Demographic Change in Asia: Demographic Change in Asia: The Implications of Evolving The Implications of Evolving

Support Systems Support Systems

Andrew MasonAndrew MasonEast-West Center and East-West Center and

University of Hawaii at ManoaUniversity of Hawaii at Manoa

Community 50+ AsiaCommunity 50+ Asia

Three Key Features of AsiaThree Key Features of Asia

Demography: Asia is experiencing slower Demography: Asia is experiencing slower population growth and rapid population aging. population growth and rapid population aging.

Economic lifecycle: High consumption but low Economic lifecycle: High consumption but low labor income during old age. labor income during old age.

Diverse systems for meeting the material needs Diverse systems for meeting the material needs of the elderly. of the elderly. Financial systemsFinancial systems Public programsPublic programs Familial supportFamilial support

Why are the three features Why are the three features important?important?

Economic growth and standards of livingEconomic growth and standards of living

Government budgetsGovernment budgets

Intergenerational relationships Intergenerational relationships

Regional distribution of wealth (and power)Regional distribution of wealth (and power)

Bottom LineBottom Line

Basis for optimism: Population aging Basis for optimism: Population aging means fewer workers, but more wealth.means fewer workers, but more wealth.Policy imperativesPolicy imperatives Avoid excessive reliance on transfer Avoid excessive reliance on transfer

programsprograms Improve financial systemsImprove financial systems Promote education of consumers and Promote education of consumers and

policymakerspolicymakers Proceed without delay!Proceed without delay!

Research BackgroundResearch Background

International project based at the East-West International project based at the East-West Center and UC – BerkeleyCenter and UC – Berkeley

Research teams from 23 countries participating Research teams from 23 countries participating including US, Japan, China, Korea, Taiwan, including US, Japan, China, Korea, Taiwan, Thailand, Philippines, Indonesia, and India.Thailand, Philippines, Indonesia, and India.

Results are preliminary.Results are preliminary.

Core support from the National Institute on Core support from the National Institute on Aging.Aging.

Details: Details: www.ntaccounts.orgwww.ntaccounts.org

First Feature:First Feature:The DemographyThe Demography

Population Decline: Labor Force China, Population Decline: Labor Force China, India, Japan, and the US, 1950-2050India, Japan, and the US, 1950-2050

0

100

200

300

400

500

600

700

1950 1975 2000 2025 2050

Eff

ecti

ve l

abo

r fo

rce

(195

0=10

0)

.

India

China

US

Japan

Labor force decline has begun in Japan; on the

horizon in China.

Population Aging: China, India, Population Aging: China, India, Japan, and the US, 1950-2050 Japan, and the US, 1950-2050

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

Po

p 6

5+/P

op

20-

64

China

India

Japan

USA

Cause of Population Aging: Cause of Population Aging: US versus Japan in 2006US versus Japan in 2006

Life expectancy greater in JapanLife expectancy greater in Japan 82 in Japan82 in Japan 78 in US78 in US

Fertility is much lower in Japan Fertility is much lower in Japan 1.3 births per woman in Japan1.3 births per woman in Japan 2.1 births per woman in US2.1 births per woman in US

Immigration is much lower in JapanImmigration is much lower in Japan Negligible in JapanNegligible in Japan 1 million per year in US1 million per year in US

Most important by far!

Low Fertility Common in AsiaLow Fertility Common in Asia

0 0.5 1 1.5 2 2.5 3 3.5

S Korea

Taiwan

Japan

Singapore

China

Thailand

Malaysia

Indonesia

India

Births per woman

Replacement fertility:Below this birth rate population cannot be

sustained.

Source: Population Reference Bureau 2007.

The Demography: SummaryThe Demography: Summary

Rapid population aging is occurring or will Rapid population aging is occurring or will soon begin in many Asian countries.soon begin in many Asian countries.

Population decline is also likely.Population decline is also likely.

Low fertility will exacerbate these trends. Low fertility will exacerbate these trends.

Second Feature:Second Feature:The Economic LifecycleThe Economic Lifecycle

Consumption and Labor Income, US, 2003

0

10000

20000

30000

40000

50000

60000

0 10 20 30 40 50 60 70 80 90+

Age

Per

Cap

ita

Val

ue

($)

Labor Income

Consumption

Consumption by the elderly greatly exceeds

their labor income

Source: Lee et al., 2006. www.ntaccounts.org.

Steep rise in consumption due to health care and long-

term care.

Gap between Consumption and Labor Gap between Consumption and Labor Income at Older Ages, 13 CountriesIncome at Older Ages, 13 Countries

23456789

101112

0.1 0.15 0.2 0.25 0.3 0.35 0.4 0.45 0.5

Old-age Dependency Ratio: N(60+)/N(20-59)

LC

D E

lder

ly/Y

l(30

-49)

UrJpUS

Sw

CRTw

ThCh

SK

Ph InIndo

Average gap is larger in “old” Japan, US, and Uruguay than in

“young countries”.

But Sweden has a more modest gaps.

Economic Lifecycle SummaryEconomic Lifecycle Summary

In all countries the per person gap In all countries the per person gap between consumption and labor income at between consumption and labor income at older ages is large.older ages is large.

Some tendency for the gap to be larger in Some tendency for the gap to be larger in older countries. Implies that the economic older countries. Implies that the economic resources to older ages may increase resources to older ages may increase faster than the population in those groups. faster than the population in those groups.

Gap is not larger in some older countries.Gap is not larger in some older countries.

Third Feature:Third Feature:The Support SystemThe Support System

(How do we fill the gap at (How do we fill the gap at older ages?)older ages?)

Old-Age Support SystemsOld-Age Support Systems

Saving

Public Transfers

FamilialTransfers

Older adults rely on private pensions,

housing, personal saving, etc.

Older adults rely on adult children

often living together.

Older adults rely on public

pensions, health care, and other

transfer programs.

Old-Age Support SystemsOld-Age Support Systems

Saving

Public Transfers

FamilialTransfers

Asia (except Japan)

Japan and West

Latin America

Trend: Old-Age Support SystemsTrend: Old-Age Support Systems

Saving

Public Transfers

FamilialTransfers

Taiwan: Decline in family, increase

in public and saving.

Japan: Decline in family and

saving; increase in public.

Three Scenarios for Three Scenarios for Aging SocietiesAging Societies

Possibility IPossibility I

Rapid population agingRapid population aging

Large lifecycle gap for the elderlyLarge lifecycle gap for the elderly

Reliance on public support systems Reliance on public support systems

Heavy burden on future generations Heavy burden on future generations of taxpayers of taxpayers

Possibility IIPossibility II

Rapid population agingRapid population aging

Large lifecycle gap for the elderlyLarge lifecycle gap for the elderly

Reliance on familial support systems Reliance on familial support systems

Heavy burden on our adult children Heavy burden on our adult children

Possibility IIIPossibility III

Rapid population agingRapid population aging

Large lifecycle gap for the elderlyLarge lifecycle gap for the elderly

Reliance on saving Reliance on saving

Increase in wealth and more rapid Increase in wealth and more rapid economic growth economic growth

Actual Outcome Depends on:Actual Outcome Depends on:

Trends in demographic variablesTrends in demographic variables

Extent to which the gap between Extent to which the gap between consumption and labor income widens, consumption and labor income widens, narrows, or remains the samenarrows, or remains the same

Shifts in the relative importance of familial Shifts in the relative importance of familial support, public support, and retirement support, public support, and retirement saving.saving.

An Optimistic Scenario: 65% Saving OptionAssets Relative to Labor Income

0

2

4

6

8

10

12

14

1950 1975 2000 2025 2050

Ass

ets/

lab

or

inco

me

India

US

China

Japan

A Positive OutcomeA Positive Outcome

If people save to support themselves in If people save to support themselves in retirement, population aging leads toretirement, population aging leads to

An increase in per capita wealthAn increase in per capita wealth An increase in wages due to the greater An increase in wages due to the greater

investmentinvestment Higher standards of living.Higher standards of living.

Implications for PolicyImplications for Policy

Emphasize asset accumulation over public Emphasize asset accumulation over public and familial and familial financialfinancial support systems. support systems.But some major problemsBut some major problems How do we deal with rising costs of health and How do we deal with rising costs of health and

long-term care?long-term care? How do we promote the development of How do we promote the development of

sound and reliable financial sectors in sound and reliable financial sectors in countries where they do not yet exist?countries where they do not yet exist?

How do we get people to save (and to do so How do we get people to save (and to do so wisely)?wisely)?

Implications for PolicyImplications for Policy

To what extent should immigration policy To what extent should immigration policy be influenced by aging? Transfers from be influenced by aging? Transfers from legal immigrants to older Americans, legal immigrants to older Americans, through Social Security, Medicare, and through Social Security, Medicare, and Medicaid are substantial.Medicaid are substantial.

What steps should low fertility countries What steps should low fertility countries take to encourage marriage and take to encourage marriage and childbearing? childbearing?

Important Role for NGOsImportant Role for NGOs

Educate consumersEducate consumers

Encourage dialogue across Encourage dialogue across generationsgenerations

Elevate public policy discourseElevate public policy discourse

The National Transfer Accounts project is a collaborative effort of East-West Center, Honolulu

and Center for the Economics and

Demography of Aging, University of California - Berkeley

Lee, Ronald, Co-DirectorLee, Ronald, Co-Director

Mason, Andrew , Co-Director Mason, Andrew , Co-Director

Auerbach, Alan Auerbach, Alan

Miller, Tim Miller, Tim

Lee, Sang-Hyop Lee, Sang-Hyop

Donehower, Gretchen Donehower, Gretchen

Ebenstein, Avi Ebenstein, Avi

Wongkaren, TurroWongkaren, Turro

Takayesu, Ann Takayesu, Ann

Boe, Carl Boe, Carl

Comelatto, Pablo Comelatto, Pablo

Sumida, Comfort Sumida, Comfort

Schiff, Eric Schiff, Eric

Stojanovic, Diana Stojanovic, Diana

Langer, EllenLanger, Ellen

Chawla, AmonthepChawla, Amonthep

Pajaron, Marjorie CincoPajaron, Marjorie Cinco

Japan Key Institutions: Nihon University Population Research

Institute and the Statistics Bureau of Japan, Tokyo, Japan. Ogawa, Naohiro, Country Leader

Matsukura, Rikiya Maliki

Obayashi, Senichi Kondo, Makoto Fukui, Takehiro

Ihara, HajimeSuzuki, Kosuke

Akasaka, Katsuya Moriki, Yoshie

Makabe, Naomi Ogawa, Maki

AustraliaKey Institution: Australia National University

Jeromey Temple, Country LeaderBrazil

Turra, Cassio, Country Leader Lanza Queiroz, BernardoRenteria, Elisenda Perez

Chile Key Institution: United Nations Economic Commission for

Latin America and the Carribean, Santiago, Chile Bravo, JorgeMauricio Holz

Taiwan Key Institution: The Institute of

Economics, Academia Sinica, Taipei, Taiwan.

Tung, An-Chi, Country LeaderLai, Mun Sim (Nicole)

Liu, Paul K.C.Andrew Mason

China Key Institution: China Center for

Economic Research, Beijing, China.

Ling, Li, Country Leader Chen, Quilin

Jiang, Yu

France Wolff, Francois-Charles, Country Leader

Bommier, Antoine Thailand

Key Institution: Economics Department, Thammasat University. Phananiramai, Mathana, Country Leader

Chawla, Amonthep (Beet) Inthornon, Suntichai

India Key Institution: Institute for Social and Economic Change, Bangalore

Narayana, M.R., Country Leader Ladusingh, L.

MexicoKey Institution: Consejo Nacional de Población

Partida, Virgilio, Country Leader Mejía-Guevara, Iván

Indonesia Key Institution: Lembaga Demografi, University of Indonesia, Jakarta, Indonesia.

Maliki, Country Leader Wiyono, Nur Hadi Nazara, Suahasil

Chotib Philippines

Key Institution: Philippine Institute for Development Studies. Racelis, Rachel H., Country Leader

Salas, John Michael Ian S.Pajaron, Marjorie Cinco

Sweden Key Institution: Institute for Future Studies, Stockholm, Sweden.

Lindh, Thomas, Country Leader Johansson, Mats Forsell, Charlotte

Uruguay Bucheli, Marisa, Country Leader

Furtado, Magdalena Rodrigo Ceni

Cecilia Rodriguez South Korea

An, Chong-Bum , Country LeaderChun, Young-JunLim, Byung-In

Kim, Cheol-Hee Jeon, Seung-Hoon

Gim, Eul-Sik Seok, Sang-Hun

Kim, Jae-Ho

Austria Key Institution: Vienna Institute of Demography Fuernkranz-Prskawetz, Alexia, Country Leader

Sambt, Joze Costa Rica

Key Institution: CCP, Universidad de Costa Rica Rosero-Bixby, Luis, Country Leader

Maria Paola Zuniga Slovenia

Sambt, Joze, Country Leader Hungary

Key Institution: TARKI Social Research InstituteGal, Robert

Medgyesi, Marton Finland

Key institutions: The Finnish Center for Pensions And the Finnish Pension Alliance

Vanne, ReijoGröhn, Jukka

Vaittinen, Risto

United States Key Institution: Center for the Economics and Demography of Aging

Lee, Ronald, Country LeaderMiller, Tim

Ebenstein, Avi Boe, Carl

Comelatto, Pablo Donehower, Gretchen

Schiff, EricLanger, Ellen

Kenya Mwabu, Germano

NigeriaSoyibo, Adedoyin

The EndThe EndSupport: Support:

National Institutes of Health National Institutes of Health NIA, R01-AG025488NIA, R01-AG025488NIA, R37-AG025247 NIA, R37-AG025247