Enticing more people into the workforce could help alleviate the burdens of population aging throughout the world's developed economies, but it may not be enough to keep pace with the growing demand for goods and services. Once again referring back to the model of economic operations that we laid out in Figure 7-1, if labor growth rates remain too low to meet rising levels of consumer demand, the other variable that has possibilities is productivity.

Our analysis of the OECD and EC projections suggest that, in many developed nations, the higher labor force participation rates that would be required to meet consumer demand for goods and services are probably not attainable. So, in addition to realizing all the gains they can in labor force participation rates, policymakers and capital owners will need to set their sights on enhancing productivity as well. We explore two options here. One is simply providing workers with more physical capital. The other is figuring out how to get more output from existing workers through productivity-enhancing human resource policies and processes.

Capital Deepening as a Possible Alternative to Additional Labor Supply

One way to enhance labor productivity is through increased capital investment. To some degree, capital complements the existing pool of workers by making them more efficient. On the flip side, since additional capital enables workers to produce more output, capital can also be seen as replacing labor.