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Joaquim Oliveira Martins Economics Department , OECD

From Ageing to Longevity Facts and policy challenges European Health Forum Gastein Workshop 3 – Health and Wealth. Do healthy and active ageing generate wealth? Wednesday 5th October 2005. Joaquim Oliveira Martins Economics Department , OECD.

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Joaquim Oliveira Martins Economics Department , OECD

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  1. From Ageing to Longevity Facts and policy challenges European Health Forum Gastein Workshop 3 – Health and Wealth. Do healthy and active ageing generate wealth? Wednesday 5th October 2005 Joaquim Oliveira Martins Economics Department, OECD

  2. This presentation is based on recent OECD work on Ageing, in particular: The impact of Ageing on Demand, Factor Markets and Growth by Oliveira Martins, Gonand, Antolin, de la Maisonneuve and Yoo (2005). OECD Economics Department Working Papers no. 420

  3. From Ageing to Wealth: What are the links?

  4. Demographic issues

  5. The impact of demographics is gloomy: the number of people in working age per retiree will decrease from 4 to 2… NB: Dependency ratios=Population 65+/(15-64)

  6. …and longevity assumptions are on the low side

  7. What is the impact on dependency ratios of indexing the old-age threshold on longevity gains? Germany France Germany 65+/(15-64) With indexation With indexation With indexation Japan USA With indexation With indexation

  8. Indexing the old-age threshold in line with longevity gains would only contribute to solve the ageing problem if aged workers… • Remain in good health • Participate in the labour force and are employed • Pension systems are reformed in order to remove incentives for early retirement

  9. Does longevity translates into healthy ageing? Comparison over the period 1980-1990 • Contrast European vs. Anglo-Saxon countries • Further results from OECD Health Projection Project

  10. Ageing and Labour Markets

  11. A major change in population structure…(shares by age group in % total population) 2000 2000 2050 2050 Working age population 2000 2050

  12. …compounded by the situation in the labour market • Early retirement is a problem • Participation rates of old-age workers are low, in particular in Europe

  13. With unchanged policies, ageing will induce an absolute decline in the labour force…

  14. …but this decline could be compensated by some factors • Labour quality may increase: • Younger cohorts are more educated than the retiring cohorts • Individual age-productivity profiles may stabilise at older ages. • Capital deepening increases labour productivity • Increased labour participation (especially older workers)

  15. Does the individual age-productivity profiles matter for aggregate productivity? Flatter after peaking (chap V) Miles (2003) Flatter

  16. The average age of the labour force is partly recovering from the 'rejuvenating' shock of the 1960s-70s In Japan it is already above US/EU in 2050

  17. Labour quality effects and increased labour participation can compensate the decline in labour supply

  18. How will Ageing affect Saving?

  19. Population structure affects saving through the life-cycle effects USA JAPAN Household survey panel, US 2000

  20. Ageing is expected to decrease aggregate saving

  21. Ageing, Capital markets and Economic Growth

  22. Alternative pension and labour market reform scenarios • The “rising contribution rate” scenario:the PAYG system is balanced only by increasing contribution rates. • The “gradually increasing age of retirement” scenario:age of retirement increases 1.25 years per decade (as in population projections). • The “pension saving” scenario: replacement rate diminishing for new retirees, so individuals have incentives to develop private pension saving. • A comprehensive reform scenario: a combination of labour and pension reforms

  23. What are the main drivers of GDP per capita?Projected average growth rates 2001-2050

  24. Ageing may accentuate divergence of GDP per capita…

  25. … unless this effect is mitigated by comprehensive reforms

  26. Key policy actions • Increase employment rates, in particular of old-age workers (cf OECD report on Ageing and Employment Policies) • Link retirement age to longevity gains • Pension reforms improving the link between pension benefits and contributions; check interactions with labour markets • Introduce pension funding • Create new segments in the capital markets dealing with longevity risk (annuities, reverse mortgages) Complementary reforms are more likely to offset the impact of ageing than piecemeal reforms

  27. Thank you !

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