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2 Overview
Pages 12-31

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From page 12...
... We must adjust to the changing demographic realities, including lower birth rates, a workforce that is growing more slowly, and longer lives.
From page 13...
... Higher saving rates for the working age population would reduce their current consumption but enable them to rely less heavily on public benefits for pensions and health care in the future. Of course, higher saving rates for the young will not help pay for the benefits of the current elderly.
From page 14...
... The same is true for raising retirement ages. The remaining chapters in this report discuss these and related issues in more depth.
From page 15...
... population resulting from the baby boom generation, people born after the Second World War between 1945 and 1965, when there were three or four births per family on average. The baby boom generation is now beginning to reach age 65; members of this cohort are leaving the labor force and being replaced by smaller cohorts.
From page 16...
... The high-income countries are farthest along in the process, but many middle-income and lower-income countries will have slowing growth and aging populations in the coming decades because of their rapid and deep fertility declines. The United States is among the youngest of the rich nations because others generally have lower birth rates and lower immigration rates (immigrants are younger on average than the native-born population)
From page 17...
... At present, 83 percent of the population aged 65 and over is not working. Studies reviewed in Chapters 4 and 5 indicate that, although many older people are out of the labor force, this mainly reflects their work-leisure choice and their economic situation rather than a deterioration in their health status.
From page 18...
... ECONOMIC PROSPECTS IN THE COMING YEARS The central thread of the committee's charge was to evaluate the longrun impacts of the changing demographic structure on America's living standards, with particular attention to issues such as saving, economic growth and productivity, income security in the older ages, and the ability of government to provide current and prospective levels of support for the elderly. Our work must acknowledge the substantial impact of the recent financial crisis and the subsequent economic downturn.
From page 19...
... It may lead to some deterioration in labor market skills and to an increase in the population reliant on public support programs. Accordingly, even if and when the nation has returned to full employment, the scars left by the recession will likely make the transition to a sustainable fiscal future more difficult.3 The Macroeconomics of an Aging Population Disregarding for now business cycle movements and changes in health status, per capita income depends on two factors: average productivity per person employed and the fraction of the population employed.
From page 20...
... . In other words, the committee expects that average living standards will continue to rise over the coming decades, but that population aging will make the rise somewhat slower than would otherwise be expected.
From page 21...
... Such factors could include changes in underlying productivity growth, in labor force behavior, and in government policies including those influencing the growth in public and private health care costs. Analyses of productivity growth generally separate the determinants of labor productivity growth into (1)
From page 22...
... Human capital refers to the useful skills of the population acquired through formal and informal education, training, and on-the-job experience. Economic 6This calculation is based on the distribution of net worth by age group of household head in 2007 and the committee's population age distributions for 2010 through 2050, taking into account household headship rates by age.
From page 23...
... As the population ages, so does the labor force. Will the aging of the labor force make it less productive?
From page 24...
... At the beginning of the chapter, the committee discussed the four adaptive mechanisms that America might use to deal with an aging population: We can reduce the relative living standards of the elderly, work longer, increase saving while working, and/or transfer more from working ages to the elderly. Each of these mechanisms is discussed in more detail below.
From page 25...
... The committee foresees a continued rise in the labor force participation rate of older Americans. Based on evidence reviewed in Chapter 5, the committee concludes that the potential for work is much greater than is reflected by the proportions of elderly actually working.
From page 26...
... In normal times, except for deep business cycle recessions, the overall number of jobs is determined primarily by the size of the labor force. If anything, an increase in older workers is predicted to slightly increase the wage rates of young workers.
From page 27...
... The increased prevalence of DC plans is perhaps the main reason for the increase in the labor force participation rate of older workers since the mid-1990s. Changing Rates of Return Some analysts have raised concerns that an aging population will reduce future rates of return or reduce the price of assets, a topic investigated in Chapter 8.
From page 28...
... To the extent that benefits paid by these government programs might be reduced in the future, the living standards of the affected retiree households will fall. Second, the quality of financial decisions, and therefore financial literacy, will play an increasingly important role in how well households fare in their retirement years, particularly in light of the continued trend to DC pensions.
From page 29...
... Changing Public Policies and Transfer Programs As noted earlier, the committee concludes that the overall macroeconomic consequences of population aging in the United States are likely to be modest. However, because the government plays a particularly important role in financing consumption and health care for the elderly, many of the consequences of population aging will be focused on specific government programs rather than spread across the economy.
From page 30...
... And not least, the nation will need to find ways to improve financial literacy for people who increasingly will manage their own retirement finances from the first days of joining the labor force to the later days of deciding how and when to spend money in retirement. SUMMARY The main message of this report is that the committee sees population aging as posing serious but not insurmountable challenges for the United States.
From page 31...
... An aging society need not have lower living standards, slower growth in innovation and productivity, or inefficiently high tax rates. But delaying decisions on how to adapt to our aging demographic structure will make the transition more difficult and costly.


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