An optimum population makes the best use of resources; an ageing population raises costs and shrinks the workforce.
The optimum population is the size at which output per head is highest, given the country's resources and technology. A country with fewer people than this is under-populated: it has too few workers to use its resources fully. A country with more is over-populated: resources are stretched and output per head falls.
A rising population increases the labour force and demand for goods, which can help growth. But it raises demand for housing, schools and healthcare, and can strain resources and the environment. A falling population reduces these pressures but can leave too few workers.
Age structure matters. An ageing population has a rising share of older people. The labour force shrinks, while spending on pensions and healthcare rises. A smaller number of workers must support more dependants.
Gender distribution matters too. A large imbalance between men and women can affect the labour force and future birth rates.
- Optimum population
- Size that maximises output per head.
- Ageing population
- Rising share of older people; smaller workforce, higher pension and healthcare costs.
- Dependants
- People not working who rely on workers: children and retirees.
Worked example: Effects of an ageing population on the government
Suppose the share of people over 65 rises from 15% to 25% over twenty years.
- Spending: more on healthcare, eldercare and pensions.
- Revenue: fewer working people pay income tax.
- Budget: pressure to raise taxes, cut other spending or borrow.
- Responses: raise the retirement age, encourage immigration, automate, and support higher birth rates.
Watch out for this
An ageing population only affects older people.
It affects everyone. Fewer workers support more retirees, which can mean higher taxes, labour shortages and slower growth.
Check your understanding
How is an ageing population most likely to affect the labour force?
- The labour force shrinks as a share of the population.
- The labour force grows quickly.
- It has no effect on the labour force.