HKUST Institute for Emerging Market Studies (IEMS)

Economic Consequences of Demographic Change in Emerging Markets

Albert Park

Economic Impacts of Population Changes

• Structure of population alters the scale and product composition of final demand

• Affects households’ division of their disposable incomes between consumption and saving (imperfectly understood)

• Size and skill composition of the labor force– Can affect the marginal product of capital and

hence the level of investment

Demographic Transition

From Jackson, Howe, and Nakashima (2011)

From Jackson, Howe, and Nakashima (2011)

Demographic Dividend

• First dividend: with fertility decline, labor force grows faster than the population, also freeing resources for investment

• Second dividend?: population aging increases incentives for individual savings and investment (including human capital)– Influenced by family and government transfers– But dissaving by elderly can reduce aggregate

saving

From Jackson, Howe, and Nakashima (2011)

From Jackson, Howe, and Nakashima (2011)

Key Demographic Trends in China

• Growth of labor force will stop in 2015• Chinese over 60 years will increase from 128m in 2000 to 350m in 2030

Policy Challenges of Aging

• Pension program design– Ensure financial security in old age– Encourage work at older ages (extending the

demographic dividend)– Avoid crowding out private support

• Medical care and long-term care– Providing universal coverage– Providing adequate coverage and financing– Improving quality of care and preventive service

Across East Asia, Significant Differences in Shares of Urban and Rural Workers Receiving a Pension

Figure 4 Across the EAP Region, There are Significant Differences in Shares of

Rural and Urban Workers Receiving Pension Support

China

Indonesia

Japan

Korea

Thailand

Vietnam

Sources: China Health and Retirement Longitudinal Study 2011 (CHARLS 2011), Indonesia Family Life Survey 2007 (IFLS 2007), Japanese St udy of Aging and Retirement 2011 (JSTAR 2011), Korean Longitudinal Study of Aging 2010 (KLoSA 2010), Thailand Household Socio-Economic Survey 2011 (SES 2011), Vietnam Household Living Standards Survey 2012 (VHLSS 2012), and Philippines Family Income and Expenditure Survey 2009 (FIES 2009). Background for forthcoming World Bank Report on Aging in East Asia

China (2011)

Extending Working Lives

• Requires work capacity at older age (education and health)

• Pension systems should be work-neutral– End mandatory retirement

• Allow wage and job flexibility at older ages• Provide information/support to employers for

investments that raise productivity of older workers• Educate public to shift expectations

– Will encourage lifelong investments in human capital

Priorities for Supporting Elderly Well-being

• Improve quality of coverage under new social insurance programs

• Integrate social insurance programs, across regions and program types (social pensions?)

• Improve quality of preventative health care services, especially for chronic conditions

• Develop strategy for providing long-term care

HKUST Institute for Emerging Market Studies (IEMS)

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