Aging and the Macroeconomy Long-Term Implications of an Older Population (2012) / Chapter Skim
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3 Demographic Trends
3 Demographic Trends
Pages 32-61
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From page 32... ...
life expectancy at birth started improving in the eighteenth century, reaching 47.3 years in 1900, 68.4 years in 1950, and 78.2 in 2010 (Arias, 2011; Board of Trustees, Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, 2011)
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From page 33... ...
SOURCES: United Nations (2011) ; Board of Trustees, Federal Old-Age and Survivors Insurance and Federal Disability Insurance 3-1.eps Trust Funds (2011)
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projection is the one used by the Social Security Administration. The 2011 Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds (commonly known as the Trustees Report)
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From page 35... ...
As shown in Figure 3-1, the future pace of improvement is more rapid than assumed in the Trustees Report but still slightly slower than the pace achieved by other high-income countries in past decades. The projections of life expectancy, population aging, and other demographic indicators used in the present report are based on special projections made by the committee to incorporate the higher trend in life expectancy recommended by the Social Security TPAM (see Appendix A)
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Longer Life and the Individual Life Cycle As discussed later in this chapter, population aging results in part from longer life and in part from lower fertility. Figure 3-2 plots the average number of years spent in the three main life cycle phases: (1)
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From page 37... ...
SOURCES: Board of Trustees, Federal Old-Age and Survivors Insurance and Federal Disability 3-2.eps Insurance Trust Funds (2011) and projections by the committee.
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Adjusting the Life Cycle As discussed in later chapters of this report, the costs of public support for health and pension benefits to the elderly will be difficult to bear given the rapid pace of population aging. Among the adaptations that are being considered is an increase in the age at retirement with full benefits, because the costs of this public support decline as the age of eligibility rises.
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Census Bureau (2012)
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Generally, disadvantaged groups or populations smoke more, are more obese, exercise less, live more stressful lives; have less access to health care services; have fewer social resources and lower status occupations; live in neighborhoods with poor housing, high levels of pollution, and relatively high crime rates; and have less income and education (Centers for Disease Control and Prevention, 2011; National Research Council, 2004a, 2004b)
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The population aged 90+ rises more than 17-fold between 1975 and 2050. Over past decades, the baby boom postponed population aging as it moved through the labor force ages.
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Insurance Trust Funds (2011) and projections Providing pensions and health care for this wave of new retirees will be a challenge.
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SOURCES: Board of Trustees, Federal OldAge and Survivors Insurance and Federal Disability Insurance Trust Funds (2011) and projections by the committee.
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These large recent swings are mostly due to changes in illegal migration, which is estimated to have turned negative in 2007. Legal 3The total fertility rate was between 2.0 and 2.1 births per woman during the period 20002005 and reached 2.1 in 2006 and 2007.
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SOURCES: Board of Trustees, Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds 3-9.eps (2011) and Technical Panel on Assumptions and Methods (2011)
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The Social Security Trustees Report projects that the rebound in migration will continue until 2015 before beginning a steady decline over future decades. This decline is assumed to be entirely in illegal migration; legal migration is held constant at 750,000 from 2012 onward following current law.
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. Higher net immigration, both documented and undocumented, would also reduce population aging, but like higher fertility, would lead to faster population growth and larger size.
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WHY POPULATION AGING MATTERS: AGE PATTERNS OF CONSUMPTION AND LABOR INCOME Population aging matters because average economic behavior varies systematically with age. It is interesting to estimate how consumption and labor income have actually varied across age at different periods over the past half century.
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Labor income is before taxes and includes fringe benefits and two-thirds of self-employment income. For each year, all values have been3-11.eps divided by average labor income in that year between ages 30 and 49.
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Population aging will occur rapidly over the coming decades as the baby boom moves into older ages, and the societal costs will be heightened by the corresponding increase in the net consumption of the elderly. At the same time, the elderly in the United States continue to earn a substantial amount of labor income, more than in most other industrial nations (Lee and Mason, 2011)
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SOURCES: Board of Trustees, Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust 3-13.eps Funds (2011) and projections by the committee.
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The trends over time in the two indicators are similar, as shown in Figure 3-13, where the dashed line represents the RWR. Support Ratio Unweighted Support ratios differ from dependency ratios in that the supporters (or workers)
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SOURCES: Board of Trustees, Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds (2011) ; 3-14.eps Lee and Mason, 2011; and projections by the committee.
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. The reason for this difference is that the rise in the age at retirement plotted in Figure 3-15 compensates both for the projected rise in life expectancy and for population aging resulting from fertility decline 6The support ratio is typically less than unity because consumption is funded in part from sources other than labor income, such as asset income.
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SOURCES: Board of Trustees, Federal Old-Age and Survivors 3-15.eps Insurance and Federal Disability Insurance Trust Funds (2011) and projections by the committee.
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UNCERTAINTY IN POPULATION PROJECTIONS It is obvious that many assumptions are required for a population projection. Painful actions such as raising the retirement age might be taken 30 Europe 25 North America 20 Percent 15 Latin America 10 Asia 5 Africa 0 1950 1975 2000 2025 2050 FIGURE 3-16 Share of the population aged 65+ in five world regions, 1950-2050.
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. The traditional method, which can be called "scenarios," is familiar to all: The projections are made in high, medium, and low variants, based on expert opinion about how high or low each of the key inputs -- fertility, mortality, and net immigration -- might be.
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Such an approach is valuable because some outcomes of interest, such as the projected Trust Fund balance for Social Security in a given year, depend not only on the demography of that particular year but also on the whole demographic trajectory leading up to that point, with all its ups and downs. In fact, the Social Security Trustees have included in their annual reports a stochastic forecast of this sort for the system's finances.
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, and Board of Trustees, Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds (2012)
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That is, the plotted values show the ratio relative to the ratio in 2007.9 The expected decline in the support ratio between 2010 and 2050 is 12 percent (the same as reported earlier in this chapter) , and there is a two 9Of course, the age profiles of labor income and consumption will change over the next four decades, and any attempt to project their future levels would involve substantial uncertainty.
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We can conclude from the stochastic approach in Figures 3-18 and 3-19 that it is virtually certain that the U.S. will experience substantial population aging and that the support ratio is virtually certain to fall in the coming decades.
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