Key Takeaways
- An aging population and declining birth rates can lead to lower economic growth.
- Technological advances drive productivity and can help counteract demographic challenges.
- Economic prosperity relies on a skilled and educated workforce.
- Immigration can help offset declining birth rates and support workforce growth.
- Service industries face challenges from increased competition and technological advances.
Demographics—statistical data related to a population—play a key role in rates of economic growth. The makeup of any population can influence the supply of labor and productivity, known as the demographic dividend.
A potential challenge looms on the horizon for economic growth in the United States: the combination of the retirement of a large demographic group (baby boomers) from the workforce and the declining birth rate, both of which affect labor supply.
Technological innovation can offer a solution for economic challenges by playing a major role in driving broad and meaningful prosperity.
The education and skills of those in the workforce can have an impact on a nation’s economic prosperity by adapting to changing demographics and technology.
Read on to learn more about demographics.
How Demographics Drive the Economy
Economic growth depends on productivity gains and a stable or growing labor force.
Service industries have dominated the U.S. economy over the past several decades, but due to increased competition and technological advances, productivity gains are diminishing in the service sector. At the same time, baby boomers have been entering retirement, changing labor demographics.
Challenges of Declining Working-Age Populations
Globally, working-age populations are declining, at times dramatically, as witnessed in Japan. The increasing costs relating to an older population will be borne by fewer workers and put strains on government programs, such as Social Security and Medicare.
While life expectancies have been increasing for most demographic groups, birth rates have fallen by nearly 50% since the 1950s.
A key factor of economic prosperity in the developed world from the end of World War II through the 1980s was an ever-increasing working-age population. The U.S. and European working-age populations appear to have peaked, and are now expected to drop by nearly a full percent through the year 2040.
The Impact of Human Capital Quality on Economic Growth
However, since the Industrial Revolution and the emergence of new technologies, it’s clear that not just the number of working-age people is important. The quality of human capital—that is, the level of skills and education of workers—can also have an enormous impact on economic growth and prosperity. In fact, some countries with small populations and declining birth rates have very strong economies.
Important
Lower birth rate trends can have a major impact on the size of the labor force. However, immigration can contribute to population growth and the labor force, making up, to some degree, for the declining number of births.
Linking Population Dynamics to Economic Prosperity
The labor force participation rate is a metric that tells us what percentage of people in a country are employed or actively looking for work.
Those people who are unemployed but no longer actively searching for work are not included in this number. The current rate of 62.4% as of September 2025 points to a sizable portion of people without jobs who are not looking for jobs.
This suggests the potential for a future decline in global economic growth due to a smaller workforce population.
On the other hand, one reason why the global economy has continued to grow despite this lower rate (compared to those from the late 1970s through 2020) is the advance in technology that has boosted labor productivity.
Even with fewer people working, each worker has become more productive. And although year-on-year productivity growth has slowed since the 2008 financial crisis, the absolute output per worker is now at about its all-time high.
Important
Labor force participation, birth rates, the different ages of those in the workforce, and their skills and education can have an impact on a nation’s economic prosperity.
The Role of Technology in Sustaining Economic Growth
Many feel that to sustain economic growth, either the birth rate needs to increase by a large amount, or productivity needs to keep increasing. Given the planet’s many challenges, population growth may be problematic. On the other hand, productivity has all kinds of potential.
For instance, to increase productivity, workers can work harder or smarter. Or, innovative technologies can play a role with new tools that drive productivity. Each worker can then contribute more economic output without sacrificing quality of life.
Technological progress, therefore, lies at the heart of the economy of the future. The new types of jobs that will be made available to the labor force and the degree to which they employ technological advances will become paramount.
Those individuals who do not develop proficiency in software programming, computer hardware, networking, or other areas of the information technology (IT) sector may become less of a driving force in the new economy.
Current Technological Impacts on Employment
Already, we have witnessed technology replace, in part, some middle-class job categories such as bank tellers, travel agents, stockbrokers, librarians, translators, and tax accountants. These are jobs, once so familiar to many Americans, that likely will never be the same.
Take TurboTax, the software and website dedicated to preparing tax returns. Millions of people now use this or a competing program. Each taxpayer pays to use the program and e-file their taxes.
While the methodology may have changed for some, the economic activity can continue as people use either or both human assistance and/or systems for their tax returns.
Fast Fact
As traditional jobs are replaced by technology, individuals with skills in information technology, computer science, robotics, and hardware development will be in high demand.
Ecommerce and Its Influence on Traditional Markets
Ecommerce has taken a huge amount of market share away from traditional brick-and-mortar businesses. The sharing economy and peer-to-peer (P2P) platforms have removed the need for many for things like hotels, movie theaters, and taxi drivers by creating alternative marketplaces for those services or activities.
The future will only accelerate this pattern. Google, along with universities around the world, has developed driverless cars, which will one day eliminate the need for any sort of driver or chauffeur.
Improvements in robotics and 3D printing promise to revolutionize the way that products are manufactured and make companies rethink the need for warehousing and managing excess inventories.
This may accelerate the existing trend of job losses in manufacturing.
While people may lose their jobs to technological innovations, those who have trained themselves in the relevant skills will be at an advantage. Those who are comfortable using technology and can understand how various technologies work may be in most demand.
What Age Group Makes Up the Majority of the U.S. Workforce?
The group 25 to 54 years of age made up 64% of the workforce in 2024. The next largest group, at 23.1%, is those 55 and older.
What Affects the Size of the Labor Force?
Labor force participation across all age groups, population growth, an aging population, and retirement from the employment pool all play a role in the size of the labor force.
Is There a Relationship Between Population and Economic Growth?
High population growth doesn’t necessarily lead to economic growth. Some of the world’s poorest countries have enormous populations. The education and skills of those workers actively participating in the labor force can affect economic growth.
The Bottom Line
Demographics can influence, but do not solely determine, economic growth.
An aging population and declining birth rate signal potential decline in economic growth for developed countries.
Education and skills development, along with boosts in productivity, can mitigate negative impacts from demographic shifts.
Technological advances are crucial for productivity, though they may result in job displacement.
Workers skilled in technology will excel in the evolving economy.