Age, Aging, and Economic Growth: Perspectives on the Second Demographic Dividend

Ronald Lee, University of California, Berkeley
Andrew Mason, University of Hawaii at Manoa

Over the demographic transition changes in population age distribution interact with age patterns of production and consumption to generate the first and second dividends. The second dividend arises from induced variations in aggregate saving and wealth holding, and depends on the relative size and upward or downward direction of intergenerational transfers in an economy. We draw on National Transfer Accounts estimates of transfers, labor productivity, and consumption by age for a number of countries to assess these effects and to estimate the first and second dividends. We derive concrete results for several different theoretical models: first, comparative golden rule steady states and, second, dynamic simulation models. We simulate three different models of saving, life cycle consumption, and economic growth over the transition: individualistic life cycle saving; interdependent altruistic sharing; and an optimizing social planner. We hypothesize that all three simulations will exhibit a second dividend, demonstrating that it is robust.