Are we too concerned about an ageing population?

Marcus Roberts
April 22, 2016
Reproduced with Permission
Demography is Destiny

Over at the LA Times there is an interesting piece about the ageing of the US population. It is interesting first because it has a fantastic infographic which plots the USA's population pyramid from 1933 until 2100. In it you can see the changes as the large bulge representing the baby boomers appears in the late 1940s and has moved its way up the pyramid until it has hit the retirement age threshold.

Although the baby boomers will have worked their way through the pyramid and their lives by the 2040s, the US population will have aged considerably in that time. According to the World Economic Forum an ageing population has various economic problems including "pressure on healthcare and other welfare systems and a much smaller working age population relative to the elderly." This is something that we have often mentioned on this blog.

However, perhaps things are not as gloomy as we have been led to believe. After all, what it means to be 65 today is not what it meant to be 65 back in the early part of the twentieth century. If we focus on the dependency ratios (those over the age of 65 as a proportion of the working aged population required to support them) then we will overlook the fact that not everyone, and indeed fewer people into the future, will simply retire and stop working once they reach the age of 65. The LA Times explains:

"Population economists Warren Sanderson and Sergei Scherbov propose recalibrating measures such as old-age dependency ratios to recognize such emerging trends. 'The old-age dependency ratio in the U.S. is forecast to increase by 61% from 2013 to 2030,' they observe. 'But using our economic dependency ratio, the ratio of adults in the labor force to adults not in the labor force increases by just 3% over that period. Clearly, doom-and-gloom stories about U.S. workers having to support so many more nonworkers in the future may need to be reconsidered.'"

This means that a number of those aged 65 and older will be contributing in taxes by working even if they are also drawing down the pension/social security. Of course this cost can be further reduced if governments push back the age at which social security can be claimed. (The current New Zealand government, for example, is adamantly against any such suggestion.)

On the healthcare side, there is an argument that people only really start becoming a large drain on healthcare resources in the last few years of life. Thus:

"'In Japan, for example, when the burden of the health care costs of people aged 65 and up on those 20-64 years old is assessed using only the conventional old-age dependency ratio, that burden is forecast to increase 32 percent from 2013 to 2030,' write Sanderson and Scherbov. 'When we compute health care costs based on whether people are in the last few years of their lives, the burden increases only 14 percent.'"

There might indeed be an argument that the conventional measure of the dependency ratio is too outdated - as more and more people work into "old" age, 65 might lose its magical status. This would especially be the case if governments increase the retirement age to reflect this reality or push more people into work to make it a reality.

However, at some point an ageing population will cost us economically: our entire social welfare schemes are built upon the assumption an ever-increasing working population. That assumption can no longer be relied upon and we are going to have to wake up to that fact. Sooner or later.