. US metropolitan areas exhibit a fairly large variation in population age composition. For example, in 2010, Provo-Orem metropolitan area in Utah had a median age of 24.6 and an old-age dependency ratio of only 12.6 per cent, whereas the Villages metropolitan area in Florida had a median age of 62.7 and an old-age dependency ratio of about 156 per cent.

‘Ageing indicators correlate to growth in industrial robots…’

Our research results so far show that the population ageing indicators we use (share of population 65 and older, median age and old-age dependency ratio) are positively correlated with the growth in the number of industrial robots. In addition, we haven’t found any negative association between these indicators and the growth in real (inflation-adjusted) per capita income in metropolitan areas.

These findings are consistent with the previously mentioned results from the work by Acemoglu and Restrepo. I should note, however that this research is still in progress and our results need more robustness checks, including examining a longer data period to explore longer term growth outcomes.

A great deal of uncertainty

As a final word, I would like to note that there is still a lot of uncertainty not only about future demographic trends but also about the pace of automation in coming years. While it is likely that automation will continue to help areas with ageing populations, it may also create problems such as displacement of workers and rising income inequality.

It should not be surprising that there is now a lot more discussion on policy responses to negative consequences of fast-paced automation, including taxation of robots. It looks like a robot tax has already received praises from different individuals including Bill Gates, who stated that he is in favour of such a tax in an interview in 2017.

Dr Mehmet Tosun is the Barbara Smith Campbell Distinguished Professor at the University of Nevada, Reno. He is an affiliate research fellow at the Oxford Institute of Population Ageing, University of Oxford.