Elsevier

The Lancet

Volume 385, Issue 9968, 14–20 February 2015, Pages 649-657
The Lancet

Series
Macroeconomic implications of population ageing and selected policy responses

https://doi.org/10.1016/S0140-6736(14)61464-1Get rights and content

Summary

Between now and 2030, every country will experience population ageing—a trend that is both pronounced and historically unprecedented. Over the past six decades, countries of the world had experienced only a slight increase in the share of people aged 60 years and older, from 8% to 10%. But in the next four decades, this group is expected to rise to 22% of the total population—a jump from 800 million to 2 billion people. Evidence suggests that cohorts entering older age now are healthier than previous ones. However, progress has been very uneven, as indicated by the wide gaps in population health (measured by life expectancy) between the worst (Sierra Leone) and best (Japan) performing countries, now standing at a difference of 36 years for life expectancy at birth and 15 years for life expectancy at age 60 years. Population ageing poses challenges for countries' economies, and the health of older populations is of concern. Older people have greater health and long-term care needs than younger people, leading to increased expenditure. They are also less likely to work if they are unhealthy, and could impose an economic burden on families and society. Like everyone else, older people need both physical and economic security, but the burden of providing these securities will be falling on a smaller portion of the population. Pension systems will be stressed and will need reassessment along with retirement policies. Health systems, which have not in the past been oriented toward the myriad health problems and long-term care needs of older people and have not sufficiently emphasised disease prevention, can respond in different ways to the new demographic reality and the associated changes in population health. Along with behavioural adaptations by individuals and businesses, the nature of such policy responses will establish whether population ageing will lead to major macroeconomic difficulties.

Introduction

Increased longevity is one of the most remarkable success stories in human history. However, coupled with decreased fertility rates, it raises serious concerns about the economic consequences of longer lives and an increased proportion of people aged 60 and older in the populations of rich and poor countries alike. These concerns—which are typically premised on a world of static policy and institutions, continuing low fertility trends, constant age-specific savings and labour-participation rates, and constant age-specific health and functional statuses—range from macroeconomic slowdowns to heightened financial strain on pensions, health, and other social-protection systems.1, 2, 3

In view of the rapid and accelerating pace of population ageing, merely tweaking existing institutions and policies is unlikely to be a sufficient response to the challenges posed. No historical examples are available to guide decision making; therefore, countries will need to rely on fresh analyses rather than historical examples of policy change. Deep and fundamental reforms, the achievement of which will be fraught with political difficulties,4, 5 are needed both to tackle entrenched expectations of early retirement and unsustainably generous pension entitlements, and to reduce the emphasis of most health systems on the provision of expensive treatment and care rather than on disease prevention.

In our Series paper, we seek to dispel misconceptions about the large negative effects of population ageing on macroeconomic performance, and on the financial integrity of pension and health-care systems. As long as key stakeholders do not adhere statically to existing approaches, we conclude that population ageing will not necessarily, or even probably, cause widespread economic distress. Population ageing during the coming decades will naturally lead to and need changes in labour and capital markets, retirement policies and pensions, and the organisation and financing of health systems.6, 7, 8 However, some actions, if initiated now, would offset any potential macroeconomic difficulties.9

Effective responses should take account of national differences, because many factors play a part in establishing the economic effects of population ageing. Health, long-term care, and pension systems are diverse; government commitment to funding health care and pension programmes varies in form, intensity, and effectiveness; labour-force participation and savings rates have an enormous spread; income per person varies widely; and societal treatment of older people and traditions for family responsibility vary across cultures and over time.

Key messages

  • Population ageing raises concerns about the economic security of older people, health spending, labour supply, tax receipts, savings, and growth of income per person

  • Assertions about the strong negative effects of population ageing on macroeconomic performance are overblown, because countervailing behavioural changes and policy responses are possible

  • An important and continuing behavioural change—fertility decline—is mitigating the effects of population ageing because it is associated with rising labour force participation by women, increased human capital investment in children, and a decrease in youth dependency

  • The increasing rate of longevity is sparking another behavioural change—higher rates of savings in expectation of long periods of retirement

  • Public and private policy responses include a change in retirement policies, emphasis on disease prevention and early detection rather than treatment, a focus on non-communicable diseases, and making better use of technology

Although universal health insurance is normal in many high-income countries (HICs), the situation is varied in low-income and middle-income countries (LMICs) where older people and their families are often at high risk of incurring catastrophic, out-of-pocket, health expenditures. Of course, the nature of health insurance varies widely throughout the world, so straightforward comparisons of coverage rates do not tell the whole story. With respect to the costs of long-term care, some industrialised countries have established explicit and comprehensive long-term care programmes,10 although substantial scope exists for improved organisation and coordination of services.11 In other countries, such as the UK, long-term care is fragmented, largely means tested, and often of poor quality.12 In most LMICs, formal long-term care is weak, with the burden typically falling on families, whose capacity for the provision of physical care and companionship is diminishing because of small family sizes, increased participation of women in the workforce, and increased geographical mobility.

Responses to population ageing should also recognise the contributions that older people make to society. In addition to their potential capacity to work, older people embody a large reserve of human capital, especially in education and work experience. A lifetime of experiences can make older adults wiser and more adept at assessing and addressing a wide array of situations, in addition to mentoring young people, which could serve to mitigate some of the economic drawbacks posed by population ageing.

Section snippets

Main economic concerns

Those who contend that an increase in the population share at older ages will drive many undesirable macroeconomic phenomena13 typically base their arguments on five points:

First, older people do not work as much as young and middle-aged adults, which means that an economy populated mainly by such people will tend to create less output (on a per-person basis) than an economy with a higher proportion of individuals at prime working ages. Cross-country differences aside, workforce participation

Behavioural and public policy responses

Many behavioural changes and public policy responses to population ageing have the potential to mitigate the concerns we have outlined, especially with respect to diminished economic growth.1, 7, 8, 13, 36, 37 The mix of interventions chosen (eg, raised taxes for workers or their employers, decreased benefits for retirees, or raising the age of retirement) will naturally affect the distribution of costs between possible payers.

General economic and social trends, including changes in wages and

Conclusions

Various behavioural, policy, financial, and other mechanisms—both in the health arena and beyond—could lessen the potential negative effects of population ageing on macroeconomic performance. A top priority should be to invest in good health, because to not do so will hurt economic outcomes in countries at all levels of development.89, 90 Establishment of universal access to health care as a central objective of the post-2015 development agenda could be a major step in the direction of

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