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Discussion of Entitlements and Population Aging: Crisis, Problem, or Opportunity by Henry Aaron

Discussion of Entitlements and Population Aging: Crisis, Problem, or Opportunity by Henry Aaron. David Wise ShovenFest 6-7 June 2012. The achievement. The changing demographic environment over the past five decades represents both an achievement and a problem.  

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Discussion of Entitlements and Population Aging: Crisis, Problem, or Opportunity by Henry Aaron

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  1. Discussion ofEntitlements and Population Aging: Crisis, Problem, or Opportunity by Henry Aaron David Wise ShovenFest 6-7 June 2012

  2. The achievement • The changing demographic environment over the past five decades represents both an achievement and a problem.   • Mortality rates have declined and life expectancy has increased substantially in industrialized countries. This is the achievement.

  3. What is the problem? • Declining birth rates together with longer lives  the proportion of old to young is increasing. • As the number of older persons increases Social Security costs will increase • And health care costs will rise, • not only because of the increase in the number of older people • but also because advancing technology will likely create better and perhaps more expensive health care treatments. • And while the cost health care and social security rises, there will be fewer persons in the labor force to pay for these increasing costs.

  4. The problem • The problem has been magnified by the departure—until mid-1990s—ofworkers from the labor force at ever-younger ages • Along with substantial increases in the number of years they spend in retirement. • John Shoven and colleagues say the median number of years in retirement for men increased almost 50 percent between 1965 and 2003, from 13 years to almost 19 years (Goda, Shoven, and Slavov, 2009)

  5. Not just a US problem • In other industrialized countries, the trend has been more extreme.

  6. Increase in life expectancy and decline in labor force participation of men: 1960s to early 2000s 60% 37% 40% 30% 20% 0% - 20% Percent - 29% - 40% - 60% - 80% - 77% Life expectancy at 65 Labor force participation, 60 - 64

  7. Slow to adjust • In short: we (and other countries) did not adjust to the demographic title wave that washed over us. • Did not adjust to declining mortality, longer lives, and improving health • Expansions in “work capacity” not matched by more work

  8. But here is the opportunity • Social and economic choices can reasonably adjust as the age structure of the population changes • And, in particular, some of the bounty of longer lives can reasonably be allocated to prolonging the labor force participation of older workers. • Increased production and more revenue • Can help to pay for SS and health care • And, perhaps most important, education for the young • May indeed increase health—Michael Marmot

  9. Some evidence • Better health and increasing capacity to work • Age 75 is the new age 65 • Mortality and work 1977 and 2007

  10. How old do you need to be to "feel like" a 65 year old in the 1960s? -- Men in the US 76 74 72 70 9.2 Age Years 68 66 64 62 1960 1970 1980 1990 2000 2010 Year

  11. Employment by mortality, men in the US, 1977 & 2007 100% 50 57 90% 80% 55 70% 62 60% 63 1977 50% 2007 40% 68 Employment 30% 20% 69 74 10% 0% 0% 1% 2% 3% 4% 1.5% Mortality

  12. Change in LFP • Add up differences from age 55 to age 69 • Men in this age group worked on average 3.7 fewer years in 2007 than in 1977--a decline of 31 percent • Or, if at each mortality rate, men in 2007 worked as much as men in 1977, employment in the 55 to 69 age range would have been approximately 45 percent greater that it was. • Modest indexing to life expectancy and/or to dependency ratio could smooth adjustment

  13. Conclude • So, there has been an achievement, there has been a problem, and there is an opportunity; there does not have to be a crisis.

  14. Employment and mortality by age, men in the US 1977 and 2007 100% 7.0% Employment 1977 90% Employment 2007 6.0% Series3 80% Mortality 1977 5.0% Mortality 2007 70% Employment 60% 4.0% Mortality 50% 3.0% 40% 30% 2.0% 20% 1.0% 10% 0% 0.0% Age

  15. Mortality and SAH 1970s and 2000s, US 0.08 0.30 1970s SAH fair - poor 2000s SAH fair - poor 0.07 1970s Mortality 0.25 2000s Mortality 0.06 0.20 0.05 0.04 0.15 Poor Health Rate 0.03 0.10 Mortality Rate - 0.02 Fair 0.05 0.01 0 0.00 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 Age

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