Define ageing population and explain its effects on an economy.

Ageing population. An ageing population is one in which the proportion of old people (those above the working age, usually 60 or 65 years and over) is rising relative to the rest of the population. It occurs where the birth rate is low and life expectancy is high, so the average age of the population increases and the number of dependent elderly people grows.

Effects on an economy:

• Smaller labour force: fewer people of working age means less labour available for production, which can lower total output.
• Higher dependency burden: the working population must support a large number of retired people through pensions and taxes, reducing funds for investment.
• Increased government spending on the aged: more money is needed for pensions, health care and old-people's welfare, straining the budget.
• Fall in savings and investment: the elderly consume their savings rather than add to them, reducing funds available for capital formation.
• Change in pattern of demand: demand shifts towards goods and services for the old (medicines, health care) and away from those for the young, affecting the structure of production.
• Lower labour mobility and productivity: an older workforce may be less mobile, less adaptable to new technology and less productive.
• Possible labour shortage and reliance on immigration: the economy may need to import labour to fill gaps.