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Degrowth with an aging population

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  • 1. Degrowth with an aging population: increasing leisure for improving environment and happiness.Key issues to be resolved: Pensions
    GjaltHuppes & Ruben Huele
    CML – Department Industrial Ecology
    Presented at the Degrowth conference Barcelona, 26 – 29 March 2010
  • 2. Story line
    Rich societies can/should use productivity growth for leisure, with reduced environmental stress. This is a complementary strategy to eco-efficient technology improvement.
    This strategy requires institutional adaptations
    On average reduced working hours: *Shorter workweeks & longer holidays*Earlier retirement
    Problems to be solved
    Public tasks financed: taxes (not this paper)
    Aging population and earlier retirement: transfer payments (Possibly on capital basis)
    Potential: Degrowing societies can reduce environmental stress by 2050:
    By 35% based on more leisure: more than any other single measure
    By 10-40% based on demograqphy: reduced working age population (population degrowth/cline)
    Overall reduction: 45 – 65%  ~50% in total production volume
    Extreme challenge to society: also so longevity and population degrowth ( < children)
    Dependency rate (pensioners as fraction working age people) increases from <20% to ~100%
    Transfer payment to pensioners go up to 40% of gross income, depending on pension level and productivity growth. Solidarity?
    Savings based pensions cannot work: over-saving with over-investments
    Tax basis smaller, not all outlays smaller: substantially rising taxes (not this paper)
    Conclusions
    Small yearly changes can have extreme effects already in 40 years
    Productivity growth used for leisure combined with declining/aging population: lower income per head? Maybe.
    Degrowth can significantly contribute to sustainability, more than any other “single” measure.
  • 3. IPAT variant: definitions
    environmental pressure = technology x consumption
    what we consume ≡ what we produce 
    Y = GDP [GGP; no ex/imports]
    Y = C + G + I I = S (as for pensions)
    C + G : in constant prices
    Hence for technology development as reflected in labor productivity growth:
    environmental pressure =
    cEnv x labor productivity x working hours
    [cEnv reflects what can be done by eco-efficiency improvements]
  • 4. Working less for happiness and environment
    With increasing labor productivity (assumed at 2% per year), don’t go for full growth but:
    Use 1% for leisure and 1% for wealth
    Implies: reducing environmental impact by 1/3 in 40 years, relative to full 2% growth development
    2% over 40 years: up 123%
    1% over 40 years: up 49%
    Reduction in 2050 relative to full growth: - 33%
    Increase in 2050 relative to now: +50%
  • 5. The Volume of Work:Fewer hours per year; Fewer years  33% less production & consumption
    2010
    Minus 33%
    2050
    Fewer hours per year: minus 0.7%
    -25%
    from 1800hrs to 1350
    Earlier retirement: minus 0.3%
    -11%
    from 65 to 60
  • 6. How to get their: challenges to resolve
    Working less = more leisure
    Starting later (more education)
    Working less per year (more holidays)
    Working less per week (shorter working hours; more part time)
    Working fewer years (retiring earlier)
    However, also:
    Getting older, longevity
    Zero/negative population growth, reduced cohort size
  • 7. Getting Older & No Population Growth & More Leisure
    Getting older (life expectancy up):
    More pensioners relative to workers
    Declining population (fewer young per year):
    More pensioners relative to workers
    More leisure by earlier retirement:
    More pensioners relative to workers
  • 8. Problems of declining working force as share in income receiving population
    Declining working force has lower earning power and lower tax paying power
    Government consumption bears more heavily on workers: higher taxes
    Aging population needs more public services: higher taxes
    More pensioners relative to workers: higher income transfer to pensioners
    Conclusion:
    With more leisure; older age; & population decline: fewer workers receive very substantially lower share of their gross income as net income
    Indicative result: now in rich social countries share of net income in gross income is around 50%; in 2040 around 25% net75% solidarity transfer
  • 9. Basic quantifications
    • Age distribution changing, by population growth and ageing (longevity)
    • 10. Pensioning age lowering
    • 11. Volume of production decreasing per head of population
    • 12. Income of pensioners as share of gross workers income decreasing (variable shares)
    • 13. Share of pensioners in total consumption increasing
  • 14. Pensioners Dependency Rate Persons:[yellow / red] (UN: middle estimate)
  • 15. Working Population and Pensioners: retirement at 65 years
  • 16. Working Population and Pensioners: retirement at 60 years
  • 17. Dependency rate depending on pension level and retirement age: Western Europe
    2% prod
    growth
    70% pension
    level
    65 years
    retirement
    age
  • 18. Dependency rate depending on pension level and retirement age: Japan
    2% prod
    growth
    70% pension
    level
    65 years
    retirement
    age
  • 19. Combining Degrowth by Leisure with Aging & Declininging population
    Leisure: Degrowth of 33%
    Reduced working population cohorts: - 35% Japan - 15% Western Europe
    Overall effect on production volume, relative to “normal growth” roughly: - 55% Japan - 40% Western Europe
    Overall effect on transfer to pensioners:from 15% now to 50% in 2050. (+ increased taxes; + increased health care) Solidarity essential.
  • 20. Conclusions
    More leisure gives a main contribution to sustainability; environmental stress down by 35%, with happiness up.
    But: Pensioners require transfer of around 50% of national income in 2050, for 70% of income relative to workers. This also for demographic reasons.
    Saving for pensions would ruin the world by overinvestment.
    But also: Taxes to rise substantially; health care cost rising strongly.
    Income per head roughly stable: 1% for leisure and 1% not for wealth, but for aging and declining population.

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