The Challenge of Global Aging how demography will reshape the world of the 21 st century Richard...

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

The whole world is aging—and today’s developed countries are leading the way.The whole world is aging—and today’s

developed countries are leading the way.

8% 9%10%

12%13%

14%16%

19%

23%25%

26%

4% 4% 4% 4% 4% 5% 6%8%

10%

13%15%

0%

5%

10%

15%

20%

25%

30%

1950 1970 1990 2010 2030 2050

Developed World Developing World

Percent of PopulationAged 65 & Over: History and UN Projection

Source: UN (2005)

Year 2005

Pyramid inversion in the developed world—1950 to 2050.


More Developed Regions: UN Constant Fertility ScenarioMore Developed Regions: UN Constant Fertility Scenario

Men Women

Population in Thousands

50000 40000 30000 20000 10000 0 10000 20000 30000 40000 50000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

90-94

100+

year

1950

median age

28.6

THIS IS

WHERE WE

WERE IN

1950

year

1950

median age

28.6

THIS IS

WHERE WE

WERE IN

1950

Men Women





50000 40000 30000 20000 10000 0 10000 20000 30000 40000 50000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

90-94

100+

year

1955

median age

29.0

year

1955

median age

29.0

Men Women





50000 40000 30000 20000 10000 0 10000 20000 30000 40000 50000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

90-94

100+

year

1960

median age

29.6

year

1960

median age

29.6

Men Women





50000 40000 30000 20000 10000 0 10000 20000 30000 40000 50000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

90-94

100+

year

1965

median age

29.8

year

1965

median age

29.8

Men Women





50000 40000 30000 20000 10000 0 10000 20000 30000 40000 50000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

90-94

100+

year

1970

median age

30.6

year

1970

median age

30.6

Men Women





50000 40000 30000 20000 10000 0 10000 20000 30000 40000 50000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

90-94

100+

year

1975

median age

30.9

year

1975

median age

30.9

Men Women





50000 40000 30000 20000 10000 0 10000 20000 30000 40000 50000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

90-94

100+

year

1980

median age

31.9

year

1980

median age

31.9

Men Women





50000 40000 30000 20000 10000 0 10000 20000 30000 40000 50000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

90-94

100+

year

1985

median age

33.1

year

1985

median age

33.1

Men Women





50000 40000 30000 20000 10000 0 10000 20000 30000 40000 50000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

90-94

100+

year

1990

median age

34.4

year

1990

median age

34.4

Men Women





50000 40000 30000 20000 10000 0 10000 20000 30000 40000 50000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

90-94

100+

year

1995

median age

35.8

year

1995

median age

35.8

Men Women





50000 40000 30000 20000 10000 0 10000 20000 30000 40000 50000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

90-94

100+

year

2000

median age

37.3

year

2000

median age

37.3

Men Women





50000 40000 30000 20000 10000 0 10000 20000 30000 40000 50000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

90-94

100+

year

2005

median age

38.7

THIS IS

WHERE WE

ARE TODAY

year

2005

median age

38.7

THIS IS

WHERE WE

ARE TODAY

Men Women





50000 40000 30000 20000 10000 0 10000 20000 30000 40000 50000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

90-94

100+

year

2010

median age

40.0

year

2010

median age

40.0

Men Women





50000 40000 30000 20000 10000 0 10000 20000 30000 40000 50000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

90-94

100+

year

2015

median age

41.2

year

2015

median age

41.2

Men Women





50000 40000 30000 20000 10000 0 10000 20000 30000 40000 50000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

90-94

100+

year

2020

median age

42.3

year

2020

median age

42.3

Men Women





50000 40000 30000 20000 10000 0 10000 20000 30000 40000 50000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

90-94

100+

year

2025

median age

43.4

year

2025

median age

43.4

Men Women





50000 40000 30000 20000 10000 0 10000 20000 30000 40000 50000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

90-94

100+

year

2030

median age

44.5

year

2030

median age

44.5

Men Women





50000 40000 30000 20000 10000 0 10000 20000 30000 40000 50000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

90-94

100+

year

2035

median age

45.4

year

2035

median age

45.4

Men Women





50000 40000 30000 20000 10000 0 10000 20000 30000 40000 50000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

90-94

100+

year

2040

median age

46.0

year

2040

median age

46.0

Men Women





50000 40000 30000 20000 10000 0 10000 20000 30000 40000 50000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

90-94

100+

year

2045

median age

46.3

year

2045

median age

46.3

Men Women





50000 40000 30000 20000 10000 0 10000 20000 30000 40000 50000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

90-94

100+

year

2050

median age

46.4

THIS IS

WHERE WE

WILL BE IN

2050

year

2050

median age

46.4

THIS IS

WHERE WE

WILL BE IN

2050

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 support each pensioner will decline.The number of workers available to support each pensioner will decline.

4.3

2.7

2.3

3.5

2.6

2.1

1.2

2.5

2.1

1.20.9

1.81.61.7

0

1

2

3

4

5

US UK Japan Canada France Germany Italy

2000 2030Source: IMF (1996)

Ratio of Contributors to Retirees in Public Pension Systems: 2000 & 2030

two taxpayers for each retiree

Public retirement benefits will consume a much larger share of GDP.

Public retirement benefits will consume a much larger share of GDP.

0%

5%

10%

15%

20%

25%

2000 2050 2050

Health-CareBenefits

PublicPensions

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

Public Retirement Benefits as a Percent of GDP, DevelopedCountry Average,* 2000 and 2050

10.9%

17.8%

23.4%

Official Projection

CSIS Projection

Elders in most countries are highly dependent on government benefits.Elders in most countries are highly dependent on government benefits.

All 3rd Households Quintile

US 35% 54%Canada 42 % 62%Sweden 57% 70%Netherlands 54% 74%UK 50% 75%France 67% 78%Italy 59% 83%Germany 61% 84%

Public Benefits as a Percent of After-Tax Elderly Income

Source: CSIS (2002)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?

1 2 3 4 5 6 7 8 9101112

If demography is destiny, global leadership may pass to the “Third” world.

If demography is destiny, global leadership may pass to the “Third” world.

1950

ChinaSoviet UnionIndiaUnited StatesJapanIndonesiaGermanyBrazilUnited KingdomItalyFranceBangladesh

2000

ChinaIndiaUnited StatesIndonesiaBrazilRussian Fed.PakistanBangladeshJapanNigeriaMexicoGermany

2050

IndiaChinaUnited StatesPakistanIndonesiaNigeriaBangladeshBrazilCongoEthiopiaMexicoPhilippines

12 Largest Countries Ranked by Population

Source: UN (2001)

The US Age Wavein Global Perspective

The United States enjoys considerable advantages. The United States enjoys

considerable 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.America’s age wave is comparatively small.America’s age wave is comparatively small.

12%

16%

13%

16%19%

20% 20%20%

24%27% 27%

31%

39% 39%

0%

5%

10%

15%

20%

25%

30%

35%

40%

US UK Canada France Germany Italy Japan

2005 2050

Percent of the PopulationAged 65 or Over, by Country

Source: UN (2005)

In many fast-aging countries, the working-age population will shrink dramatically.

In many fast-aging countries, the working-age population will shrink dramatically.

27%

9%

-9%

-25%

-37% -38%

-1%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

Source: UN (2005)

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

75

100

125

150

175

200

225

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

US

France

UK

Germany

Japan

Italy

* 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

Countries with slowly growing workforces may have slowly growing economies.

Countries with slowly growing workforces may have slowly growing economies.

The United States must also overcome some real obstacles.

The United States must also overcome 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 the U.S. electorate.

Older voters will increasingly dominate the U.S. electorate.

39%44%30%

40%38%

35%

16%23%

35%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1966 2002 2038*

Per

cent

of A

ll V

oter

s

Age 65 & Over

Age 45-64

Age 18-44

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

Voters in U.S. Congressional Elections, as a Percent of All Voters, History and CSIS Projection*

The Challenge of Global Aging how demography will reshape the world of the 21 st century Richard...

Documents

Transcript of The Challenge of Global Aging how demography will reshape the world of the 21 st century Richard...