Transcript Ageing effect

The impact of an ageing population
Ralph Lattimore
(Productivity Commission)
VET Planning and Research Network
Melbourne, Victoria
22 April 2005
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Today’s presentation
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Is demography destiny?
The face of the labour market
Productivity: doldrums or vitality?
How much will ageing slow economic
growth?
Future consumption: hospital beds,
wheelchairs and coffins
Minding the fiscal ‘gap’
Policies for a happy future
2
Projections not forecasts
• Projections based on current
expenditure trends and government
policy
• Not forecasts because we do not factor
in a response to ageing
3
Demographics: from pyramid to … coffin?
Age structure
1945
2045
Age
80
70
80
Males
Females
70
60
60
50
50
40
40
30
30
20
Females
20
10
0
-3%
Males
10
0%
0
-2.5%
3%
per cent of population
4
0%
per cent of population
2.5%
Is ageing a transitional phenomenon?
• Often said that ageing transition is like a
‘pig passing through a python’
• Connotes ageing as a generational and
fertility issue, with ephemeral social
costs
• Which generation is the ‘pig’ in this
story?
– Me and some of you! : the baby boomers!
5
Say there was no baby boom?
4.0
80
1944-2051
1944-2051
70
Total fertility rate
3.5
Total dependency
Dependency ratios (%)
60
TFR
3.0
2.5
50
40
30
2.0
20
Aged
dependency
With baby boom
Without baby boom
We would have an older society without the post-WWII fertility bulge
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2049
2034
2019
2004
1989
1974
1959
1944
2049
2034
2019
2004
1989
1974
1959
10
1944
1.5
Youth dependency
Fertility much misunderstood
• Total fertility rate – the usually cited
measure – is highly artificial
– the number of children that a hypothetical
women would have if she were to conform
to the age-specific fertility rates of a given
year
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The total and completed fertility rate
3.3
Actual
3.1
Projected
fertility rates
2.9
2.7
Completed
fertility rate
2.5
2.3
2.1
1.9
1.7
1.5
1975
Tempo effects
are at work
Total fertility rate
1985
1995
2005
2015
Calendar years
8
2025
2035
2045
Longevity is the main source of ageing
• This seems preferable to the alternative
• Ageing is therefore a symptom of
success : not a intrinsic problem
• How long will you live?
– Males aged 40 today to around 84,
females aged 40 to around 88 years
(cohort life expectancies)
10
Ageing about to escalate
Change in share aged 65+ (% points)
0.500
0.400
Accelerating phase
0.300
0.200
Historical average
1922-2000
0.100
0.000
-0.100
1922 1932 1942 1952 1962 1972 1982 1992 2002 2012 2022 2032 2042
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Ageing doesn’t stop in 2045
100
The 50 year horizon
Total dependency ratio
90
80
70
Aged dependency ratio
%
60
50
40
Youth dependency ratio
30
20
10
0
2004
2029
2054
2079
2104
2129
2154
2179
2204
2229
Assumes underlying longevity of Males 78.4 in 2004, 83.7 in 2045, 92.3 in 2150; Females 83.6 in 2004, 87.4 in 2045 and 95 in 2150. Zero change after 2150.
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Potential workforce will slow
Annual growth rate in people aged 15-64 years
3
2003-04
Per cent
2.5
2
1.5
1
0.5
0
1944-45
1964-65
1984-85
2004-05
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2024-25
2044-45
Cohort data: females
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
15-19
20-24
25-29
30-34
35-39
40-44
45-49
1886-1900
1906-1910
1916-1920
1946-1950
1956-1960
1966-1970
14
50-54
55-59
60-64
1926-1930
65-69
1936-1940
Male cohorts
1.1
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
15-19
1896-1900
1946-1950
20-24
25-29
1906-1910
1956-1960
30-34
35-39
40-44
1916-1920
1966-1970
15
45-49
50-54
55-59
1926-1930
60-64
65-69
1936-1940
The cohort method
2014
2009
participation rate
2004
A 1
B
1
1999
C
1
B
A
2
2
1965-69 cohort
C
2
1960-64 cohort
B
3
C
1955-59 cohort
3
Birth cohorts
30-34
35-39
40-44
Age group
16
45-49
Participation rates
Participation rate (%)
66
Participation rate
without ageing
64
62
Ageing
effect
60
Participation rate
with ageing
58
56
2004
2009
2014
2019
2024
17
2029
2034
2039
2044
Not everyone agrees!
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Commentators suggested labour participation
rates could be higher than the PC base case
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Healthier workers (ABARE)
More educated older cohorts (ABARE)
The ‘encouraged worker effect’ (DEWR)
Retirement income policy (DEWR)
DSP policies (DEWR)
Labour shortages (Tim Colebatch)
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Rising education may be one reason
0.4
females 65 years
0.35
0.3
females 25 years
Share
0.25
males 65 years
0.2
males 25 years
0.15
0.1
0.05
0
1981
1987
1993
1999
2005
2011
20
2017
2023
2029
2035
2041
But these may not change future trends
• Educational attainment and health
technologies improved in the past, but
participation rates still fell for men
• Encouraged worker effect usually a short run
phenomenon
• Retirement policy helps in some areas, but
hurts in others
• DSP changes may be worthwhile, but effects
likely to be small
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Labour supply: will there be shortages?
• Clearly some shortages in specific
occupations
• For example, already some evident
occupational shortages in nursing
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But will shortages invite automatic big supply
responses?
• Some people claim feedbacks from labour
shortages to increased participation
• First, there will not be negative growth in
labour inputs, just slower growth
• Second, even if incipient labour shortages, it
is like an economy overheating (ie like now)
– Macro responses to overheating reduce scope for
participation responses
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But uncertainty means …
• Long run participation rates could
diverge from the Commission’s base
case
• We did sensitivity analysis
• Does not change implications much
24
An example: getting DSP beneficiaries into work
Met voluntarily with Job Network provider
1130
Did not engage
342 (30%)
Selected for Pilot
788 (70%)
Exited before
Pending
Ineligible (127)
assistance
43
Found unsuitable (74)
74
Client declined (141)
Commenced Intensive Support
671
Exited
88
Stayers
583
Education outcome
19
Still unemployed
344
Job outcome
220
Full time
53
Part time
75
Casual
92
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Implications of resurgence in older male
participation rates
• Say by 2044-45, male workers aged 55 years
and over could achieve a participation rate
10 percentage points higher than under the
base case
– average productivity levels were 70 percent of
existing workers
– new participants under 65 had employment rates
90% of the current average for their age & sex
– new participants had 0.5 the average propensity to
work full time
– they worked 80 percent of the average hours per
week of existing part time or full time employees
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Impacts of higher older male participation
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3.7%
3.5
3
2.5
2%
2
1.4%
1.5
0.8%
1
0.5
0
Aggregate
participation rate
2044-45
Total hours worked
2044-45
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GDP per capita
2044-45
Sum of GDP 2004-05
to 2044-45
Placing the ‘problem’ in perspective
0.500
Employment to
Population ratio
(LHS)
0.75
0.450
0.70
0.425
0.400
0.65
0.375
0.60
0.350
Participation
rate
(RHS)
0.325
0.300
0.55
0.50
1856 1874 1892 1910 1928 1946 1964 1982 2000 2018 2036
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Participation rate
Employment to population ratio
0.475
0.80
Productivity & ageing: small effects?
Effect on productivity growth
Even with inverted u shape
1.75
1
1.74
males
1.73
0.8
%
0.9
females
1.72
1.71
0.7
1.70
0.6
0.5
1.69
15-19
20-24
25-29
30-34
30-39
40-44
45-49
50-54
55-59
60-64
65-69
70+
relative productivity index
1.1
1.68
2005
29
2014
2023
2032
2041
Economic growth slump ahead
1.9
1.8
Without ageing
Growth (%)
1.7
1.6
Ageing effect
1.5
1.4
With ageing
1.3
1.2
2006 2009 2012 2015 2018 2021 2024 2027 2030 2033 2036 2039 2042 2045
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Different scenarios for economic growth
Scenario
Per capita
labour
supply
growth
to
2044-45
%
Per capita
GDP
growth
to
2044-45
Real GDP per
capita in
2044-45
Per person
GDP
‘dividend
’ cf base
%
$
$
Base case
-0.235
1.511
72 708
0
Older male participation rate up 10 pts
-0.187
1.545
73 731
17 500
Participation rises to 80% OECD
-0.097
1.617
75 885
58 344
Older female PR converge on males
-0.205
1.541
73 610
15 697
High life expectancy
-0.293
1.451
70 987
-14 282
Low life expectancy
-0.200
1.546
73 761
17 060
High migration
-0.220
1.527
73 178
13 269
Low migration
-0.252
1.493
72 198
-13 779
0.57% fixed migration rate
-0.215
1.531
73 310
14 126
High fertility
-0.268
1.478
71 746
-28 504
Low fertility
-0.204
1.542
73 638
29 382
Most ageing
-0.287
1.458
71 167
-226
Least ageing
-0.221
1.525
73 124
290
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Fertility effects on labour supply growth per capita
0.2
0.1
0
-0.1
Low fertility case
%
-0.2
-0.3
-0.4
Base case
-0.5
-0.6
High fertility case
-0.7
2006
2011
2016
2021
2026
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2031
2036
2041
Births and deaths per 1000 people
The demand for coffins and prams
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12
10
8
6
4
2
0
2001-02
2050-51
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Health costs rise with age
6000
1200
Public hospitals
1000
Males
$ per person
4000
3000
2000
Females
800
Males
600
400
200
Females
75
60
45
0
34
30
0
75
60
45
30
15
0
15
1000
0
$ per person
5000
Pharmaceutical
Benefits
Scheme
Share of VET students by age
12
10
%
8
6
4
2
0
Age
35
Growth in VET declines
3
2.5
%
2
1.5
1
0.5
0
2003-04
2008-09
2013-14
2018-19
2023-24
2028-29
Full time equivalents
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3033-34
2038-39
2043-44
The fiscal outcomes in education
2044-45
2002-03
States & Aust. Govt.
Territories
Schools
Government
Non-government
VET
University
HECS repayments
Income assistance
Other education
Total
Total
States & Aust.Govt.
Territories.
Total
%
%
%
%
%
%
2.60
2.41
0.20
0.35
0.03
0.30
3.28
0.78
0.28
0.50
0.16
0.74
-0.11
0.26
0.09
1.92
3.38
2.69
0.69
0.52
0.77
-0.11
0.26
0.38
5.20
2.24
2.03
0.21
0.36
0.03
0.27
2.89
0.76
0.24
0.52
0.16
0.87
-0.17
0.12
0.08
1.81
2.99
2.27
0.73
0.52
0.89
-0.17
0.12
0.34
4.69
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Overall fiscal pressure (spending)
Spending category
2003-04
2044-45
Difference
(fiscal
pressure)
%
%
Percentage
points
Health
5.7
10.3
4.5
Aged Care & carers
1.1
2.5
1.4
Aged pensions
2.9
4.6
1.7
Other social safety net
3.8
3.1
-0.6
Education
5.2
4.7
-0.5
18.7
25.2
6.5
Total
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Things could be worse
High ageing (low fertility, high LE, low migration)
Spending category
2003-04
2044-45
Difference
(fiscal
pressure)
%
%
Percentage
points
Health
5.7
10.8
5.1
Aged Care & carers
1.1
3.5
2.4
Aged pensions
2.9
5.7
2.9
Other social safety net
3.8
3.0
-0.8
Education
5.3
4.1
-0.9
18.8
27.2
8.6
Total
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Policy responses to ageing
• Ironically, population policies don’t do
much and could hurt
40
Why is population policy not the remedy?
• Plausible migration changes have little
direct effect on ageing
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Immigration-induced population growth
needed to offset ageing
Population (million)
140.0
Japan
Japan
120.0
100.0
80.0
Germany
60.0
UK
40.0
Canada
Germany
UK
Canada
20.0
0.0
2005
2014
2023
2032
42
2041
2050
Why is population policy not the remedy?
• Plausible migration changes have little direct
effect on ageing
– but a modest, but temporary, fiscal benefit
• Skilled migration more positive
• Long term fertility is insensitive to policy and
hurts, not helps, over 50 years
• Mortality the only really effective demographic
variable for controlling ageing, but has some
political drawbacks
43
Policy responses to ageing
• Ironically, population policies don’t do much
and could hurt
• Productivity and participation make the
national cake bigger – but need not reduce
fiscal gap
• Role for policies that raise revenue or reduce
costs relative to the deficit
– higher average taxation rates
– user pays in some areas?
– greater efficiency and ingenuity in health services
and government services generally
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Crisis? What crisis?
• Ageing is not a crisis (remember the
alternative)!
• Ageing is not a crisis!
• We will be much richer as a country (twice as
rich)
• Australia is ageing less than Europe
• We have no pension crisis
• Additional expenditure improves peoples’
lives
• But we must cover the large emerging
government fiscal gap
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Implications: don’t panic! But take action!
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