Population Aging and Creative Destruc- tion

Identifying the effect of population aging on industrial innovation is crucial when considering long-term macroeconomic performance in an aging economy. In this paper we analyze the relationship between population aging and technical change within the framework of an economic growth model with quality-improving innovation. A major implication of the model is creative destruction, by which outdated products are eliminated and the state-of-the-art products remain in the markets through the process of competition in the technological development of next-generation products. The results of the analysis suggest that the progress of population aging causes the rate of innovation to decline. Furthermore, increasing the retirement age of workers in a system with a uniform mandatory retirement has a negative effect on the rate of innovation. However, increasing the retirement age of unskilled workers in cases where the retirement ages differ between skilled and unskilled workers might contribute to an increase in the rate of innovation.