Active retirement by Diego Cervo,

When Stevie Nicks sang about getting older, she almost certainly wasn’t thinking about the ramifications for the global economy. But it looks like the global economy is on the path toward a demographic landslide.

Wall Street Journal reporter Greg Ip argues that the world is on the verge of a “population implosion” that will have broad implications for the global economy—namely, the drop in population growth will push down economic growth rates. As Ip points out, a drop in the U.S. population in the 1930s provoked economist Alvin Hansen to coin the term “secular stagnation” for concerns about perpetually lower economic growth.

Hansen’s fears weren’t met back then, but what would a decline in population today mean for the global economy? To answer this question, let’s take a broad look at two areas: the supply of labor and the supply of capital.

When it comes to the supply of labor, an aging population means a shrinking of the global workforce. As Baby Boomers enter retirement in the United States, other countries are also aging, noticeably China. This decrease in the effective supply of labor might push up wages, if we assume the demand for labor will be relatively the same. That’s a big assumption, of course—but all things equal, a smaller supply of labor would push up wages in the short run.

When it comes to the supply of capital, an aging population would likely increase the supply of savings as well. As Ip notes, older workers save more of their income. So countries with relatively more old workers save more, which increases the supply of capital. This increase in the savings rate would, under a traditional neoclassical economics model, be another good sign for wages: More savings means more capital. And since capital is complementary to wages, this would improve labor productivity in the short run. So there’s another boost to global wage growth.

But in the long run, wage growth is determined by productivity growth in these models. And in recent years we’ve seen a decline in productivity growth. Weak productivity growth isn’t just a problem for the U.S. economy, but seems to be a problem for many countries around the world.

But we actually have an example of these trends playing out in miniature: Japan. The country has both an aging population and a high savings rate, but the result certainly hasn’t been higher wages for workers. In fact, the country’s much slower economic growth is more reminiscent of Alvin Hansen’s warning from the 1930s and the more updated versions of secular stagnation being floated today.

While demographics are certainly key shapers of economic reality, they don’t set our destiny in stone. They can bound our path in the future, but policy helps determine our ultimate course.

The question, then, is which prediction will come closer to the truth: Will a greying global workforce see wages increase and push back against economic inequality? Or will slower economic growth and secular stagnation be the themes of the future? Given the difficulties with predictions—especially those about the future—we’ll just have to wait and see.