The Economic Consequences of Population Aging
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Case Code: ECON023 Case Length: 19 Pages Period: 1960-2007 Pub Date: 2007 Teaching Note: Not Available |
Price: Rs.300 Organization : - Industry : Miscellaneous Countries : Global Themes: Economics |
Abstract Case Intro 1 Case Intro 2 Excerpts
"A substantial degree of population aging is expected over the next few decades in all regions of the world. Ideally, policy responses should be put in place ahead of time to ease adaptation to these long-term demographic changes."
- An excerpt from the World Economic and Social Survey 2007, United Nations Department of Economic and Social Affairs, released in June 2007.
"People are living longer and, in some parts of the world, healthier lives". Societal aging may affect economic growth and many other issues, including the sustainability of families, [and] the ability of states and communities to provide resources for older citizens."
- An excerpt from a report presented at the Summit on Global Aging in March 2007.
Introduction
In July 2007, Japan's Ministry of Internal Affairs and Communications published a report on the changing demographics in the country. According to the report, the proportion of people aged 65 or over had grown to around 21 percent in 2007, from 17.3 percent in April 2000. With this, Japan displaced Italy to become the country with the highest percent of aged people. The report added that if current trends continued, the population of elderly people in Japan would account for 40.5 percent of the total population by 2055 - and there would only be 1.3 people of working age (15-64 years) to support each person over the age of 65 years in 2055 (down from more than 3 people of working age in 2007).
The report predicted average life span of 90.34 years for women and 83.67 years for men by 2055 (Refer Exhibit I for the projected life expectancy of the Japanese). In recent times, aging populations – characterized by an increase in the mean or the median age of the population, and a decline in the proportion of those aged 15 or lower and a rise in the proportion of those aged 65 or over in the total population – and their consequences have become an area of focus for economists, marketers, sociologists, and policy makers.
The phenomenon was expected to affect almost all countries, whether developed or developing. However, developed countries would experience it sooner than others or were already experiencing it. Countries with large and growing young populations - referred to as the 'youth bulge' - could, for the present, enjoy the benefits of a young population; but, with time, these countries too would have aging populations. The aging of populations occurred primarily for two reasons – declines in the birth rate and increases in life expectancy.
The former was due to declines in the marriage rate, increasing numbers of late marriages and increasing incidence of childlessness caused by falling fertility levels, and couples deciding to not bear children either because of financial problems or lifestyle choices, while the latter was the result of improved health care facilities and better nutrition. The economic effects of an aging population were many; some of these effects have not even been fully studied. However, a major economic fallout of an aging population was a proportionally smaller workforce. With an increase in the old age dependency ratio (the ratio of number of persons aged 65 and over to the working population8) in a country, there would be an increase in the taxes, which would be used to pay out pensions or social security to retired or old people, on the working population, affecting their savings rate. This, together with a drop in consumption, was expected to lead to a decline in economic growth.
An economy with an aging population would also witness a change in consumption patterns, with medical expenses increasing and expenditure on some other products and services seeing a sharp fall. Some economists, however, believed that at least in the short-term, countries with aging populations would stand to gain as they would experience lower unemployment rates. There were several options available to policy makers to tackle the economic problems arising from an aging population. Governments could, for example, relax immigration laws so that labor from other countries could enter the country and join the workforce. Some analysts, however, believed that immigration was only a temporary solution. Instead, they favored encouraging women and older people to participate in greater numbers in the workforce.
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