Balancing the needs of young and old

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Louise Guénette

Governments can’t stop populations from aging nor can they ignore the future economic impact of changing demographics. With the right information, however, they can increase the benefits and offset the risks.

Population aging, demographers will tell you, is inevitable. In countries where fertility is high, large numbers of children will eventually enter the labor force and expect to earn a living. In other countries, declining fertility rates coupled with longer life spans will lead to elderly populations growing faster than other age groups.

For decades, the world’s developed countries have faced problems associated with population aging, such as increased healthcare and pension costs. Now large groups of workers in developing countries, especially in Asia and Latin America, are also starting to reach retirement age. To identify the economic opportunities and challenges that population change brings, IDRC is helping to internationalize a new kind of statistical analysis called National Transfer Accounts (NTA) by supporting NTA research in 18 countries in Latin America, Africa, and Asia. Two researchers lead the international effort: Ron Lee at the University of California, Berkeley, and Andrew Mason at the University of Hawaii. The University of Ottawa is carrying out NTA research in Canada. Deficit and surplus years NTA analyzes people’s economic “deficit” and “surplus” years. The young and the elderly run a deficit as they consume more than they earn. Those in between make up the difference because they earn more than they spend. This working-age population supports people in their dependent years directly when they cover the expenses of children and older relatives. They support them indirectly when they pay taxes to finance public programs and services such as education, health, and pensions. The elderly also draw on their assets — savings, property, and other investments — to pay for health care, food, and other necessities.

Work for elderly Filipinos

The NTA analysis draws a picture of the fiscal and institutional challenges each country faces. The Philippines, for example, is still a relatively young country, but is beginning to age. Elderly Filipinos now represent 5% of the population but will account for 12% by 2040. As the number of elderly grows, the government will have to support them more, says Michael M. Abrigo, a researcher at the Philippines Institute for Development Studies.

But strengthening the public pension system and helping families support their elderly dependants will not be enough. As many do already, retirement-age Filipinos will have to work to meet their needs; however, the government can also take measures to support them. Abrigo recommends, for example, raising the mandatory retirement age beyond 65 years, providing micro-financing to entrepreneurial seniors, and creating employment programs for the elderly who return to the Philippines after working abroad. Brazilian pensions Brazil, where population aging is well underway, stands out as a strong supporter of its elderly. NTA researchers at the Center for Regional Development and Planning, at the Universidade Federal de Minas Gerais in Belo Horizonte, have analyzed the effects that the pension program will have on younger generations as the population ages. The research shows that the state’s strong support for the elderly is limiting its ability to invest in youth, although it is this smaller, younger generation that will have to finance the old. To support a larger elderly population, today’s youth need better education so they can earn higher incomes. Cassio M. Turra, a demography professor and lead Brazilian NTA researcher, recommends that the government find a better balance between pensions and educational programs for youth.

Nigerian youth boom

Most African countries are facing a youth boom. For example, now that Nigerians are having fewer children, today’s youth may be the last of their country’s big generations.  When they are ready to enter the labour market, their smaller families should allow them to invest surplus income and boost economic growth. But first they will have to be in a position to generate income, says Adedoyin Soyibo, professor of economics at the University of Ibadan. To make sure that Nigeria takes full advantage of its demographic dividend, Soyibo and his team recommend that the government increase support for education, health, and employment programs for youth.

Preparing for the future

“NTA research is important because it helps governments weight the needs of different age groups when designing policies to protect the most vulnerable generations,” says IDRC senior program specialist Edgard Rodriguez.

Although population change occurs slowly, developing countries need to act now. Youth need education while they are still young and adults need to start saving for their retirement while they are still in their early working years.  NTA research can help policymakers make the right decisions with the future in mind.

Learn more about National Transfer Accounts

Read the Development Research Works blog entry on January 12, 2012: “The Generational Economy,” by Rohinton Medhora, Vice-president Programs at IDRC.

Population Aging and the Generational Economy — A Global Perspective, a book written by Ronald Lee and Andrew Mason.

National Transfer Accounts website

Photos: Richard Lord