The Economic Implications of Aging Societies: The Costs of Living Happily Ever After

by Steven A. Nyce , Sylvester J. Schieber

• ISBN13: 9780521617246
• ISBN10: 0521617243
• Format: Paperback
• Copyright: 2005-01-17
• Publisher: Cambridge University Press

Summary

The world is getting older and no one knows exactly what life will be like in tomorrow’s older societies. But we do know that age dependency ratios - the ratio of retirees to workers - will be much higher than we see today. The implications of this trend are plain. The combined effects of fewer workers, more retirees and longer retirement periods threaten not only the sustainability of pension systems but also the broader economic prospects of many developed countries. This book describes current trends in birth rates, longevity and labor force participation and productivity, the cross-border flow of capital, the globalization of labor markets, the financial viability of social insurance programs, and the ways economic output is shared between working-age and retiree populations. Our most effective solution will likely be a multifaceted one: more workers, longer careers, higher productivity, and more global exchange and cooperation.

Author Biography

Sylvester J. Schieber is Vice President, Research and Information Center, Watson Wyatt Worldwide in Washington, D.C.

Table of Contents

List of Figures and Tables	xi
Preface	xxi
Acknowledgments	xxiii
1. Introduction	1	(7)
2. Population Developments in a Global Context	8	(27)
A Brief Historical Perspective	8	(3)
Underlying Forces Driving Changing Population Structures	11	(14)
Changing Life Expectancy	13	(4)
Changing Fertility Rates	17	(3)
Immigration Rates	20	(2)
Evolving National Populations	22	(3)
National Population Age Structures	25	(8)
The Prospects of Growing Age Dependency	33	(2)
3. Pension Options, Motivations and Choices	35	(46)
Retirement Plans as a Consumption Allocation Mechanism	36	(1)
Approaches to Financing Pensions	37	(6)
Factors behind National Retirement Choices	43	(7)
Why Pay-Go Pensions Became So Popular	50	(5)
New Realities Spur New Considerations on Pension Choices	55	(13)
Demographics and the Efficiency of Alternative Pension Systems	56	(1)
Labor Supply Patterns and the Efficiency of Alternative Pension Systems	57	(7)
Interest Rates and Wage Growth and the Efficiency of Alternative Pension Systems	64	(4)
Aging Populations in the Context of Total Economic Dependency	68	(10)
New Realities Raise Concerns for Policy Analysts	78	(3)
4. Pension Structures and the Implications of Aging	81	(26)
Contemporary Approaches to Providing Income Security for the Elderly	81	(11)
Public First Tiers in the Retirement System	82	(2)
Public Second Tiers in the Retirement System	84	(4)
Employer-Sponsored Third Tiers in the Retirement System	88	(4)
Retirement Ages, Retirement Patterns, and Retiree Populations	92	(9)
Retiree Income Levels	101	(2)
Sources of Retiree Income	103	(4)
5. Retirement Systems and the Economic Costs of Aging	107	(22)
Consumption and Savings Rates under Alternative Retirement Systems	108	(13)
Retirement Saving Versus Consumption Loans	109	(3)
Another View of Consumption and Savings Rates under Retirement Systems	112	(9)
Retirement Patterns under Alternative Retirement Systems	121	(1)
Retirement Living Standards under Alternative Retirement Systems	122	(1)
Pension Funding Realities	123	(6)
What Appears to be Pension Funding Might Not be Real Funding	123	(2)
Funded Pensions Cannot Overcome All Demographic Challenges	125	(1)
Pension Transitions are Costly and Raise Equity Issues	126	(3)
6. Beyond Pensions to Health Care Considerations	129	(25)
Age and Health Consumption Patterns	130	(5)
Factors Other than Aging Driving Up Health Costs	135	(4)
Longer Lives and Health Care Consumption in Old Age	139	(4)
Explaining the Intensity Spiral in Health Care Consumption	143	(2)
Policy Concerns over the Evolution of Health Technology	145	(4)
Long Term Care Provision in Changing Societies	149	(2)
The Health Care Dilemma	151	(3)
7. Labor Supply and Living Standards	154	(41)
Building Blocks for Producing National Output	156	(4)
The Story behind Changing Labor Productivity Levels	160	(3)
Improving Productivity Leads to Improved Living Standards	163	(2)
Demographics and Output Demand	165	(7)
The Linkages between Output Demand and Labor Demand	172	(9)
The Foundation for Growth in the Coming Decades	181	(4)
Retirement Systems' Role in Determining Retirement Burden Levels	185	(10)
8. Too Many Wants or Too Few Workers?	195	(19)
Framework and Baseline for Viewing the Labor Market Options	196	(3)
Increasing Labor Force Participation Generally	199	(8)
Increasing Female Labor Force Participation Rates	201	(1)
Increasing Labor Force Participation of Older People	202	(1)
Increasing Labor Force Participation of Young Adults	203	(4)
Matching Labor Force Participation Rates of High-Rate Countries	207	(3)
Immigration as a Potential Source of Added Workers	210	(4)
9. Alternatives to Finding More Workers	214	(20)
Capital Deepening as a Possible Alternative to Additional Labor Supply	214	(14)
Utilizing Existing Human Capital More Efficiently	228	(6)
10. Aligning Retirement Policy with Labor Needs	234	(30)
The Role of Plan Structure on Retirement and Work Behavior	235	(6)
Factors Affecting Early Labor Force Withdrawals	241	(6)
Effects of Occupational Programs on Labor Markets	247	(11)
Workforce Incentives Created by Non-Employment Benefits	258	(6)
11. Funding Pensions and Securing Retiree Claims	264	(26)
Case Studies of Nations Shifting to Funded Pensions	264	(5)
Asset Management and Utilization in Funded Pension Systems	269	(10)
Investing Pension Funds in Government Bonds	272	(4)
Motivations for Individual Account Systems and Their Operation	276	(3)
Foreign Investment as a Means to Achieving Fair Returns	279	(6)
Potential International Demand for Pension Fund Savings	285	(5)
12. Macroeconomic Policies for Improved Living Standards	290	(25)
Pursuing Higher Labor Force Participation Levels	290	(3)
Pursuing Higher Rates of Productivity Growth	293	(4)
Spreading the Benefits of Added Economic Growth	297	(8)
Investing in Developing Economies	305	(10)
13. Risks Associated with Alternative Public Policies	315	(36)
Insuring Against Economic Risks during the Working Period	317	(13)
Insuring Against Economic Risks during the Retirement Period	330	(8)
The Political Economy Risks in Aging Societies	338	(14)
The Risks of Denial of a Problem	338	(7)
Political Risks from Delay in Addressing Aging Issues	345	(6)
14. Roadmap to the Future	351	(22)
Principles for Reforming National Pensions	352	(11)
Maintain Disability and Early Survivors Programs as Social Insurance	352	(1)
Continue to Provide Extra Protection to the Economically Vulnerable	353	(1)
Saving Through Retirement Savings Programs Increases Flexibility	354	(2)
Pension Reform Should Provide Equitable Treatment Between Participants	356	(1)
Pension Funding Transition Costs Should be Spread Across Generations	356	(1)
Pension Accounting Should be Done on an Accrual Basis	357	(1)
The Pension System Should be Structured to Encourage Economic Efficiency	357	(1)
Assure that Risks Borne by Individuals are Diversified and at Tolerable Levels	358	(1)
Keep Administrative Costs Low	358	(1)
Some Portion of Retirement Savings Should be Annuitized at Retirement	359	(1)
Annuitization Should be on a Joint and Survivor Basis for Couples	359	(1)
Reforms Should Assure Long-Term Solvency of the Pension System	360	(1)
Pension Reforms Should be Explicit and Transparent	360	(1)
Benefits in Reformed Pension Systems Should be Transparent	361	(1)
Pension Reforms Should be Undertaken as Soon as Possible	361	(2)
Principles for Reforming Employer-Based Pensions	363	(1)
Bringing Health Care under Control	364	(4)
Facilitating Cross-National Capital Flows	368	(2)
Conclusion	370	(3)
Index	373