Modeling the Cost of Population Aging in Iran

BACKGROUND & OBJECTIVE: The decline in fertility rates and the increase in life expectancy have changed the demographic structure of many countries substantially and entail long-term economic implications too. Population aging has adverse effects on countries’ economies, especially with respect to the social security system and the welfare structure.

METHODS: Given the importance of the phenomenon of population aging and the increased longevity in recent decades, the present study was conducted to address the welfare implications of population aging in Iran during a span of 150 years using the Overlapping Generations (OLG) model.

RESULTS: Examining the effect of reduced population growth or population aging on economic welfare, labor supply, capital assets and government expenditure during the span of 150 years suggested a decline in economic welfare in the early years; however, the rate of decline slowed down toward the end of the period; the same finding also applies to labor supply. Overall, population aging had the greatest impact on capital assets.

CONCLUSION: Population aging can cause a drastic transition in consumption and saving behaviors. Labor markets can also undergo similar transitions in their labor supply and have implications for labor productivity. The combination of these changes affects economic growth and welfare. The results of the study suggest that supporting the workforce and employing the immigrant population in the labor market can help reduce the adverse consequences of the phenomenon of population aging.