Aging Economies Turn to AI as Shrinking Workforces Accelerate the Global Automation Race

Population aging is accelerating AI, robotics and automation adoption as firms respond to shrinking labor forces, with technology offering a potential route to higher productivity despite demographic pressures. However, unequal adoption between large firms and SMEs means governments and development partners must strengthen digital infrastructure, technology finance, skills and worker reskilling to ensure the gains are widely shared.

Population aging is usually seen as a drag on economic growth, leading to a smaller workforce, higher dependency costs, and pressure on public finances. But new research from the International Monetary Fund suggests aging may also accelerate another major economic shift: businesses adopting artificial intelligence, robotics and automation to maintain production when workers become harder to find.

The IMF working paper, prepared by Ha Minh Nguyen of the Institute for Capacity Development using World Bank Enterprise Surveys and other World Bank data, examines 89,380 firms across 144 countries surveyed between 2022 and 2025. Its findings suggest that demographic change is increasingly influencing business investment decisions, with potentially major consequences for governments, development institutions, workers and private companies.

Fewer Workers, Stronger Push Towards Automation

The study identifies 1,656 firms, or about 1.9% of the sample, as adopters of AI, automation or robotics in their production processes. A stricter measure found only 221 firms explicitly referring to AI or machine learning, showing that direct AI adoption remained relatively limited during the period studied.

Yet demographic pressure makes a noticeable difference. A 10-percentage-point increase in the old-age dependency ratio is associated with about a 0.6-percentage-point increase in the probability of process technology adoption—roughly a 30% increase relative to the average adoption rate.

The relationship remains significant even after considering GDP per capita, internet penetration, firm size, industry, region and survey year. This indicates that aging is not simply a reflection of richer countries having more money and better digital infrastructure.

The economic explanation is straightforward: when workers become scarcer and more expensive, businesses have stronger incentives to invest in technologies that allow them to produce with fewer employees.

Higher Productivity, But a Risk of a Two-Speed Economy

Automation could provide governments with a partial answer to one of the biggest economic problems created by aging: how to maintain production and productivity with fewer workers.

The research links a 10-percentage-point rise in the old-age dependency ratio with around 16% fewer workers for a given level of real output, approximately 44% higher output per worker and about 41% higher wages per worker. The findings point towards businesses reorganizing production around smaller but more productive workforces supported by technology and capital.

However, the benefits are unlikely to be evenly distributed.

Large firms show the strongest response to demographic pressure, while smaller companies are less likely to automate. Purchasing machinery, integrating AI systems, upgrading software and retraining employees require capital and technical expertise that many SMEs lack.

This creates a policy risk. Aging could widen the productivity gap between large companies capable of automating and smaller businesses simultaneously struggling with labor shortages and limited financing.

Sectoral differences matter too. Manufacturing shows the strongest response when AI, robotics and automation are considered together because factories can replace repetitive physical tasks with machines. When the analysis focuses specifically on AI and machine learning, however, service companies become more prominent, pointing towards a parallel software-driven transformation.

Development Partners Face a New Demographic-Digital Challenge

The findings are particularly important for emerging and developing economies. The demographic effect on technology adoption is visible across low- and middle-income countries, suggesting that automation pressures are no longer confined to advanced economies.

Many developing countries could age before reaching the income and technological capabilities that richer economies had when they experienced similar demographic transitions. Their companies may therefore face shrinking labor availability without adequate finance, digital infrastructure or skilled workers.

For the World Bank, regional development banks and bilateral development partners, this creates an opportunity to connect demographic policy with digital development.

Financing programs could help SMEs purchase productivity-enhancing equipment, introduce digital systems and adopt AI. Credit guarantees, blended finance and technical assistance could lower investment barriers. Broadband, cloud infrastructure and reliable digital services will also become increasingly important.

Human capital must be part of the same strategy. Firms in older economies are more likely to report inadequately educated workers and serious skill shortages. Governments and development partners should therefore combine technology investment with vocational education, digital training, reskilling and lifelong learning.

Aging Could Create a New Global Market for AI

The report also shows that aging affects not only how businesses produce but what they sell.

Researchers identify 589 firms developing AI or automation-related products. Only 82 companies appear in both the process- and product-adoption groups, suggesting two largely separate responses.

Some businesses automate their own operations because labor is scarce. Others develop AI-enabled products and services for customers facing similar workforce shortages.

That creates commercial opportunities for technology companies, investors and entrepreneurs supplying industrial robots, enterprise automation, AI-powered services and other labor-saving technologies. Unlike process automation, which is concentrated more heavily in manufacturing, product innovation associated with aging appears across both manufacturing and services.

But governments cannot ignore the employment risks. Routine manufacturing jobs may face concentrated displacement, while software-based AI could transform a wider range of service occupations. Smaller firms could also fall further behind if they cannot finance technological upgrades.

The policy priority should therefore be broader than simply encouraging AI adoption. Governments need to connect demographic planning with SME finance, digital infrastructure, industrial policy, education and worker reskilling. Development partners can help countries finance that transition, while businesses should increasingly incorporate workforce demographics into investment decisions.

The central message is that aging does not have to mean economic stagnation. AI and automation can help economies produce more with fewer workers, but whether those productivity gains are widely shared will depend on how effectively governments, development institutions and businesses prepare firms and workers for the transition.