The Graying Workforce: How Cognitive Aging Impacts Labor Share and Economic Growth

Lena Voss in Business & Economy December 2025 • 4 min read.

"Is an aging population impacting economic output? New research explores the surprising link between cognitive decline, labor share, and the future of industrialized economies."

For decades, economists have puzzled over the declining labor share—the portion of economic output allocated to wages—in industrialized countries. Traditional explanations have focused on economic factors such as automation, globalization, and market concentration. However, a new perspective suggests that biological factors, specifically the cognitive aging of populations, may play a significant role.

A recent study proposes a theoretical macroeconomic model that links labor share to the dynamic equilibrium between a workforce that automates existing outputs and consumers who demand new output variants. The core argument: industrialization leads to aging populations, and as cognitive performance declines with age, demand for new, labor-intensive products decreases, thereby reducing the labor share.

This article delves into this fascinating research, exploring the model's assumptions, its validation against historical data, and the implications for economic policy and the future of work. We'll break down the complex concepts and data to understand better how our aging minds might be reshaping the economic landscape.

The Cognitive Aging and Labor Share Connection: Unpacking the Model

Brain Over City: A visual representation of cognitive aging's impact on the economy.

The study's model rests on several key assumptions. First, it posits that consumer demand follows a “long tail” distribution, meaning that while some goods and services are widely popular, a vast number of niche products cater to specific tastes. These niche products often require more human labor than mass-produced items. Think of the difference between a mass produced T-shirt and a custom tailored one. The first is automated, the second requires human labor.

Second, the model acknowledges that cognitive performance remains relatively stable during working years but declines sharply thereafter. This decline affects consumers' ability and desire to innovate in their consumption, leading to less demand for new and varied products. Less innovation = less need for labor.

Supply Innovation (Automation): Producers innovate by automating production to lower costs, reducing the labor share for existing products.
Demand Innovation (New Products): Consumers drive demand by seeking new and varied products, requiring human labor and increasing the labor share.
Cognitive Aging: As the population ages and cognitive functions decline, the demand for new and varied products decreases, shifting the equilibrium towards automation and lower labor share.

To illustrate, consider a simplified example. Imagine an economy where plain hats sell for $4 each with a labor share of 20%, while custom-designed hats sell for $8 each with a labor share of 40%. Younger consumers prefer custom hats, driving a higher overall labor share. However, as the population ages, older consumers find designing custom hats cumbersome and opt for plain hats, reducing the overall labor share. This simple example highlights how shifting demographics and cognitive changes can impact the demand for labor-intensive goods and services.

Policy Implications and the Future of Work

This research underscores the importance of understanding the interplay between demographic shifts, cognitive health, and economic outcomes. As industrialized nations continue to grapple with aging populations, policymakers may need to consider strategies that support cognitive health and promote demand for labor-intensive goods and services. Investing in education, lifelong learning, and healthcare initiatives that maintain cognitive function could have significant economic benefits. Furthermore, fostering environments that encourage innovation and entrepreneurship among older adults could help stimulate demand for new products and services, thereby boosting the labor share.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: https://doi.org/10.48550/arXiv.2308.14982,

Title: Cognitive Aging And Labor Share

Subject: econ.gn q-fin.ec

Authors: B. N. Kausik

Published: 28-08-2023

Everything You Need To Know

How does cognitive aging potentially contribute to the declining labor share in industrialized countries?

Cognitive aging impacts the labor share by influencing consumer demand. As populations age and cognitive performance declines, there's a decreased demand for new and varied products, which often require more labor. This shift in demand reduces the need for labor-intensive production, contributing to a lower labor share. The study's macroeconomic model highlights this connection, emphasizing that the equilibrium between automating existing outputs and consumer demand for new variants is disrupted by cognitive decline, leading to a reduction in the portion of economic output allocated to wages.

What is the significance of the 'long tail' distribution of consumer demand in the context of cognitive aging and labor share?

The 'long tail' distribution of consumer demand is crucial because it differentiates between mass-produced goods and niche products. Niche products often require more human labor. As cognitive aging reduces the demand for these varied and specialized products, the economy shifts towards mass-produced, automated goods, which inherently require less labor. This shift subsequently lowers the labor share. The 'long tail' illustrates how a vibrant demand for diverse products sustains a higher labor share, while a decline in that demand due to cognitive aging leads to a smaller labor share.

What are the key assumptions of the macroeconomic model linking labor share to cognitive aging?

The macroeconomic model rests on assumptions about consumer demand following a 'long tail' distribution, where niche products require more labor, and cognitive performance declining with age. This decline affects consumers' ability and desire to innovate in their consumption. Producers innovate by automating production to lower costs, reducing the labor share for existing products, while consumers drive demand by seeking new and varied products, requiring human labor and increasing the labor share. As the population ages and cognitive functions decline, the demand for new and varied products decreases, shifting the equilibrium towards automation and lower labor share.

What policy implications arise from understanding the relationship between demographic shifts, cognitive health, and economic outcomes?

Understanding this relationship suggests policies should support cognitive health and promote demand for labor-intensive goods and services. Investing in education, lifelong learning, and healthcare initiatives that maintain cognitive function could yield economic benefits. Fostering environments that encourage innovation and entrepreneurship among older adults could help stimulate demand for new products and services, thereby boosting the labor share. Essentially, policies should aim to mitigate the negative economic impacts of cognitive aging by preserving cognitive function and encouraging consumption patterns that support labor-intensive industries.

Could you elaborate on how automation interacts with cognitive aging to influence the labor share, according to the research?

Automation reduces the labor share for existing products, while cognitive aging diminishes the demand for new, labor-intensive products. As cognitive decline sets in, consumers tend to favor simpler, well-known products that are often mass-produced through automated processes. This decreased demand for varied, customized goods reduces the need for labor. As such, cognitive aging indirectly accelerates the shift towards automation and further reduces the labor share. The model demonstrates that the interplay between automation and cognitive aging is not mutually exclusive, but rather a reinforcing cycle that contributes to the declining labor share.