May 04, 2019
That’s what the Washington Post tells us. It notes the sharp slowdown in China’s population growth and then tells readers:
“China’s population is forecast to peak at 1.45 billion as early as 2027, then slump for several decades. By 2050, about one-third of the population will be over the age of 65, and the number of working-age people is forecast to fall precipitously. Who will power the economy? Who will look after the elderly? Who will pay the taxes to fund their pensions?”
One might think that with a population of more than 1 billion people it would not be that hard to find someone to pay taxes. More importantly, China has been seeing rapid increases in productivity and living standards, which means that even if workers have to pay higher taxes, they will still enjoy higher living standards.
To see this point, suppose real wages rise by 4.0 percent annually (much slower than they have been) for the next three decades. By 2050, real wages will be more than 220 percent higher than they are today. Suppose payroll taxes are increased by 20 percentage points to cover the cost of a larger relative population of retirees. In that case, real wages will still be almost 160 percent higher than they are today. What exactly is the problem?
It is also worth noting that as China gets wealthier and technology improves, people now considered elderly are likely to be in much better health and more productive than they are today. This means they will need less care (fewer robots?) and may still be making substantial contributions to society.
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