Gerontoinnovation

As societies age, the desire for security gradually erases the appetite for risk. This leads to a weaker spirit of enterprise, together with less innovation and more resistance to change as a result of the growing numbers of older voters. Economic vigour, just like the physical sort, begins to wane.

But wait. Just before that happens, a spike in innovative activity actually occurs, as a new CESifo study by Andreas Irmen and Anastasia Litina shows. It is the first paper that explores the direct link between population ageing and inventive activity at the macroeconomic level across countries ant time.

Using the old-age dependency ratio — people older than 64 to the working population aged 15-64 — for a panel of 33 OECD countries over the period 1960-2012, they found that there is an upward move in inventiveness, measured by the number of patents per 1000 residents, where the old assumptions actually wouldn't expect one.

As it turns out, the curve depicting the effect of population ageing on inventive activity is hump-shaped, with its peak occurring at a dependency ratio of between 24 and 27 old people per 100 members of the working-age population. This corresponds, in the case of Japan, roughly to the years 1999-2003, while for Germany it does for the period 2001-2004. Countries located to the left of this dependency ratio see an increase in their propensity to engage in inventive activities, while the opposite occurs for those located to the right of it.

Why is this so? The authors speculate that inventive activity is necessary in ageing populations to raise the productivity of the working young, since the latter would guarantee that the old retain a decent standard of living while keeping the burden on the working young at an acceptable level.

There is a message for policymakers here: as societies age, they should place a special emphasis on pursuing strategies and implementing policies that foster inventive activity. Much has been written by many authors on how to go about boosting innovation, so blueprints for this abound.

And this, in turn, points to the need of raising the individual awareness about the consequences of population ageing. Informing individuals about the costs and benefits of population ageing is likely to change their attitudes towards inventive activity. The earlier you boost innovative activities, the farther to the right you can shift the peak of the hump. In plain English, this means that the economic vigour of the nation will not decrease as markedly when the proportion of oldies increases.

My grandmother would have arrived at the same conclusion: necessity is the mother of invention. Our authors, however, have shown how this applies to the macroeconomic realities of societies as they age, as well as pointing out the policy interventions that are most likely to keep the innovative flame alive a while longer.

Andreas Irmen and Anastasia Litina: Population Aging and Inventive Activity, CESifo Working Paper No. 5841

Other CESifo Working Papers dealing with Demographic Trends

Other CESifo Working Papers dealing with Innovation and Invention