But as the dependency ratio keeps rising, the capital stock eventually starts to fall with the diminished number of savers as opposed to dissavers
. The combination of movements in the capital stock and labor supply leads to an inverted-U shape in the capital-labor ratio that tops out around 2050 and converges to a level still much higher than that in 2014.
However, these results are less consistent with the life cycle hypothesis (LCH) because it is found that household members aged 18 to 60, who should be "savers" as the LCH predicts, are "dissavers
" in most regions.
In any year, some households are savers and others, especially retirees, are dissavers
that use past saving to finance current consumption.
The aggregate saving rate of the household sector reflects the difference between the saving of the savers and the dissaving of the dissavers
. Since the saving of younger savers is now high and the dissaving of the older dissavers
is low, the net saving rate is high.
With population growth there are more savers relative to dissavers
, so that the capital stock grows along with the labor force in steady state.
More specifically, I show that in the long run, personal saving will decline as a shift in the demographic balance between savers (those in the working ages) and dissavers
(retired workers), and, as a result, economic growth will taper off, especially since it seems unlikely that the decline in personal saving will be offset by increases either in business or government saving or in greater capital inflows from abroad.
The ability of the economy to support this likely low ratio of savers to dissavers
is an important public policy issue, and the effect of various social security reform proposals on it goes unexplored in the book.
Then the positive effects on the market will reverse as boomers retire and the cohort moves from being prime savers to dissavers
. Above-average equity allocations will slip toward average, then below, as the group's risk tolerance falls.
It is also evident from Table 4 that both the urban lowest and low income groups are net dissavers
From a life-cycle viewpoint, the baby boomers' retirement will dramatically increase the number of dissavers
vis-a-vis savers, as well as the number of consumers relative to workers.
An economy with population growth will have more savers relative to dissavers
than one with a static population, and so will have a higher aggregate saving rate.