How Population Aging Drives Labor Productivity: Evidence from China

Population aging is a critical demographic trend in China, presenting both challenges and opportunities for advancing sustainable development in alignment with the UN’s SDGs, particularly SDG 8, Decent Work and Economic Growth, SDG 9,Industry, Innovation, and Infrastructure,SDG 10,Reduced Inequalities. This study investigates the impact of population aging on labor productivity, with a focus on the mediating role of the capital-labor ratio and heterogeneities across industries, skill levels, and regions. Using data from Chinese listed firms between 2011 and 2018,this paper used fixed effects models and mediation models for econometric regressions to explore the relationship between population aging and labor productivity. The analysis reveals that population aging significantly enhances labor productivity. The capital-labor ratio emerges as a critical mechanism, mediating the relationship between aging and productivity by incentivizing firms to increase capital intensity in response to labor shortages. The findings highlight notable heterogeneities. Labor-intensive firms and low-skilled worker segments experience stronger productivity gains from aging compared to their capital-intensive and high-skilled counterparts. At the regional level, the productivity effects are most pronounced in first- and second-tier cities, while third-tier cities show negligible impacts, reflecting resource and structural constraints. This study underscores the dual role of population aging as a challenge and an opportunity. Policy recommendations include promoting capital investment, automation, workforce upskilling, and regional development to sustain productivity growth amidst demographic transitions. These findings offer valuable insights for policymakers and businesses navigating the complexities of aging economies.