White House Conference on Aging

Link:

Jul 20, 2005

Richard Jackson briefed the Policy Committee of the White Conference on Aging on the challenge of the global aging. His presentation compared and contrasted the outlook for the United States with the outlook for the other developed countries.

The Challenge of Global Aging
how demography will reshape the world of the 21st century
Richard Jackson CSIS Global Aging Initiative

White House Conference on Aging July 20, 2005

Thiis could be the news in the year 2025. Th s could be the news in the year 2025.
The GDP of Europe has not grown for a decade.

Economist "Permanent Aging Recession?"
France enacts 5th payroll tax hike in 5 years.

Le Monde "Pension Party tells Business Leaders: No Choice, Defense Already Zeroed Out"
Japan, world's largest debtor, asks IMF for bailout.

Financial Times "Beijing Says No More Credits for Tokyo"

This is the reality in the year 2005. This is the reality in the year 2005.
The world stands on the threshold of a demographic revolution called global aging. Global aging poses the greatest threat to Japan and continental Europe. The United States, with its younger population and more dynamic economy, is better positioned to confront the challenge. But make no mistake: Global aging could wreck the economy of any nation that fails to prepare--even our own.

The Demographic Transformation

The whole world is aging--and today's The whole world is aging--and today's developed countries are leading the way. developed countries are leading the way.
30% 25% 20% 15% 10% 5% 0% 1950 1970 1990
Developed World
Source: UN (2005)

Percent of Population Aged 65 & Over: History and UN Projection

25%

26%

Year 2005
19% 14% 16%

23%

15% 13% 10% 8%

8% 4%

9% 4%

10%

12%

13%

2010

2030

2050

Developing World

Two forces behind global aging. Two forces behind global aging. Force one: falling fertility. Force one: falling fertility.

Global aging is what happens when people start having fewer babies.

Lower fertility shrinks the relative number of younger people in the population.

Fertility in every developed country has Fertility in every developed country has fallen beneath the 2.1 "replacement rate." fallen beneath the 2.1 "replacement rate."
4.0 3.5
Lif et im e Births per Woman

3.3

Total Fertility Rate, by Country 2.9 2.0 2.8

3.6

3.0 2.5 2.0 1.5 1.0 0.5 0.0 US

2.1
2.5 2.5 2.0 1.7 1.5 1.3 1.3 1.3

1.9

France

Canada

Japan

Germany

Italy

1960-1965
Source: UN (2005)

2000-2005

Two forces behind global aging. Two forces behind global aging. Force two: rising longevity. Force two: rising longevity.

Global aging is what happens when people start living longer.

Longer life spans enlarge the relative number of older people in the population.

Life spans in the developed countries have risen dramatically.
85

Life Expactancy at Birth, by Country
80 7 7 .3 75 Years 7 8 .3 7 8 .6 7 9 .4 7 9 .7 8 0 .0

8 1 .9

6 8 .9

6 9 .2 6 7 .5 6 6 .5

6 9 .1 6 6 .0 6 3 .9

60 US UK Germany France Canada Italy J a pa n

1950-1955
Source: UN (2005)

2000-2005

A historic transformation approaches-- A historic transformation approaches-- the "inversion" of the age pyramid. the "inversion" of the age pyramid.
Populations throughout history have all shown a steep pyramid-shaped age distribution--with more young than old people. In the near future, starting with developed countries, the distribution will transform into an inverted pyramid-- with more old than young people.

Pyramid inversion in the developed world--1950 Pyramid inversion in the developed world--1950 to 2050. to 2050.
More Developed Regions: UN Constant Fertility Scenario More Men Women
100+ 90-94 80-84 70-74 60-64 50-54 40-44 30-34 20-24 10-14 0-4 50000 40000 30000 20000 10000 0 10000 20000 30000 40000 50000

yearr yea

1950 1950
median age median age

28..6 28 6
THIS IS THIS IS WHERE WE WHERE WE WERE IN WERE IN 1950 1950

Population in Thousands

Pyramiid inversion in the developed world--1950 Pyram d inversion in the developed world--1950 to 2050. to 2050.
More Developed Regions: UN Constant Fertility Scenario More Men Women
100+ 90-94 80-84 70-74 60-64 50-54 40-44 30-34 20-24 10-14 0-4 50000 40000 30000 20000 10000 0 10000 20000 30000 40000 50000

yearr yea

2005 2005
median age median age

38..7 38 7
THIS IS THIS IS WHERE WE WHERE WE ARE TODAY ARE TODAY

Population in Thousands

yearr yea

2050 2050
median age median age

46..4 46 4
THIS IS THIS IS WHERE WE WHERE WE WILL BE IN WILL BE IN 2050 2050

Population in Thousands

Five Challenges

The fiscal challenge. The fiscal challenge.
Declining support ratio of workers to retirees Rising cost of pay-as-you-go retirement benefits Large tax hikes, large benefit cuts, or exploding public debt Growing political paralysis over unpopular budget choices

The number of workers available to The number of workers available to support each pensioner will decline. support each pensioner will decline.
5 4 .3 4 Ratio of Contributors to Retirees in Public Pension Systems: 2000 & 2030 3.5 2 .7 2.1 2 2 .3 1 .8 1 .7 2 .6 2 .1 1 .6 1 .2 1 .2

two taxpayers for each retiree

2 .5

0 .9

0 US UK Japan Canada 2000 2030 France Germany Italy

Source: IMF (1996)

Public retirement benefits will consume a Public retirement benefits will consume a much larger share of GDP. much larger share of GDP.
25% 20% 15%
10.9%

Public Retirement Benefits as a Percent of GDP, Developed Country Average,* 2000 and 2050
17.8%

23.4%

Health-Care Benefits

10% 5% 0%
2000 2050 2050

Public Pensions

Official Projection
*Figures are unweighted averages. Source; EC/OECD (2001) and CSIS (2002).

CSIS Projection

Elders in most countries are highly Elders in most countries are highly dependent on government benefits. dependent on government benefits.
Public Benefits as a Percent of After-Tax Elderly Income

All Households 35% 42 % 57% 54% 50% 67% 59% 6 1%

3rd Quintile 54% 62% 70% 74% 75% 78% 83% 84%

US Canada Sweden Netherlands UK France Italy Germany
Source: CSIS (2002)

The labor challenge. The labor challenge.
Shrinking workforces and labor shortages Aging workers and aging union memberships Pressure to increase immigration--and popular backlash Growth in cross-border outsourcing

The growth challenge. The growth challenge.
Long-term zero or negative GDP growth Declining rates of savings and investment Falling demand for infrastructure (highways, housing) and capital goods (offices, mills) Shrinking consumer markets, overcapacity, and declining profits

The financial challenge. The financial challenge.
Danger of "Great Depreciation" in financial markets when Boomers retire Unsustainable government borrowing to fund pensions Possible collapse of regional economic entities like the EMU Capital-flow reversals: Emergence of developed debtors (Japan? Germany?) and developing creditors (China? Mexico?)

The geopolitical challenge. The geopolitical challenge.
Will youthful developing societies... feel demographic pressure to expand? translate faster economic growth into global leadership? Will aging developed societies... find the resources to meet their security commitments? be willing to sacrifice for the sake of the future?

If demography is destiny, global leadership If demography is destiny, global leadership may pass to the "Third" worlld. may pass to the "Third" wor d.
12 Largest Countries Ranked by Population 1950
1 2 3 4 5 6 7 8 9 10 11 12 China Soviet Union India United States Japan Indonesia Germany Brazil United Kingdom Italy France Bangladesh
Source: UN (2001)

2000
China India United States Indonesia Brazil Russian Fed. Pakistan Bangladesh Japan Nigeria Mexico Germany

2050
India China United States Pakistan Indonesia Nigeria Bangladesh Brazil Congo Ethiopia Mexico Philippines

The US Age Wave in Global Perspective

The United States enjoys The United States enjoys consiiderable advantages. cons derable advantages.
The youngest population in the developed world The developed world's deepest capital markets and most flexible labor markets A relatively inexpensive Social Security system A well-developed private pension system

America's age wave is comparatively small. America's age wave is comparatively small.
40% 35% 30% 25% 20% 15% 10% 5% 0% US
So urce: UN (2005)

39% Per cent of the Population Aged 65 or Over, by Country 31% 27% 24% 20%
16% 12% 13% 16% 19% 20%

39%

27%

20%

Ca n a d a 2005

Fr a nc e

G e r ma n y 2050

Italy

Japan

In many fast-aging countries, the workingIn many fast-aging countries, the workingage population will shrink dramatically. age population will shrink dramatically.
40% 30% 20% 10% 0%
an ad a U U

27% 9%

Percent Change in the Working-Age Population (Aged 15-64), 2005 to 2050

m an

- 2 0% - 3 0% - 4 0% - 5 0%

- 2 5% - 37 % - 38 %

Sourc e: UN (2005)

-9%

Ita

- 1 0%

- 1%
K ce ly S y n

Countriies with slowly growing workforces Countr es with slowly growing workforces may have slowly growing economies. may have slowly growing economies.
225 200 175 150 125 100 75
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
* Assumes constant labor-force participation and productivity growth of 1 percent per year. Source: UN (2001) and CSIS (2004)

Growth in Real GDP by Country,* Year 2000=100, 2000-2050

US France UK Germany Japan Italy

The United States must also overcome The United States must also overcome some real obstacles. some real obstacles.

The world's most expensive health-care system Large gaps in private pension coverage Unsustainable budget and current account deficits An entrenched "entitlement ethos," a powerful senior lobby, and growing political gridlock

Older voters will increasingly dominate Older voters will increasingly dominate the U.S. electorate. the U.S. electorate.
Voters in U.S. Congressional Elections, as a Percent of All Voters, History and CSIS Projection*
100% 90% 80% 70% Percent of All Voters 60% 50% 40% 30% 20% 10% 0% 1966 2002 2038*

16%

23%

35%

Age 65 & Over

40% 38% 35%

Age 45-64

44%

39%

30%

Age 18-44

* Based on age-specific voting rates in 2002 Source: U.S. Census Bureau (2004) and CSIS (2005)

There imperatives for an aging America. There imperatives for an aging America.

Work spans will have to rise along with life spans. Senior entitlement programs will have to begin to adjust benefits according to financial need. Workers will have to finance a larger share of their retirement income out of their own savings during their working years.

Globalization is an essential strategy for Globalization is an essential strategy for an aging America and an aging world. an aging America and an aging world.
There are great advantages to cooperation between the developed and developing worlds: immigration and outsourcing cross-border investment Bottom line: An open global economy allows young people to support old people across international borders.

We live in an era defined by many challenges, from global warming to global terrorism.

None is as certain as global aging.

And none is likely to have such a large and enduring effect on the shape of national economies and the world order.

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