The case of the shrinking country: Japan’s demographic and policy challenges in 5 charts

Japan reviewBill Below, OECD Directorate for Public Governance and Territorial Development (GOV)

Look at Japan and you see the future of many OECD countries. Extreme demographic shifts are re-sculpting the country in dramatic ways, defining future challenges and demanding new policy responses. These changes follow on two difficult decades for Japan, with chronic deflation, large budget deficits and extensive public debt. Yet, at least one of the factors fuelling Japan’s present situation is an unmitigated success story—a population that lives longer than in any other country in the world. Other challenges, such as the decreasing population of rural and many urban areas, represent opportunities to increase quality of life. But whether any of these opportunities play out will depend on Japan’s policy response. These issues and many others are discussed in the OECD Territorial Review: Japan 2016, presented by OECD Secretary-General Angel Gurría this week in Tokyo.

Japan’s population is both shrinking and ageing very rapidly

1-Japanese population and age structure

Japan’s population peaked in 2010 at just over 128 million beginning what is projected to be a sustained and increasingly steep decline. Simultaneously, Japan’s population is ageing rapidly. From 1950 to 2015, the share of population age 65+ grew from just under 5% to over 25%. This is the highest such figure, worldwide. The population aged 80+ has risen even faster, from 0.4% in 1950 to 7.3% in 2013 (OECD average = 4.1%). Japan’s median age was 45.9 years in 2013, compared to a world average of 29 years and an OECD median age of 38.7 for the same year. Based on current projections, the Japanese government expects Japan’s population to decrease by 22-23% between 2010 and 2050, with the elderly (65+ years) accounting for 40% of the population.

As Japan goes, so goes much of the OECD

2-Population estimates

While Japan’s ageing population outpaces other countries, the elderly dependence ratio has risen in all OECD countries over recent decades. To some degree, to look at Japan today is to see the future challenges awaiting many countries in the developed world. According to OECD population projections, the populations of at least six OECD countries will be more than 10% below their peak by 2050 and twelve will have elderly dependency ratios in excess of 50%.

Japan’s low fertility rates can be addressed by labour market reforms

3-Potential Impact

Labour-market segmentation and issues regarding work-life balance contribute to Japan’s demographic challenges. Large wage discrepancies between full-time salaried employment and non-standard employment create a preference for employment in Japan’s largest firms, predominantly found in highly-concentrated urban areas. The income of a household headed by a regular worker aged 45-49 is more than four times that of a household headed by a non-regular worker. This is in part responsible for the influx of roughly 100,000 primarily 15-29 year-olds into the Greater Tokyo region each year, which adds to the disproportionate ageing of rural areas (the highest in the OECD). What’s more, fertility rates are significantly lower in Japan’s concentrated urban areas compared to less concentrated mixed or rural regions. Japan’s culture of long working hours can discourage women with children from seeking high paying jobs just as extreme population density in urban areas can be a factor in limiting family size. A lack of child care infrastructure, particularly in urban areas, also makes it hard to reconcile work and family life. Japan is addressing these issues with policies that favour better work-life balance.

Economic impact of demographic change: from ageing to longevity

4 Public spendingBy 2013, there were fewer than 2.5 people of working age for every one above the age of 65, down from 11 in the 1950s. By 2050, this number is projected to fall below 1.33. Japanese workers must shoulder an increasing burden if the country is to sustain the growth of per capita living standards in the context of a rapidly growing inactive population. However, an OECD study (Oliveira Martins et al. 2005) suggests that the economic impact of ageing depends in large measure on how longevity gains are managed. A holistic approach to reforms to support healthier ageing, longer careers, more efficient healthcare provision and other measures, can help to offset economic impacts of Japan’s ageing population. Ageing can also create opportunities such as demand for goods and services and new market opportunities related to the so-called “silver economy”.

Immigration remains an untapped vector of growth

5-Share of foreign-born residents

Migration is one of the major drivers of population dynamics in any country. But in 2010, Japan’s foreign-born population was just under 1.7% of the total, far below the levels found in OECD countries. Migration can help population dynamics by shoring up population numbers and by introducing new sources of innovation and entrepreneurship. Although some progress has been made in this direction, this form of growth remains largely untapped in Japan.

Productivity in the face of declining population

Productivity is inextricably linked to population change. Reviving productivity growth is an urgent economic priority for Japan. To achieve continued prosperity in an ageing economy, output per worker must rise faster than would be necessary in a different demographic context. In productivity terms, Japan will have to run faster simply to maintain its position vis-à-vis other economies. Presently, through its National Spatial Strategy, Japan is implementing bold policies towards a new vision of a compact, networked Japan. The goal is to maintain and even grow productivity, ensure a high level of public service in populous and less populous areas and reconfigure infrastructure to optimise the well-being of a shrinking population. With similar challenges looming in much of the developed world, many countries may wish to take a page from Japan’s policy playbook.

Useful links


Ageing in Cities

Sustainable Urban Development Policies in Ageing Societies

OECD work on Regional Development

Senescence in the City

ageing in citiesAnecdotal evidence suggests there are loads of grumpy old men and women around. A new, evidence-based report from the OECD offers some clues as to why this should be. The media are full of articles about the best places to retire to, and the typical result is a small town in a largely rural county, near the sea and maybe a golf course. The reality, according to Ageing in Cities, is that nearly half of the over-65s in the OECD area live in cities. Compare that with surveys such as one by the UK travel group Saga in 2009 that found that the farther people lived from big cities, the happier they were. Just 0.5% of the 14,000 over-50s polled thought London was a desirable place to live.

Some old people are retiring to the countryside, but the trend is for the older urban population to grow, presumably due to ageing rather than migration from outlying areas. Japan is usually the top of the table in any list concerning ageing, but this time it’s just behind Italy for older people as a share of the core metropolitan population, at just over and just under 22%, respectively. For areas away from the centre though, the “hinterland”, Japan is at least five percentage points ahead of the rest, at 25%.

Even within a given metropolitan area, there can be wide discrepancies. When the babyboomers were starting their families, they favoured residential suburbs built in the 1960s and 70s to offer cheap housing. Those young families have now grown up and the children have often tended to migrate towards city centres, rejuvenating the population and bringing a new dynamism to the economy. This is only one example of the upside of the demographic trends we’re seeing in urban areas.

Ageing in Cities lists various other “opportunities” in ageing societies of particular relevance to metropolitan areas. The housing and construction sectors for instance could be boosted by the need to remodel homes to meet the needs of the elderly. The current and future generations of older people are healthier than previous ones, and likely to live many healthy years in retirement. Their abilities and experience could be useful in voluntary activities ranging from helping children with their homework to passing on high-level skills and knowledge.

There are a number of problems (or “challenges” if you prefer) that could get worse though. For instance, increasing centralisation of services could leave many old people with inadequate access to health care, shops and social activities if transport planning does not take their needs into account. There could be social and political tensions around how to spend municipal budgets.

The priorities for policy makers will depend to a large extent on the stage of the demographic transition their city is going through: ageing cities with slow population growth where the share of the older population will eventually decline; young cities that are rapidly ageing; or young cities that are ageing slowly. Whatever the case, the report argues that a number of policy strategies can be useful. Outlawing the music, clothes, hairstyles and pastimes young people like would be an obvious first step for many old people, and that may be how they interpret “Visions for ageing societies should not exclusively target the older population.”

The OECD, however, is not advocating a Bieber-ban. It proposes using a number of indicators (on health, housing, transport, employment, etc.) that will help citizens, their representatives and public employees to understand the demographic shifts and decide how best to deal with them, or better still, anticipate them.

Ageing in Cities is full of interesting examples of what different places are actually doing already. The Yokohama Walking Point Programme for instance encourages people of all ages to improve their health by walking more using the “frequent flyer” model of airlines: the more you walk, the more points you get and these can be converted into discounts at local shops.

A change of attitude towards old people, and even what “old” means is central to many of the policies discussed. It’s customary to bemoan the lack of respect for older generations, but as the French historian Philippe Ariès pointed out, this has changed over time. From the Middle Ages until the end of the 17th century, the old were held in contempt. At best, they were expected to “retire” into a life of contemplation and study, and if possible, die quickly so their eldest son could take over (and not have to kill them). If they didn’t, they were like Molière’s “barbons” (greybeards), old men in their 40s ridiculed for not knowing when to quit. That changed in the 18th century when the classical Greek and Roman ideas of noble elders became fashionable again, to the extent that cheap American engravings of the time showed Christ as a white-haired oldie.

The largely positive associations persisted throughout the following century, even if there was still a strong negative undertone. The 20th century would see another major shift, with the growing popularity of retirement homes (and even communities) and other means of hiding the old and separating them from the rest of society.

It’s interesting to see a return to the 17th century ideal in some of the OECD proposals. It doesn’t actually call for a life of study, but it cites Lisbon’s Senior University where “senior” volunteers offer lectures to anybody aged over 50. It calls even less for a life of quiet contemplation, since the goal of such initiatives, like that of the Rakuno School in Toyama, Japan, is to increase the employability of older people, keep them socially active, but also to make them as light a burden on society as possible.

Useful links

Sustainable Urban Development Policies in Ageing Societies

Health systems are still not prepared for an ageing population

The number of over-80s has doubled
The number of over 80s has doubled

Today’s post is by Francesca Colombo, Head of the OECD Health Division

That population is ageing across the world is well known. As fertility rates drop and life expectancy improves, a bigger share of the population is greying. At least one in four people will be aged over 65 by 2050 in about two-thirds of OECD countries. The share of those aged over 80 years will more than double, from 4% in 2010 to 10% in 2050. In Japan, Spain and Germany, this trend will be even more pronounced, with the proportion of the over-80s expected to triple, rising from 5% to 15% in Spain and Germany, and from 6% to 16% in Japan. The speed of ageing will be even more dramatic in some emerging economies. China, for example has taken only 40 years to increase life expectancy from 40 to 70 years, something that took Germany 80 years.

Such a demographic shift has an impact on societies and economies. The size of the workforce will shrink, putting pressure on governments to reform labour markets, pension entitlements and retirement age thresholds, so that older people can remain productive and employed longer. We’re already seen employment rates of older people improving over the past decade in many G20 countries. Rising education levels and skills will help more people work for longer periods of time, although differences in opportunities throughout individual life-course trajectories will affect their ability to remain fit for work as they grow older. The experience individuals gain through education and work will help to raise productivity and keep economies growing as populations age.

In the face of the speed of population ageing, though, our health systems are still too slow at reforming and remain ill-prepared for the consequences of greying societies.

The health care delivery model prevailing today has not kept pace with the changing epidemiology and health needs of the population. The focus often remains on building new hospitals, buying expensive new equipment and upgrading acute service delivery structures. The management of care processes remains to a large extent focussed around episodic care needs. However, population ageing requires a different approach, involving a shift from acute, episodic and hospital centric care to the management of chronic conditions, the delivery of continuity of care across different care settings and providers, and a strong role for primary care professionals such as general practitioners.

A main challenge will be the management of complex combinations on chronic conditions. In many OECD countries, more than half of individuals aged over 65 have more than one chronic condition, and from age 75, many people will have three or more. Health and social care systems are still grappling with how to manage the diversity and uniqueness of this complex combination of diseases and care needs in an effective way, in relation to how to organise care teams, how to identify the right measurement metrics, or how to equip health professionals with the skills they need to address changing population structures and epidemiological profiles.

A compelling example of how health systems struggle to respond adequately to the rising complexity of population ageing is dementia. Dementia affects a growing number of people worldwide – currently estimated at 47 million but expected to rise to 76 million by 2030. In the OECD, France, Italy, Switzerland, Spain, Sweden and Norway have the highest prevalence rate, with 6.3% to 6.5% of the population aged 60 years and over now estimated to live with dementia. For a person affected by dementia, the outlook is pretty grim. For a start, there is no cure as yet nor disease-modifying treatment. Several clinical trials have failed miserably in the past. There is hope that international processes – started with the G7 Summit in London in December 2013, continued with G7 Legacy Events during 2014 and ending with an international Health Ministerial Conference hosted by the WHO with the support of the UK government and the OECD in Geneva in March 2015, will bear some fruit.

But beyond changing incentives for public investment in research and encouraging private investment to finding a cure, the lives of people living with dementia remains poor in most countries. This must change through training doctors and caregivers, and equipping them with better tools to assess the needs of people with dementia; facilitating improved care co-ordination, particularly across health and social care services; and encouraging a better focus on measuring outcomes for people with dementia (such as quality of life, safety of services and medical products, effectiveness and responsiveness), as well as for the many families and friends who look after people with dementia. OECD work has shown 10 basic features that would make a differences, ranging from minimising the risk developing dementia to unleashing the potential of technology to support people with dementia, and helping people die with dignity.

Underpinning some of the difficulties of health systems in addressing population ageing is a failure to understand and monitor adequately the care processes through the data we have today. In an era of ‘big data’, health systems remain poor at using the massive amount of administrative, clinical, population-based, and biological data that are routinely generated from the millions of contacts individuals have with different parts of the health system. Most often, such contacts remain unrecorded; or records are paper -based, not standardised, nor shared across the care pathway. To improve care for old patients with complex care need, we need these data to be stored and linked so as to display a more granular picture of the quality of the care delivered to patients, especially those affected by chronic or multiple chronic conditions. Addressing weaknesses in the governance of this data infrastructure, including through generating better outcome measures to monitor care delivery and through enabling a privacy respectful use of personal health data, will be key priorities for the future.

Useful links

OECD work on health policies and data

The future of development is ageing

Ageing and Development reportToday’s post is by Ken Bluestone, Political and Policy Adviser for Age International, a charitable subsidiary of Age UK and a member of the HelpAge global network

Two themes that resonate strongly across the OECD are the need to achieve sustainable development and the growing significance of population ageing. It is rare, however, that these two agendas are brought together to consider the importance of ageing for developing countries.

It is all the more surprising given that population ageing is a global phenomenon acutely affecting developing countries. The numbers speak for themselves: in 2014, there were 868 million people over the age of 60 in the world – 12 per cent of the total population. By 2030, this will increase to 1.2 billion or 16 per cent of the population; and looking ahead to 2050, current estimates suggest there will be 2.03 billion older people worldwide – 21 per cent of the population. By 2047, there will be more adults over the age of 60 than children 16 and under for the first time in human history.

This is a reality for developing countries today. 62 per cent of people aged 60 and over live in developing countries and this is expected to increase to 80 per cent by 2050. What is more important is the pace of the change taking place in lower and middle-income countries. The demographic landscape is changing radically in many parts of Asia and Latin America, offering little time for governments in these countries to adapt. Even in sub-Saharan Africa, given the trends of increased longevity and economic development, it should be fully expected that the ‘youth bulge’ will become an ‘older person bulge’ within a few short generations.

So what does this mean for efforts to tackle poverty, inequality and climate change? At its simplest, we need to be asking ourselves the question: does our understanding of development include older people? Not taking older people into account means excluding up to 20 per cent of the world’s population. In this regard, the post-2015 sustainable development goal (SDG) agenda marks a turning point in recognising ageing and older people as part of the development process. The SDG negotiations have already made it clear that addressing the rights and needs of older people is integral to the ambition of “leave no one behind”.

At a deeper level, it forces us to reconsider basic assumptions of what it means to be productive in society and what the role of older people is. All too often policy makers, planners and development practitioners assume that life takes place in three stages: childhood (dependency); adulthood (productivity); later life (dependency). This simplistic understanding could not be further from the truth and masks a huge diversity of economic activity and social interactions at all stages of life.

Hidden from view is the contribution grandparents who have pensions make to improving children’s education and nutrition. There is no calculation that captures the economic value of an older nurse that provides healthcare services on a voluntary basis in her community, having already been identified as ‘retired’ and ‘non-productive’. There are no figures that adequately value care and support by and for people of all ages in lower and middle-income countries.

In the context of achieving the soon to be agreed SDG framework, the promise of a ‘data revolution’ and the commitments to disaggregating data by age offer some hope that this situation can change. But any analysis must capture data at all stages of a person’s life. Without a better understanding of ageing and development, we risk investing in development and building programmes that do not know where poverty and inequality lie. Disaggregating data by age, gender and disability is not an expensive add-on to the SDG framework, but is the very bedrock upon which effective decisions can be made and must be invested in.

Another critical lesson that the ‘leave no-one behind’ agenda provides is that the essential building blocks for building sustainable, peaceful and equitable societies are the very individuals within those communities. Without a better understanding of ageing and development, we fail to capture adequately the potential of individuals of all ages and abilities within society. Living in better health longer allows older people to contribute more to building resilience in disaster-prone areas. Having access to finance can mean better income and nutrition for older farmers and their families. Getting appropriate healthcare for grandparents can mean children spending more time in education.

Ageing is a development fact. There should be no value judgement attached to this statement or to a person’s chronological age, whether they are young or old. Older people are carers, teachers, farmers, athletes, market traders, labourers, professionals, and Nobel laureates. Older people can also be frail and living with chronic illness, dementia or disability. The important thing is that we do not keep ageing hidden from view. We also need to have the courage to challenge our preconceptions of what getting older means to enable policies to emerge that are fit for purpose for our rapidly ageing societies.

Useful Links:

This article is based on a collection of essays called Facing the facts: the truth about ageing and development produced by Age International.

The Disaster Risk and Age Index from HelpAge ranks 190 countries based on the disaster risk faced by older people.

OECD work on inclusive societies and development

How Can Capital Markets Serve Pension Systems in the EU28? Part 1

Pensions Outlook 2014Today’s post is by Markus Schuller, Panthera Solutions

The global financial stock has quadrupled between 1990 and 2010. As capital markets exist to serve society and not the other way round, this article will address the following questions:

How can the changing demographics in EU28 be better managed through benefitting from capital market access and techniques?

As a consequence, how can we strengthen the third pillar (private pension provision) in times of rising inequality, equity market/risky assets discrediting and the dominance of non-value adding financial instruments for end investors?

We are entering the fifth year of financial repression in the EU28, meaning that policies have been put in place by governments and central banks that result in savers earning returns below the rate of inflation while providing cheap loans to governments to reduce their burden of repayments. Only recently public debates began addressing the negative implications of this in the context of the ECB’s quantitative easing preparations. The delay in public perception should not surprise. It is driven by a cognitive dissonance for which slow, gradually progressing changes are difficult to detect and to classify by the individual. Inequality trends, “cold progression” and financial repression qualify for this definition. The latter is a well established tool. Both, the United States and the United Kingdom used it successfully after WWI to support the deleveraging of their economies. Keynes would define it as follows in The Economic Consequences of the Peace (1919).: “By a continuing process of inflation, ­[note: negative real interest rate] governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”

Since the Great Recession, financial repression also contributed to the inequality trend in our societies that started to dynamically accelerate back in the early 1980s. Despite the strong rebound of risky asset prices, especially of listed equities, the wealth effect for the vast majority of European citizens remained insignificant, thanks to their lack of direct or indirect capital market participation. In my OECD Financial Round Table contribution of autumn 2014, I highlighted the lack of a risk equity culture across Europe as an important obstacle in benefitting from rising risky asset prices. In Germany, only 13,8% of the population invests directly (7,1%, 2013) or indirectly via funds (6,7%, 2013) in listed equity securities, compared with around 50% in the US (45% in 2008, ICI Survey / 52% in 2014, Gallup Survey). Both the US and Germany saw a slight deterioration in equity ownership from 2000 until today, explained by the long-term effects of the dot-com bubble during the 2000s and the pro-cyclical behaviour of retail and institutional investors, leading to a reduction in their exposure caused by the Great Recession.

The 20th century has seen the evolution from economies being driven by the primary and secondary sectors to the services sector playing the dominant role. Time doesn’t stand still. The late 20th century is dominated by the rise of the fourth sector, information technologies. In short, servicing digital natives in a knowledge-based economy. The shift from sector three to four is driven by a classic carrot/stick situation. Entrepreneurs moving the frontier of what can be done versus the stick called automation technologies that squeeze out traditional job profiles from primary, secondary and, increasingly, tertiary sectors. The consequent bifurcation of job markets is causing a headache.

If that was not enough, industrial espionage by governmental and non-governmental agencies puts the fourth sector in danger. Innovation-driven, knowledge-based economies with global reach require the assurance that market forces and not secret services are deciding who benefits economically from an invention. Not that espionage is new, but the scale definitely is. The thrust of the labour force entering the 4th sector while a level playing field is not assured is like two trains on a collision course.

Given there are no wars, epidemics or asteroids causing “black-swan” like disruptions, forecasting demographics is rather feasible. In 2012, just over a quarter of the EU population (26 %) – around 130 million people – received at least one pension. The proportion of the population receiving a pension is highest in Lithuania (31.5 %) and also exceeds 30 % in Bulgaria, Estonia and Slovenia, but is below 20 % in Ireland, Spain and Malta and only 14.8 % in Cyprus (source: EC Social Protection Statistics).

In Eurostat’s latest population projections (EUROPOP2013) the EU-28’s population is projected to increase to peak at 525.5 million around 2050 and thereafter gradually decline to 520 million by 2080. During the period from 2013 to 2080, the share of the population of working age is expected to decline steadily, while older persons will likely account for an increasing share: those aged 65 years or over will account for 28.7 % of the EU-28’s population by 2080, compared with 18.2 % in 2013. The old-age dependency ratio for the EU-28 was 27.5 % on 1 January 2013; as such, there were around four persons of working age for every person aged 65 or over. The old-age dependency ratio ranged across the EU Member States from a low of 18.4 % in Slovakia to a high of 32.7 % in Italy (with Germany and Greece also recording values above 30 % according to EC Population Structure & Ageing)

Governments have defined “adequacy of pensions” as one of their primary goals for the first pillar of their pension systems. As the EC Fiscal Sustainability Report puts it: “Pensions – mostly from pay-as-you-go public schemes – are the main source of income of older people in Europe. European pension systems are facing the dual challenge of remaining financially sustainable and being able to provide Europeans with an adequate income in retirement. Income provision in old age that is adequate to allow older people to enjoy decent living standards and economic independence is the very purpose of pension systems. Pensions affect public budgets and labour supply in major ways and these impacts must be considered in pension policy.”

It has been well established in pay-as-you-go public schemes that governments finance possible gaps between contributions and payoffs out of their public budgets. In Austria for example, the government spent around 13.5% of its 2014-budget to close the gap in its pay-as-you-go system, in addition to its civil servant pensions gap contribution of 8.8%. All together, more than 22% of the budget is dedicated to first pillar pension gap payments for a system that is supposed to finance itself.

Even if EU28 governments express the political will to keep financing the gaps, the increasing demographic pressure and tight public budgets will force them into reducing pension claims by reducing gross pension replacement rates (ranging between 33% in the UK and 91% in the Netherlands), by lowering gross pension payments – at least their purchasing power – or by increasing the retirement age. All together this will redefine what “adequate income in retirement” will mean when it comes to first pillar payments (see Oxford Institute of Ageing).

Useful links

OECD work on pensions

Smarter, greener, healthier and more productive: The new old

A more cheerful outlook
A more cheerful outlook

Today’s post is by Tobias Vogt and Fanny Kluge from the Laboratory of Survival and Longevity at the Max Planck Institute for Demographic Research, Rostock, Germany

Ageing populations are a threat to the sustainability of modern societies. This is a dominant line of thought in the political, public and scientific discussion that warns us about the consequences of demographic change. It refers to the concern that the needs of an increasing share of older people have to be met by a decreasing number of younger members of our societies. These warnings must be taken seriously if current conditions prevail. The changes in the age structure will bring major challenges to public finances and the demand for an adjustment of current social policies, in particular, in countries with large public welfare programs for the elderly. Yet, the demographic future may not look as bleak as we generally think. The greying of a population may even embrace certain advantages simply because of the natural transformation of the age structure. This thought was the starting point for a, so far rare, project that focused on the potentials and chances of demographic change. In this case study (downloadable from PLoS One) we focused on Germany as the second oldest country worldwide in terms of its population’s median age of 44.3 years and identified five different areas that may benefit if observed trends of the past continue into the future.

To understand the anticipated challenges as well as the opportunities of demographic change one has to keep in mind that they only result from a change in the age structure of a population. If we depict the current age composition in Germany or in most industrialized countries, it looks rather more like a tree than the usual population pyramid. Yet, this illustration will also only be a snapshot as the over-represented older age groups will become smaller and eventually disappear in the coming decades. Despite ongoing low fertility and a general population decline, this will result in a more stable age structure after 2040 than in the decades when the large baby boom cohorts reach retirement age. In the last decades the share of Germans above age 65 rose by 2 to 3 percentage points. Between 2020 and 2040 this share of Germans will increase by 10 percentage points from 23% to 33%. In the following two decades it will remain stable at this high level and go up slightly.

One major concern of this population structure is that fewer and older individuals are expected to be less productive. This assumption ignores the fact that certain productivity determinants among older individuals like education and health will not remain constant but change over time.

During the last decades participation rates in higher education have increased from cohort to cohort which is reflected in the share of individuals in the labor force with tertiary education. In 2008, every fifth individual in the age groups 25-29 and over age 50 attained tertiary education. These shares will rise considerably. After 2050, every third individual in the respective age groups will have a tertiary education. If current labor force participation rates among these groups remain as they are, this would mean that 46% of the German labor force will hold a higher education degree compared to 28% today.

These changes in educational levels are accompanied by an improvement in individual health. Over the last 30 years, the age at which Germans report worsening subjective health has become later and later. If we forecast this trend into the future we find that not only average life expectancy as such will increase but also the number of years we live in good health. Already today Germans can expect to spend up to 60% of their life in good health. By 2050, this share will increase to 80%, which suggests that most of the years of gained life expectancy may not necessarily be years of bad health. Of course, this scenario is based on past developments and neglects potential future health threats like the consequences of increasing obesity levels and rising cognitive impairments at older ages. Nevertheless, fears of productivity losses may be partially absorbed by the improvements in individual health and education.

A smaller and older population may not only be more productive than expected but even cause less environmental pollution. When we observe individual consumption patterns and their ecological consequences, we find that over the life course younger individuals travel and consume more and, thus, cause higher CO2 emissions than individuals at retirement age. This implies that if today’s consumption behavior prevails, older and smaller populations may generate substantial CO2 reductions. We found that the change in population size and consumption preferences led to a 30% increase in emissions between 1950 and 2020. In the following decades, emissions could decline even to pre-1950s levels.

Apart from the challenges and opportunities on the population level, demographic change will certainly influence our individual lives and our family relationships. On average, we will live longer in good health and need care later, but there will be fewer younger individuals in our family network to support their elderly parents or other relatives. Whether changes in time use can make up for these missing individuals is questionable. We find that if the current work and leisure patterns prevail, individuals will spend slightly more time on leisure and housework and the share of work time drops from 14.5% to 11.9%. Whether the young really spend the additional time they have with the elderly remains to be seen. One important question in this respect is also how valuable the elderly will be in terms of resources they can provide. The wealth they pass on to the next generation will have to be shared with a smaller number of siblings and thus younger family members might be better off.

Certainly this study does not solve the challenges we face in the future, but it sheds some light on potential opportunities that aging populations create. During the coming decades societal frameworks will change and individuals will adapt their behavior to new expectations. The magnitude of the future effects is thus unknown, but we should start to discuss this potential, and favorable adaptations in our society. The future is not too bright, but also not as dark as sometimes argued and we do have the potential to change it.

Useful links

Ageing (Un)equally? OECD Forum 2014

Working better with age OECD review of policies to improve labour market prospects for older workers

OECD health data

No Old Person Left Behind?

"Time is on my side" claims Sir Michael Philip Jagger, 71
“Time is on my side”, explains Sir Michael Philip Jagger, 71

Today is the UN International Day of Older Persons and the theme this year is “Leaving No-One Behind: Promoting a Society for All”. Monika Queisser, head of the Social Policy Division in the OECD’s Employment, Labour and Social Affairs Directorate, argues that the best policy for older people must focus on the young.

What will matter to you in old age? A healthy body and mind, above all. But also a comfortable home in a nice place to live. Family and friends close by. And enough money to benefit from all those good things in life, like travel, books, movies and museums and the other pleasures one never has enough time to enjoy while working and bringing up a family.

Chances are that if you were fortunate enough to get good education and the skills you needed, and if you found and kept a good job, both in terms of pay and working conditions, your life in retirement will be pleasant. Even if you need long-term care and personal help, you are likely to have access to good quality services because you are insured and you can pay for them.

But what about those among us who had a less fortunate start to their working lives, who lost their jobs once or more during their active years, who worked part-time and were paid little, who had physically demanding jobs taking a toll on their health? For all these people, retirement and old age risks being much less enjoyable.

OECD data from Pensions at a Glance 2013 show that today, the majority of pensioners enjoy as good living standards as the average population. Of course, this is not the case for everybody, but at the moment, elderly groups are the least unequal part of the population. This is not surprising: most of today’s retirees, at least men, have worked all their lives in stable jobs. However, a “job for life” and even a “career for life” are rare commodities for people starting out today. These future retirees will be a much more diverse group, some will have experienced long spells of unemployment and low wages, while others continue to enjoy stability and higher earnings. Capital income, such as interest from savings, shares and other investments, is more concentrated and the gap between high earners and low earners is widening.

Poorer people are also less healthy and die younger than rich people. Many of the future elderly may move into older ages with disabilities, in bad health, and a limited ability to keep working and contributing to society. The experience of old age for today’s younger generations could change dramatically compared to their parents, with improved living standards and a longer life for some, and a shorter, sicker and more poverty-ridden life for others.

Society should tackle increasing inequality as populations age. Apart from a moral imperative not to leave older persons by the wayside, there are also hard economic reasons why letting unequal ageing happen is bad policy. A growing divide in the well-being of older people will increase the stress on social protection. And it will jeopardize the effectiveness of recent reforms of labour markets, pension and long-term care systems. Governments could make substantial savings if income, wealth and health inequalities were picked up earlier and tackled as they occur.

Today’s young people are the older people of tomorrow. The best policy for older persons is a policy that addresses problems when they start. Asking social protection and health systems to fix the situation late in life is not the best option – systems are ill-equipped to compensate for everything that went wrong during a working life if they wait until the problems have accumulated. Identifying and tackling risks as they arise will enable governments to design sustainable and cost-effective policy approaches towards demographic ageing.

Youth unemployment is at record levels today in many OECD countries. This could have long-term consequences for young people’s future careers and well-being at all ages, including in old age. We need to give young people the best chances to realise their full potential. We need to rethink our systems of social protection to accompany people throughout their increasingly diverse life courses and thus make retirement a well-earned reward.

Useful links

OECD Action Plan for youth

OECD work on ageing and employment

Chapter 8 of OECD’s Health at a Glance 2013 is on Ageing and Long-term Care