Population Ageing, Retirement Age Extension and Economic Growth in China

China is experiencing rapid population ageing with the proportion of the population aged 65 and above projected to increase almost threefold between 2010 and 2050. The growth of the working age population is expected to stop approximately in 2015 and to turn strongly negative. China’s low retirement age compounds the ageing problem. One means to mitigate the negative effects of shrinking labour force on economic growth is to stimulate labour force participation among the current working age population. Raising the official retirement age is one strategy to encourage labour force participation.

This paper first investigates the effects of population ageing on labour force participation rates and, thus, on labour supply over the period of 2010-2030. It then estimates the effects of retirement age extension schemes on the size of the labour force. Thirdly, applying dynamic computable general equilibrium (CGE) modelling, it examines the effects of retirement age extension schemes on China’s economic growth. It finds that raising the retirement age increases effective labour input, real GDP, capital stock, household real consumption and exports. The main results are that retirement age extension is likely to boost China’s economic growth and that the urban sectors will benefit more than the rural sectors.