This Stat Could Transform How You View Economic Growth
It is one of the first statistics you will encounter in an economics class. Gross domestic product per capita, the size of the economy divided by population, is the go-to data point for comparing living standards and prosperity across countries and over time. Yet as the world ages, GDP per capita is becoming less useful.
The simple reason is that gross domestic product is the market value of all the goods and services produced in a year. Those no longer in the workforce, for the most part, are no longer contributing to this. GDP per capita is “an increasingly misleading indicator," economists Jesús Fernández-Villaverde of the University of Pennsylvania, Gustavo Ventura of Arizona State University and Wen Yao of China’s Tsinghua University argue in a new paper.
Instead, they suggest focusing on GDP per working-age adult. It might sound like a minor tweak, but it is one that could become increasingly valuable because “tremendous economic changes—aging and the fall of fertility—are going to transform the world economy over the next 50-80 years," Fernández-Villaverde said. Japan best illustrates this.
It is often cited as a textbook example of economic stagnation. “Japanification" has become a cautionary, even derogatory, euphemism for decrepit growth. Sclerotic.
Deflationary. Stagnant. Moribund.
From 1990 to 2019, Japan’s GDP grew less than 1% a year, compared with about 2.5% for the U.S. Per capita, its GDP grew a stagnant 0.8%, compared with 1.5% for the U.S. By this metric, Japan leads the G-7 But when you use GDP per working-age person, the difference all but disappears.
Japan grew 1.44% compared with 1.56% for the U.S. over the same period. In fact, from 1998 to 2019, Japan grew slightly faster.
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