By Andreas Irmen & Anastasia Litina
The populations of almost all Western countries are getting older, as the baby boomers live longer and have fewer children than previous generations. Broad population aging of this kind poses serious challenges for the health-care systems and pension schemes of modern societies.
Can we expect aging societies to be as innovative as they need to be? We studied 33 countries from the Organisation for Economic Co-operation and Development (OECD), drawing on data from 1960 to 2012, to determine the relationship between population aging and inventive activity. We measured population aging by the old-age dependency ratio—people older than 64, to the working population aged 15-64—and inventive activity by the number of patents per 1,000 residents.
The relationship between population aging and inventive activity turned out to be hump-shaped, with a peak occurring at a dependency ratio between 24 and 27 older people per 100 members of the working-age population. This is surprisingly old—such levels were reached in Japan between 1999 and 2003 and in Germany between 2001 and 2004. Countries located to the left of the hump may age and see their inventive activity increase; those to the right will inevitably see it fall as they age even further.
What explains such a pattern?
Our hypothesis is that necessity inspires invention. To solve their age-induced problems, societies invest in innovation. In another study, we looked at individual attitudes toward innovation in 18 OECD countries. We found that the older people are, the less they appreciate innovation. However, in societies where the whole population is aging, this tendency is weaker. What can policy-makers and entrepreneurs learn from these studies? An aging society needs a strategy to foster inventive activity to secure its standard of living.
Germany and Japan are two aging countries grappling with this problem in systemic ways. Germany’s national innovation strategy, the so-called High-Tech Strategy 2020, funds research and innovation at the national and state level, supporting investments in growth areas, such as green innovation. Japan adopted its Comprehensive Strategy on Science, Technology and Innovation in 2013, focusing specifically on the environment, energy, health and medical care, as well as social challenges. In countries that understand the consequences of their aging populations, entrepreneurs are more likely to find profitable business opportunities. This will benefit the old, as well as the young.
Andreas Irmen is a professor of macroeconomics and applied microeconomics at the University of Luxembourg. Anastasia Litina is a postdoctoral researcher at the Center for Research in Economic Analysis at the University of Luxembourg.