As populations grow older, the economic boost known as the demographic dividend, driven by a large working-age population, is fading. However, the drivers of prosperity are shifting. Using Chinese demographic and occupational data, Hengyu Gu, Yingju Wu, Guillaume Marois, Wolfgang Lutz, and Tianlong Niu show that skills have now overtaken age structure as the main engine of economic development.
While China successfully leveraged a favorable age structure to fuel decades of economic growth, this age-based demographic dividend is now weakening due to rapid population aging and sustained low fertility. Policy responses have largely focused on reversing fertility decline through pro-natalist measures, yet existing evidence suggests that such interventions have only limited effects (Gauthier & Gietel-Basten, 2025).
This raises a broader question: if the contribution of the age structure to economic growth is diminishing, what factors can sustain future development? To address this, it is useful to distinguish between two dimensions of the workforce. The first is captured by the age support ratio (ASR), which reflects the balance between the working-age population and dependents. The second is related to the skills embodied in the workforce. To measure this second dimension, we introduce the task-based skill ratio (TSR), an index that captures the composition of jobs in terms of the tasks they require, ranging from low- to high-skill activities.
The key challenge, therefore, is to understand how these two dimensions interact. Can improvements in the skill composition of the labor force compensate for the decline in the age-based demographic dividend? And to what extent can skill upgrading sustain economic growth in the context of continued demographic aging?
China provides a particularly relevant case to examine these questions. Its rapid transition from a labor-abundant economy to an aging society, combined with significant investments in education and structural economic transformation, offers a unique opportunity to observe how the sources of economic growth evolve. Insights from this transition are not only important for China, but also for other countries at different stages of the demographic transition.
A skill-based perspective
In a recent study (Gu et al., 2026), we constructed the TSR using an approach comparable in spirit to the ASR, but focused on skills rather than age. Building on the framework of the United States Occupational Information Network, occupations were decomposed into detailed work activities, which were then assigned skill intensities. These task-based scores were aggregated to the city level to produce a consistent measure of local skill composition. This makes the TSR directly comparable to the ASR: both are aggregate indicators defined at city level, both vary over time, and both can be linked empirically to economic outcomes such as per capita GDP. However, they capture different dimensions of the labor force: quantity versus quality. Empirically, we found that the ASR in China reached a turning point around 2010 and has since declined, reflecting demographic aging. In contrast, the TSR has continued to rise, particularly in eastern megacities, indicating sustained improvements in the skill composition of the workforce.
We then estimated both the independent and joint effects of the ASR and TSR on economic performance, and projected the levels of TSR required to offset future declines in the ASR under different demographic scenarios from 2025 to 2100.
Synergy between age and skills
Both the ASR and the TSR have a positive effect on per capita GDP, but since around 2010, the TSR has become the stronger and more consistent driver of economic performance. Our results also show that expanding the working-age population alone is not sufficient to generate growth. In cities with low skill levels, a larger labor force yields limited economic benefits. By contrast, improvements in skill composition can sustain growth even as the advantage based on age structure declines. This complementarity weakens with population aging. As the workforce ages, the overall contribution of the ASR declines, and the adaptability of the labor force becomes more constrained. Older workers, on average, face greater challenges in adjusting to changing task requirements, which reinforces the shift from a quantity-based to a skill-based driver of economic growth.
Three phases of the demographic-skill transition
The demographic foundations of economic growth in China have undergone a clear transition across three distinct phases (Fig. 1). First, the age-based dividend phase (2000 to 2005) was characterized by rapid growth driven primarily by the expansion of the working-age population. Market reforms and the relaxation of household registration constraints facilitated large-scale labor reallocation from agriculture to industry, allowing China to fully exploit its demographic advantage.
Second, the transition phase (2005 to 2010) marked a turning point. During this period, the contribution of the ASR declined substantially, while the influence of the TSR increased. Third, the skill-based dividend phase (after 2010) saw a fundamental shift in the drivers of economic growth. As labor supply growth slowed and population aging intensified, the marginal effect of the ASR continued to weaken. At the same time, industrial upgrading and rising human capital led the TSR to become the dominant source of growth. Overall, Fig. 1 illustrates that the demographic dividend has not disappeared. Rather, its underlying mechanism has evolved from an extensive model based on labor supply to an intensive model driven by skill accumulation and productivity gains.
Projections and policy implications
To quantify the TSR enhancement required to counteract aging pressure, we constructed a dynamic projection based on the United Nations low fertility variant for the period between 2025 and 2100 (Fig. 2). We selected this low variant because recent fertility trends in China fall below medium-level projections, which makes it a realistic reflection of population dynamics. We then established three adjustment scenarios to evaluate future policy options:
1) Redefining the working-age population: We extended the upper boundary of the working-age population to 69 years and 74 years to simulate delayed retirement policies.
2) Age-dynamic scenario, assuming that the marginal contribution coefficient of the ASR (1) grows at an annual rate of 1% (i.e. becomes stronger over time).
3) Skill-dynamic scenario, assuming that the marginal contribution coefficient of the TSR (2) grows at an annual rate of 1%.
Projections of the compensatory TSR required up to the year 2100 indicate that delayed retirement can partially alleviate the effects of the declining age support ratio. Extending the upper boundary of the working age to 69 or 74 years dilutes the negative impact of age-structure changes by expanding the labor supply, which creates a substantial window for adjustment in the medium term. However, adjusting the labor supply provides only a temporary buffer and cannot reverse the long-term upward trend of ageing.
The projections highlight that the evolution of economic parameters exerts a decisive influence on future outcomes and, not surprisingly, that combining the enhancement of the TSR with a moderate extension of working life offers the most viable path to navigate the challenges of advanced aging. Economic development relies less on favorable age structures and increasingly depends on the skill composition of the workforce, making skill upgrading a central policy priority.
References
Gauthier A. H. & Gietel-Basten S. (2025). Family policies in low fertility countries: Evidence and reflections, Population and Development Review, 51(1), 125-161. https://doi.org/10.1111/padr.12691
Gu H., Wu Y., Marois G., Lutz W. & Niu T. (2026). China’s demographic dividend has moved from age-based labor supply to skill-based productivity, Proceedings of the National Academy of Sciences, 123 (15) e2532906123. https://doi.org/10.1073/pnas.2532906123