Cathy E. Minehan

English

Research Papers in Economics

FOREWORD
Cathy E. Minehan
This year’s conference topic, “Seismic Shifts: The Economic Impact of
Demographic Change,” at ﬁrst glance may seem of less than immediate
relevance to the Federal Reserve System. As a central bank, we usually
focus on developments that take place in the short and medium run and
directly affect our role in conducting monetary policy or supervising
banking and ﬁnancial institutions. But the ultimate goal of the Federal
Reserve System is to provide an economic and ﬁnancial environment that
is conducive to economic growth and rising living standards. It is
important that we occasionally take a step back and look at longer-range
developments that have broad economic impacts. This year’s conference
topic deﬁnitely falls in that category.
Demographic and economic forces are closely intertwined, although
economists often take demographic variables as givens or ignore them
altogether. And demographic trends seem likely to restructure the global
economy fundamentally over the next half century. In coming decades,
low fertility rates will result in slow growth, in many cases actual
declines, in the native-born working-age population across the developed
world. This trend, combined with increases in life expectancy, will result
in a substantial rise in the ratio of retired workers to those still working.
In many ways, these demographic trends are to be welcomed. Increased
life expectancy, with its gift of several more years of active life, is
unambiguously good news. And decreased fertility has come by choice,
as enhanced labor market opportunities and improved birth control have
led many couples to opt for smaller families. Still, many policymakers
worry about how living standards will be affected as each worker has to
provide for the consumption needs of a growing number of elderly
dependents. It is certainly not a foregone conclusion that the aging of the
population will have negative consequences for living standards. But it isimportant for us to better understand this phenomenon so that appro-
priate policy adjustments can be made.
While many developing countries will also experience aging of their
populations, population growth will generally be more rapid there than
in more developed countries. A substantial shift in the distribution of the
world’s population will result. Because developed countries will have
largely stable labor forces, their need for new investment will be modest
relative to that of developing countries, whose more rapidly expanding
labor forces will need to be equipped with capital goods. If developing
countries are not able to attract this capital, then increases in global
inequality may well follow.
Migration will undoubtedly be another important phenomenon in
coming decades. Slow labor force growth in developed countries will
likely exert upward pressure on wages at the same time that population
crowding negatively affects many developing countries. The result is
likely to be increased migration, with important consequences for both
source and destination countries. Depending on the education levels of
the migrants, this ﬂow may result in a “brain drain” from source
countries and boost economic growth in destination countries, or it may
alleviate both surpluses of low-wage labor in the source countries and
shortages of less-educated labor in the destination countries while
aggravating income inequality within the destination countries.
Although many of the effects of demographic change will inﬂuence
central banks here and elsewhere only in the long run, some demographic
developments may already be having an impact. The ability of the U.S.
economy to sustain both low inﬂation and low rates of unemployment in
recent years probably has been due at least in part to the aging of the
labor force. Older workers are less likely to be entering the labor force for
the ﬁrst time or switching jobs, and they are less likely to suffer spells of
unemployment when they do switch. The acceleration of labor produc-
tivity growth in the late ‘90s may also be partly attributable to demo-
graphic forces. A slowly growing labor force creates incentives for ﬁrms
to implement labor-saving production techniques, leading to faster
productivity growth.
A key element of how developed countries adapt to the aging of their
populations will likely be a better utilization of their human resources.
Work-life policies that facilitate the continued contributions of older
workers are one way in which employers may respond to labor shortages.
Nontraditional schedules and telecommuting options may make work
effort by the younger elderly more attractive than it has been in the past.
As a result, the sharp demarcation between working and retirement may
give way to workers gradually reducing the amount of time they spend
at work as they grow older. At the Boston Fed, we have seen many
examples of how valuable the contributions of older individuals can be.
Eddie McCarthy, a long-time Bank employee, was a source of wisdom
xiiand insight into his mid eighties. And Paul Samuelson and Franco
Modigliani are vibrant contributors to our Academic Advisory Council at
ages well past those when most people retire.
The need to use human resources effectively extends beyond encour-
aging labor force participation by the elderly. At the Federal Reserve
Bank of Boston, we have found success in retaining employees who have
experienced increased family responsibilities, such as the need to care for
young children, by allowing schedules to be adapted to employees’
personal needs. We believe that it is also important to encourage people
to acquire the skills needed to succeed at work. Older adults must
continually renew their skills in order to maintain their viability in the
labor market. And entry-level workers, who increasingly will come from
groups that historically have had below-average levels of educational
attainment, must have access to the skills needed for successful careers.
At the Bank, we offer extensive training opportunities to our staff, and we
are also involved in promoting education and skills development in the
wider community through our involvement with the Boston Private
Industry Council.
This conference brought together a distinguished group of present-
ers, commentators, and panelists whose global reach matched the scope
of the conference topic. The result was lively and insightful discussion
that provided us with more informed perspectives on the coming
demographic shocks, a better understanding of their economic conse-
quences, and some fresh ideas regarding possible policy responses.
December 2001
Cathy E. Minehan
President and Chief Executive Ofﬁcer
Federal Reserve Bank of Boston
xiii

Seismic shifts: the economic impact of demographic change: foreword

http://www.bostonfed.org/economic/conf/conf46/foreward.pdf

Seismic shifts: the economic impact of demographic change: foreword

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics