Population Aging and the Generational Economy A Global

Population Aging and the Generational Economy: A Global Perspective Ronald Lee and Andrew Mason Lead authors and editors

After more than a hundred articles by project members, the first book from the project is out. • Reflects the efforts of 50 researchers around the world who are on NTA country teams or who have assisted and trained country teams. • Seven years to complete. • Available from Edward Elgar in hard or paper cover. • Free download courtesy of IDRC. • Links on www. ntaccounts. org Lee and Mason April 11, 2013

Geographic coverage of NTA and current members NTA Members Asia-Pacific Americas Europe Africa Australia Argentina Austria Egypt* Cambodia Brazil Finland Ethiopia* China Canada France Kenya India Chile Germany Mozambique Indonesia Colombia Hungary Nigeria Japan Costa Rica Italy Senegal Philippines El Salvador Poland South Africa South Korea Jamaica Slovenia Taiwan Mexico Spain Thailand Peru Sweden Vietnam United States Turkey Uruguay United Kingdom *Pending Lee and Mason April 11, 2013

This continuing effort has been supported by many funders • • • National Institute on Aging (NIA) Bill and Melinda Gates Foundation International Development Research Center (IDRC), Canada UN Fund for Population Activities (UNFPA) UN Population Division East-West Center, Hawaii Center for the Economics and Demography of Aging, UC Berkeley Japan: MEXT. ACADEMIC FRONTIER Mac. Arthur Foundation European Union In-country support from governments and other funders in many countries. Lee and Mason April 11, 2013

National Transfer Accounts (NTA) • Describes the age patterns of economic activity and the economic relations between the generations. • Quantifies how each age groups acquires and uses economic resources. • Constructed using existing data (population estimates, surveys, administrative records, macroeconomic data). • Consistent with UN System of National Accounts. Lee and Mason April 11, 2013

Two illustrative examples • Cost of children in high fertility countries and the implications for human capital spending. • Funding old-age needs: relying on labor income, transfers, and assets. Lee and Mason April 11, 2013

Children are a heavy economic burden in many developing countries • High fertility in developing countries has led to very young populations. • A large portion of what adults are producing is going to meet the material needs of their children. • Most is going to meet basic needs like food, clothing, and housing. • Little remains for health and education for children. Lee and Mason April 11, 2013

Economic lifecycle flows for Nigeria, per capita values 180 Per capita flows (Naira 000 s) 160 140 120 100 80 60 40 20 0 0 10 20 30 Consumption 40 50 60 Labor income Lee and Mason April 11, 2013 70 80 90+

Aggregate flows, Nigeria 250000 Net cost of children (<25) is 87% of the total labor income of adults 25+. Naira (millions) 200000 150000 Net cost of elderly is very small. 100000 50000 0 0 10 20 30 40 Age 50 Consumption Lee and Mason April 11, 2013 60 70 Labor income 80 90+

Human Capital Spending, Nigeria 250000 Naira (millions) 200000 150000 100000 50000 Only 20% of 0 spending on children goes to 0 human capital (health and education) 10 20 Consumption 30 40 Age 50 60 Human capital spending Lee and Mason April 11, 2013 70 80 Labor income 90+

Fertility/human capital tradeoff Human capital spending (% average annual income age 30– 49) Africa South, Southeast Asia 600 East Asia Europe, Australia, United States 500 Latin America, Caribbean 400 300 200 100 0 0. 0 1. 0 2. 0 3. 0 4. 0 5. 0 Total fertility rate (children per woman) Updated from NTA database www. ntaccounts. org accessed March 20, 2013. Lee and Mason April 11, 2013 6. 0

In countries with lower fertility. . . • Children claim a much smaller share of the nation’s production. • More can be devoted to raising human capital spending per child. • More can be used to raise standards of living and to reduce poverty. • More can be saved and invested in the future. • But low fertility eventually leads to populations with high rates of old-age dependency. Lee and Mason April 11, 2013

The US Economic Lifecycle, Aggregate Flows (2003) 250000 100000 50000 0 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+ US$ (millions) 200000 Age Consumption Labor Income Lee and Mason April 11, 2013

US Economic Lifecycle, 65+ 120000 US$ (millions) 100000 80000 Consumption 60000 40000 20000 0 Labor income 65 70 75 Age 80 Lee and Mason April 11, 2013 85 90+

Old-age Funding System, US 120000 US$ (millions) 100000 80000 Consumption 60000 40000 Asset-based flows 20000 0 Labor income 65 70 75 Age 80 Lee and Mason April 11, 2013 85 90+

Old-age Funding System, US 120000 Funding of old-age consumption • Labor income 16. 4% • Assets 58. 3% • Transfers 25. 2% • Public 31. 9% Transfers • Private - 6. 6% US$ (millions) 100000 80000 60000 40000 Asset-based flows 20000 0 Labor income 65 70 75 Age 80 Lee and Mason April 11, 2013 85 90+

Old-age Support System NTA Countries Key tradeoff: transfers versus assets. Europe & US IN Latin America Asia 2/3 A 1/3 US relies heavily on assets. ID MX US Heaviest reliance on transfers is in Europe. ES 1 JP UY DE K P CR BR SI CN AT HU Transfers T SECL 2 1/3 Lee and Mason April 11, 2013 2 Latin America and East Asia are similar in their reliance on transfers, but public dominates in LA and private Labor income important in EA.

Concluding Remarks • Our economic systems are being tested by unprecedented changes in population age structure. • Stakes are very large: economic growth, generational equity, economic security for children and elderly, and sustainability of support systems. • Complex systems are involved: governments, labor markets, families, financial markets, and health care systems. • Essential that policy be informed by the best possible data linking population and the macroeconomy. Lee and Mason April 11, 2013