Saturday, February 04, 2006

Global Aging

What is Global Aging?

For most of human history, until about a century ago, the elderly (people aged 65 and over) never amounted to more than 2 or 3 percent of the population. Today, in the developed world, they amount to 15 percent. By the year 2030, they will be around 25 percent. As recently as 1980, the median age of the oldest society on earth (Sweden) was 36. By the year 2030, the median age of the entire developed world is projected to be 45. In much of southern and eastern Europe, it will be over 50. As a whole, the developing world will remain much younger for the foreseeable future. Yet it too is aging—hence the term "global aging." Several major countries in East Asia and Latin America, including China, South Korea, and Mexico are projected to reach developed-world levels of old-age dependency by the middle of the century.

What Causes Global Aging?
Global aging is the result of two sweeping forces: falling fertility (fewer births per woman) and rising longevity (longer lives). Worldwide, the fertility rate has fallen from 5.0 to 2.7 since the mid-1960s. In the developed countries, it is has fallen to 1.5—far beneath the replacement rate needed to maintain a stable population over time. Meanwhile, since World War II, global life expectancy has risen from around age 45 to around age 65, for a greater gain over the past 50 years than over the previous 5,000. In the developed countries, life expectancy has risen to between age 75 and 80. Other forces are compounding the economic burden of rising old-age dependency: earlier retirement, rising health-care costs, inadequate personal savings, and declining levels of family support.

What are the Challenges of Global Aging?
The most predictable challenge posed by global aging is the mounting fiscal burden. Over the next thirty years, the rising cost of pay-as-you-go pensions and health-care benefits to the elderly is on track to push up government outlays by 12 percent of GDP on average in the developed countries—the equivalent of an extra 25 percent of worker payroll on top of payroll tax rates that often exceed 25 percent already. Countries above the average may have to choose between drastic policy reform and economic ruin.

As workforces age and shrink, the developed countries may experience widespread labor shortages, which in turn will give rise to extraordinary new immigration pressure. At the same time, demographically contracting societies may have to invent new macroeconomic policy tools to manage a "no growth" business cycle in which total output declines from one normal year to the next. Global aging could also threaten the stability of the world financial system if some of today’s fast-aging capital exporters (like Germany and Japan) become deficit-ridden capital importers.

Beyond economics, the social and cultural consequences are even wider-ranging. How will public policy deal with the rapidly changing shape of the family (often, with fewer grandchildren than grandparents)? Will fears of population decline lead to a new pro-natalism? Will the rising average age of voters block effective political reform of public benefit spending? Will the rising average age of savers and investors affect risk-taking and entrepreneurship? In what way, finally, will global aging transform geopolitics—through its differential impact, by region, on population growth, average age, migration patterns, fiscal balances, capital flows, voter attitudes, and military spending?

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