GLOBAL AGEING
In the not-too-distant future, hundreds of millions of people in the industrialized world could look back at the early 21st century as the beginning of the end of a wonderful era, when even average workers could retire in reasonable comfort in their still-vigorous 50s.
Lower Living Standards
Thanks to France's generous pension system, some of them are in "pre-retirement." Their pay will decline only slightly when they reach 60. "The system is great for me," Jenny François, 58, says, "and I think it should be every worker's right."
It's already clear that the system will be far less generous to future retirees in France and elsewhere. And the message isn't going down easy. To avert a looming fiscal crunch, President Jacques Chirac's government in 2003 enacted new rules requiring people to work longer to qualify for benefits. The government endured a national wave of strikes. Italy and Germany also witnessed massive protests after their governments proposed similar measures.
Despite electoral setbacks, Japanese Prime Minister Junichiro Koizumi still vows to ram through proposals to hike pension taxes from around 14% of pay to 18% by 2017 and to slash benefits from 59% of average wages now to 50%. In the U.S., the political debate is just starting to heat up over President George W. Bush's proposal to let workers park some of their Social Security contributions in personal investment accounts. Finland, South Korea, Brazil, and Greece all have recently moved or proposed to trim benefits, extend retirement ages, and hike workers' pension contributions.
The rollback of pension promises is just one symptom of one of the greatest sociological shifts in history: The graying of the baby-boom generation. The ranks of 60-year-olds and older are growing 1.9% a year -- 60% faster than the overall world population. In 1950 there were 12 people aged 15 to 64 to support each one of retirement age. Now the global average is nine. It will be only four-to-one by mid-century, predicts the UN Population Div. By then the elderly will outnumber children for the first time. Some economists fear this will lead to bankrupt pensions and lower living standards.
That's why even more cutbacks in retirement benefits are likely. "I don't even want to think about my children's pensions," says Lina Iulita, 72, referring to Italy's hugely underfunded system. "There won't be enough money coming in." In Iulita's town of Dormeletto, on the shore of Lake Maggiore, coffee bars are jammed with seniors. The town's over-75 population has doubled since 1971, and there are one-third fewer children under 6. Local schools and gyms have closed, while senior citizens' clubs are flourishing.
The trend has drawn the most attention in Europe and in Japan, where the working-age population will decline by 0.6% this year. By 2025 the number of people aged 15 to 64 is projected to dwindle by 10.4% in Spain, 10.7% in Germany, 14.8% in Italy, and 15.7% in Japan. But aging is just as dramatic in such emerging markets as China -- which is expected to have 265 million 65-year-olds by 2020 -- and Russia and Ukraine. Western European employers won't be able to count on the Czech Republic, Hungary, and Poland for big pools of low-cost workers forever: They're aging just as quickly. Within 20 years, East Asia's dynamic tigers will be youthful no longer. South Korea, Thailand, Taiwan, Singapore, and Hong Kong will have a median age of 40. Indonesia, India, Brazil, Mexico, the Philippines, Iran, and Egypt will still boast big, growing pools of workers for two decades. But they're on the same demographic curve and will show the effects of an aging population a generation or two later. "The aging workforce is the biggest economic challenge policymakers will face over the next 20 years," says Monika Queisser, a pension expert at the Organization for Economic Cooperation & Development.
The same basic factors are driving this shift: declining fertility and longer lifespans. Both are signs of enormous progress in the 20th century. With rare exceptions -- such as impoverished Sub-Saharan Africa -- birth control and better opportunities for women have lowered birth rates from five or six children per female in the 1950s to as few as one or two today. A fertility rate of 2.1 is seen as the population breakeven point. Over the same period, great advances in health care have added two full decades to the world's average life span, to age 66 now.
For most of the postwar era, the combination of baby booms, healthier populations, and smaller families amounted to what economists call the "demographic dividend," a tremendous, once-only chance to spur rapid development in nations with the right pro-growth policies. As boomers flooded into the workforce -- first in the West and Japan, then Latin America and East Asia -- they provided the labor for economic take-offs. Then, as they became parents, boomers had fewer children. So adults had more money to spend on goods and services and invest in their families' education.
But analysts and policymakers are starting to obsess over the flip side of the story: What happens when the baby boom becomes the geezer glut? How successfully this transition is managed around the world could determine the rise and fall of nations and reshape the global economy. Two key ingredients of growth are increases in the labor force and productivity. If countries can't maintain the size of their labor forces -- say, by persuading older workers to retire later, getting stay-at-home wives to find jobs, or taking in more immigrants -- they must boost productivity to maintain current growth levels. That will be a particular challenge in Europe, where productivity growth has averaged just 1.3% since 1995.
By these measures the U.S. is in relatively healthy shape despite the hand-wringing over Social Security and Medicare. Because of a slightly higher fertility rate and an annual intake of 900,000 legal immigrants, America's population should grow from 285 million now to 358 million in 2025. And the U.S. median age will rise just three years, to 39, over the next quarter-century, before the aging of America really starts to accelerate. The U.S. also has one of the world's most diversified retirement systems, including Social Security, company pensions, 401(k) savings plans that are largely invested in stocks, and private retirement insurance policies.
By
AG Date
22-02-2005
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