Demographic Dividends and National Transfer Accounts Andrew Mason University of Hawaii at Manoa East-West Center National Transfer Accounts
Demographic transition leads to two important changes in age structure Working age population
►
In recent decades, the share of the working age population has been increasing. Transitory phenomenon: In the future, the share of the working age population will decline.
Dependent populations
►
Share of children is declining; Share of elderly is increasing.
National Transfer Accounts
1
Population Age Structure Taiwan, 1950-2050 100
Elderly (65+)
90
Percentage
80
Children (0-19)
70 60 50 40
Working age (20-64)
30 20 10 0 1950
1960 1970
1980
1990
2000 2010
2020
2030 2040
2050
National Transfer Accounts
Two Demographic Dividends ► First
Dividend
Per capita income rises (and falls) with the share of the population in working ages. Favorable effects on economic growth in many countries in Asia and elsewhere. However, first dividend will soon turn negative.
National Transfer Accounts
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Two Demographic Dividends ► Second
Dividend
Increase in the population at old ages will lead to greater wealth. Two possible outcomes: ►More
capital and higher wages ►Foreign investment
Higher standards of living in the domestic and the foreign economy.
National Transfer Accounts
Illustrative Simulations ► ASEAN
age structure, 1950-2050. Source: UN Population Prospects 2006. ► Economic assumptions based on estimates from the National Transfer Account project. ► Details of simulation model available on the NTA website.
National Transfer Accounts
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Net Saving Rate, ASEAN 0.25
Net Saving Rate
0.2 Low IG Transfers
0.15 0.1 0.05 High IG Transfers
0 1940
1960
1980
National Transfer Accounts
2000
2020
2040
2060
Source: Mason, Lee, and Lee 2007.
ASEAN, Assets/Labor Income Assets/Labor Income
8 6 Low IG Transfers
4
High IG Transfers 2 0 1940
1960
National Transfer Accounts
1980
2000
2020
2040
2060
Source: Mason, Lee, and Lee 2007.
4
Consumption Index (1950=100)
ASEAN, Effect of Age Structure on Consumption 160 Low IG Transfers
140 High IG Transfers
120 100 80 1940
1960
1980
National Transfer Accounts
2000
2020
2040
2060
Source: Mason, Lee, and Lee 2007.
Effect of age structure depends on . . . ► Economic
lifecycle
Age profile of labor productivity Age profile of consumption ► Economic
support system
Public transfers Familial transfers Assets
National Transfer Accounts
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Objective of the National Transfer Account (NTA) Project ►
►
Develop and apply a comprehensive system for measuring economic flows across age groups in a manner consistent with the System of National Accounts Analyze the interplay between age, policy, and macroeconomic performance How do economic flows vary with age and why? How will changes in age structure affect our economies? What policies should be pursued in light of these findings? ► Economic
lifecycle saving, and investment ► Age structure: fertility and immigration. ► Transfers,
National Transfer Accounts
Organization of the project ► East-West
Center and CEDA, UC-Berkeley ► Nihon University Population Research Institute, Asia Regional Office ► Funding
NIA UNFPA IDRC MacArthur Foundation Others
► www.ntaccounts.org
National Transfer Accounts
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Research Teams in 23 Countries
National Transfer Accounts
Per Capita Economic Lifecycle Taiwan, 2003 Relative to Yl(30-49
1.2
Labor Income
1 0.8
Consumption
0.6 0.4 0.2 0 0
10
20
30
40
50
60
70
80
90+
National Transfer Accounts
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Per Capita Lifecycle Deficit (C-Yl) Taiwan, 2003 0.8
Relative to Yl(30-49
0.6 0.4 0.2 0 -0.2
0
10
20
30
40
50
-0.4 Total cost (LCD) of raising child -0.6 from birth to age 25 is 14.0 years of labor by a prime-age adult.
60
70
80
90+
Total cost (LCD) of supporting elderly surviving to age 90 is 15.9 years of prime-age adult labor.
National Transfer Accounts
Issue 1. How does the economic lifecycle vary and why? ► Economic
factors, e.g., income, economic structure, and technology. ► Cultural and institutional factors ► Demographic factors QuantityQuantity-quality tradeoff Age structure and political power
► Policy
Education Retirement Pensions Health care
National Transfer Accounts
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Age Profile of Labor Income, Taiwan
►
1.2
1
► Yl(x)/Yl(30-49)
0.8
1978 0.6
2001
0.4
►
0.2
In Taiwan, earning span is being “squeezed” squeezed”. Between 1978 and 2001 labor income at age 21 declined from 45% to 24% of an adult 3030-49. Labor income at age 60 declined from 63% to 35% of an adult 3030-49.
0 12
22
32
42
52
62
72
National Transfer Accounts
Age-profile of Consumption, Taiwan ► Consumption
0.9 0.8 0.7
2001
0.6 0.5 0.4 0.3
1978
0.2 0.1 0 0 10 20 30 40 50 60 70 80 90
C/Yl(30-49)
increased relative to labor income by about 1% per year at most ages. ► Much more rapid increase in consumption by children. ► Cause is growth in spending on education. National Transfer Accounts
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LCD Children/Yl(30-49
Tradeoff: Spending per Child and Number of Children, 13 Countries 16 15 14 13 12 11 10 9 8 7 6
y = -7.7914x + 15.473 R2 = 0.6125
0.2
0.4
0.6
0.8
1
1.2
Child Dependency Ratio: N(0-19)/N(20-59)
National Transfer Accounts
LCD Children/Yl(30-49
Tradeoff: Spending per Child and Number of Children, 13 Countries 16 15 14 13 12 11 10 9 8 7 6
Jp
Tw
US
Ch
SK Th Sw Fr
Ur
CR
Indo In Ph
0.2
0.4
0.6
0.8
1
1.2
Child Dependency Ratio: N(0-19)/N(20-59)
National Transfer Accounts
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LCD Elderly/Yl(30-49
Tradeoff: Spending per Elderly and Number of Elderly, 13 Countries 12 11 10 9 8 7 6 5 4 3 2
y = 11.993x + 4.5285 R2 = 0.4266 0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
Old-age Dependency Ratio: N(60+)/N(20-59)
National Transfer Accounts
LCD Elderly/Yl(30-49
Tradeoff: Spending per Elderly and Number of Elderly, 13 Countries 12 11 10 9 8 7 6 5 4 3 2
US CR
Th Ch
Ur
Jp Fr
Tw
Sw
SK
Ph In Indo
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
Old-age Dependency Ratio: N(60+)/N(20-59)
National Transfer Accounts
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Summary ► Changes
in the economic lifecycle may be reinforcing the effects of changes in the dependency ratio.
Earnings by children and the elderly are declining. Spending per child is rising. Spending per elderly is rising.
► “Costs”
of children may be declining more slowly than the number of children; ► “Costs” of the elderly may be increasing more rapidly than the number of elderly. National Transfer Accounts
Issue 2: How do the systems governing interage economic flows vary and why? ► ►
► ►
Flows to children and the elderly are both important. Transfers dominate flows to children but the relative importance of the state and the family vary from country to country. The elderly rely on public and familial transfers and assetassetbased flows – income from assets and disdis-saving. The systems for the elderly vary among countries and are changing substantially over time Public policy (pension and health care reform). Role of the family – decline in extended family. Development of financial sector.
National Transfer Accounts
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Old-age Reallocation System, Selected Countries.
Familial transfers equally important in Thailand, Korea, and Taiwan (36-40%). Net public transfers to elderly are zero in Thailand; about 25% in Taiwan and Korea.
100
0
Net familial transfers near zero in US, CR, and J. Large public transfers in CR and J. More reliance on assets in US.
25 75 Public transfers (%) Thailand US
50 Asset-based (%)
50
Korea
Costa Rica 75
Taiw an 25
Japan
100 0 100
75
50 Family Transfers (%)
25
0
National Transfer Accounts
Old-age Reallocation System, 65 to 85-year-olds, Taiwan, 2003. 100
65-year-olds 67% assets, 2% public, 32% private
0
25 75 Public transfers (%) 50
50 Asset-based (%) 75 25
85-year-olds 23% assets, 39% public, 38% private
100
0 100
75
50 Family Transfers (%)
25
0
National Transfer Accounts
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Old-age Reallocation System, 65-85-year-olds, Taiwan, 2003. 100
0
25 75
From ages 65 to 80, familial share varies little. Public rising and asset-based declining. Public transfers (%) 50
50 Asset-based (%)
25
75
After 80 familial share is rising and asset-based declining.
100 0 100
75
50 Family Transfers (%)
25
0
National Transfer Accounts
Old-age Reallocation System, 75-year-olds, Taiwan, 1977-2003.
Asset-based reallocations and public transfers have increased over time; familial transfers have declined precipitously.
100
0
NIH began in 1995; net public transfers increased.
25 75
Public transfers (%) 50
50 Asset-based (%)
1977-1994
75
1995-2003
25
100 0 100
75
50 Family Transfers (%)
25
0
National Transfer Accounts
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Summary ► Old-age
support systems
Vary widely across countries Vary with the age of the elderly Are changing rapidly ► Familial
support system
Declined in Taiwan Similar to Korea and Thailand in importance In Japan, the elderly make net transfers to their children and grandchildren. National Transfer Accounts
Concluding Remarks ► Difficult
to construct National Transfer Accounts. ► Estimates presented here are preliminary. ► Over time we will refine the methodology and compile an extensive set of data for many countries. ► Understanding the role of age in the economy is essential to developing appropriate policy – both economic and population policy.
National Transfer Accounts
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Acknowledgements ► National
Institute on Aging R01-AG025488. ► United Nations Population Fund – Asia’s dependency transition: Intergenerational equity, poverty alleviation and public policy ► Ronald Lee, Co-Principal Investigator ► Naohiro Ogawa, Principal Investigator for UNFPA Asia Regional Project National Transfer Accounts
The National Transfer Accounts project is a collaborative effort of East-West Center, Honolulu and Center for the Economics and Demography of Aging, University of California - Berkeley Lee, Ronald, CoCo-Director Mason, Andrew , CoCo-Director Auerbach, Auerbach, Alan Miller, Tim Lee, SangSang-Hyop Donehower, Donehower, Gretchen Ebenstein, Ebenstein, Avi Wongkaren, Wongkaren, Turro
Takayesu, Takayesu, Ann Boe, Boe, Carl Comelatto, Comelatto, Pablo Sumida, Comfort Schiff, Eric Stojanovic, Stojanovic, Diana Langer, Ellen Chawla, Chawla, Amonthep Pajaron, Pajaron, Marjorie Cinco
National Transfer Accounts
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Japan Key Institutions: Nihon University Population Research Institute and the Statistics Bureau of Japan, Tokyo, Japan. Ogawa, Naohiro, Country Leader Matsukura, Rikiya Maliki Obayashi, Senichi Kondo, Makoto Fukui, Takehiro Ihara, Hajime Suzuki, Kosuke Akasaka, Katsuya Moriki, Yoshie Makabe, Naomi Ogawa, Maki
National Transfer Accounts
Australia Key Institution: Australia National University Jeromey Temple, Country Leader Brazil Turra, Cassio, Country Leader Lanza Queiroz, Bernardo Renteria, Elisenda Perez Chile Key Institution: United Nations Economic Commission for Latin America and the Carribean, Santiago, Chile Bravo, Jorge, Country Leader
National Transfer Accounts
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China Key Institution: China Center for Economic Research, Beijing, China. Ling, Li, Country Leader Chen, Quilin Jiang, Yu Taiwan Key Institution: The Institute of Economics, Academia Sinica, Taipei, Taiwan. Tung, An-Chi, Country Leader Lai, Mun Sim (Nicole) Liu, Paul K.C. Andrew Mason
National Transfer Accounts
France Wolff, Francois-Charles, Country Leader Bommier, Antoine Thailand Key Institution: Economics Department, Thammasat University. Phananiramai, Mathana, Country Leader Chawla, Amonthep (Beet) Inthornon, Suntichai India Key Institution: Institute for Social and Economic Change, Bangalore Narayana, M.R., Country Leader Ladusingh, L. Mexico Key Institution: Consejo Nacional de Población Partida, Virgilio, Country Leader Mejía-Guevara, Iván
National Transfer Accounts
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Indonesia Key Institution: Lembaga Demografi, University of Indonesia, Jakarta, Indonesia. Maliki, Country Leader Wiyono, Nur Hadi Nazara, Suahasil Chotib Philippines Key Institution: Philippine Institute for Development Studies. Racelis, Rachel H., Country Leader Salas, John Michael Ian S. Sweden Key Institution: Institute for Future Studies, Stockholm, Sweden. Lindh, Thomas, Country Leader Johansson, Mats Forsell, Charlotte
National Transfer Accounts
Uruguay Bucheli, Marisa, Country Leader Furtado, Magdalena South Korea An, Chong-Bum , Country Leader Chun, Young-Jun Lim, Byung-In Kim, Cheol-Hee Jeon, Seung-Hoon Gim, Eul-Sik Seok, Sang-Hun Kim, Jae-Ho
National Transfer Accounts
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Austria Key Institution: Vienna Institute of Demography Fuernkranz-Prskawetz, Alexia, Country Leader Sambt, Joze Costa Rica Key Institution: CCP, Universidad de Costa Rica Rosero-Bixby, Luis, Country Leader Slovenia Sambt, Joze, Country Leader Hungary Key Institution: TARKI Social Research Institute Gal, Robert Medgyesi, Marton Finland Key institutions: The Finnish Center for Pensions And the Finnish Pension Alliance Vanne, Reijo Gröhn, Jukka Vaittinen, Risto
National Transfer Accounts
United States Key Institution: Center for the Economics and Demography of Aging Lee, Ronald, Country Leader Miller, Tim Ebenstein, Avi Boe, Carl Comelatto, Pablo Donehower, Gretchen Schiff, Eric Langer, Ellen
National Transfer Accounts
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Kenya Mwabu, Germano Nigeria Soyibo, Adedoyin
National Transfer Accounts
Thank you
National Transfer Accounts
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