Population ageing and economic growth in Malaysia: A conceptual framework of labour market adjustment and productivity

Abstract

Population ageing is becoming an increasingly important structural feature of Malaysia's demographic and economic development. Declining fertility and rising longevity are changing the age composition of the population, with potential implications for labour supply, productivity and economic growth. Existing studies generally associate population ageing with slower economic growth, but the mechanisms underlying this relationship remain insufficiently integrated. This paper develops a conceptual framework linking population ageing to economic growth through labour-market adjustment, effective labour supply and labour productivity. The framework distinguishes demographic ageing from actual economic participation and argues that the economic consequences of ageing depend partly on how workers, firms and institutions adjust to demographic change. Effective labour supply is conceptualised to include labour-force participation, employment, working hours, health, skills and the productive utilisation of older workers. The paper also considers technology, human capital, workplace adaptation and informal caregiving as factors that may condition the relationship between ageing and productivity. Malaysian evidence indicates that older persons possess additional potential work capacity, while international evidence suggests that technology, training and health can influence the productivity of older workers. The paper therefore proposes that population ageing should not be interpreted as an automatic decline in productive capacity. Instead, its economic effects depend on the interaction between demographic change, labour-market adjustment and productivity-enhancing mechanisms. Four conceptual propositions are developed to guide future empirical research on Malaysia.