Aging Anxiety: Much Ado about Nothing?

Social security systems in most industrialized countries face severe financial problems due to adverse demographic changes. The increase in old{age dependency, however, will be spread over a period of approximately 50 years. The degree of technological progress necessary to offset the negative effects of aging might therefore be small. Using models with endogenous labor supply and with capital accumulation, we demonstrate that under plausible assumptions, current living standards can be maintained witha moderate rate of technological progress. The necessary rate of growth increases both in the size of the program and in the fraction of agents who exclusively depend on public pensions in retirement.