The economics of population ageing
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An aging population will have significant impacts on healthcare costs, the workforce, and public spending in developing countries. As the older population grows, healthcare costs will increase both inside and outside of hospitals. The workforce will shrink as fewer people are of working age, which can lower GDP growth and standards of living. Public spending will shift towards the elderly as national savings decrease over time. Policy changes are needed in healthcare, the labor market, and public spending to address these challenges and ensure affordable services for the aging population.
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The economics of population ageing
- 1. The Economics of Population Ageing Cost Effective Health Policies for Developing Countries Mr Vaikunthan Rajaratnam MBBS(Mal),AM(Mal),FRCS(Ed),FRCS(Glasg),FICS(USA),MBA(USA) Dip Hand Surgery(Eur), Dip MEd(Dundee),MIDT Dist.(OUM) FHEA(UK),FFST(Ed),FAcadMEd(UK) Senior Consultant Hand Surgeon
- 2. Overview • The shifting demographic • Impact of ageing on: • Labour • Public spending • Healthcare • The cost of this on society • The assets of an older population • Recommended policy changes: • Healthcare • Labour • Public spending
- 4. East Asia’s ageing population The older population of East Asia will likely grow by 22% every five years. This will accompanied by lower fertility rates than in previous years.
- 5. Old age and the workforce An older population means a smaller workforce. A smaller workforce can lead to lower GDP growth. A lower GDP growth implies lower standards of living.
- 6. Old age and public spending There will be an overall increase in expenditure National savings decrease over time Spending shifts will occur in favour of the elderly
- 7. Old age and healthcare Healthcare costs go up for patients outside of the hospital This change will be gradual but pronounced
- 8. What this means for society: The shrinking workforce Secular stagnation Less capital for those in work Cash flows outside of the country
- 9. What this means for society: redirected focus A shift in the demographic leads to a shift in consumption patterns. The market will shift to accommodate the interests of the older population
- 10. A hidden asset? Although there is lower aggregate growth, there may be higher individual growth Productivity could increase
- 11. Paying for themselves The elderly do pay for consumption privately Their experience and knowledge of their respective fields may prove valuable to economic growth
- 12. Policy changes: overview Changes will likely need to be made in • expenditure, • healthcare, • the labour market, • boosting productivity • ensuring that public services are available and affordable
- 13. Plans for change: health Invest in preventive treatment to negate the need for as much long- term care in the future Improve overall quality of life rather than simply deferring death
- 14. Technology Short-term technological investment will be an increase in cost Long-term, however, they may prove to be cost- saving
- 15. Specialised care Early palliative care has been associated with clinical improvements Integrated care increases efficiency
- 16. Plans for change: labour The older members of society must be capitalized upon where possible. Their skill base should be researched
- 17. Boosting women workers Women should be encouraged to join the workforce later in life as well as in middle adulthood
- 18. Anti-discrimination policy Innovation is needed in ensuring age- specific participation improvements
- 19. Younger workers The skills and qualifications possessed by younger workers should be matched to what is actually required in the labour market
- 20. Public spending: a micro level All older people will need access to appropriate training, housing, transport, recreation and health
- 21. Public spending: a macro level We could wait for budget deficits to occur, and then raise taxes accordingly If taxes stay as they are, nations could borrow more money as needed
- 22. Public spending: a macro level Budget cuts may help keep spending to a minimum where possible Who carries the burden?
- 23. Public spending: a macro level The most responsible solution is increased and sustained economic growth
- 24. Conclusions: A focused approach is best Future investment, projects and skills should be tailored to fit our needs, as these are not static The key to meeting new costs is by expanding the size of the economy
- 25. References • The World Bank (2017). Rapid Aging in East Asia and Pacific Will Shrink Workforce and Increase Public Spending. [online] Available at: http://www.worldbank.org/en/region/eap/brief/rapid-aging-in-east- asia-and-pacific-will-shrink-workforce-increase-public-spending • Michael Caley, Khesh Sidhu; Estimating the future healthcare costs of an aging population in the UK: expansion of morbidity and the need for preventative care, Journal of Public Health, Volume 33, Issue 1, 1 March 2011, Pages 117–122, https://doi.org/10.1093/pubmed/fdq044 • Valenzuela, R. (2015). The economics of an ageing population. The Age. [online] Available at: http://www.theage.com.au/national/education/the-economics-of-an- ageing-population-20150316-1m0g4a.html [Accessed 10 Sep. 2017].
- 26. • Department of Infrastructure and Regional Development (2004). Chapter 6 : Health and ageing - impact on local government. New South Wales, Australia. • LSE (2016). The Impact of an Ageing Population on End of Life Care Costs. Londo • Pettinger, T. (2016). The impact of an ageing population on the economy. [Blog] Economics Help. Available at: https://www.economicshelp.org/blog/8950/society/impact-ageing- population-economy/ [Accessed 27 Sep. 2017].n: Personal Social Services Research Unit. • Lee, R. and Mason, A. (2017). Cost of Aging. Finance & Development, (Vol 54).
Editor's Notes
- As at end-June, the proportion of residents aged 65 years and over has increased from 8.4% in 2006 to 12.4% in 2016. There are now fewer working-age adults to support each resident aged 65 years and over as indicated by the falling resident old-age support ratio from 7.8 in 2006 to 5.4 in 2016. (singstat)
- From the 1960s to 1990s: growing labour force has been one of the main reasons for per-capita income growth As of 2016: Singapore’s fertility rate has dropped to 1.20, well below the 2.1 required to replace the population By 2034: Singapore's labour supply will shrink by 1.7 percentage points in the 10 years through 2026, and by 2.5 percentage points in the following decade. In East Asia as a whole: the older population will grow by ~22% every five years
- An older population means a shrinkage of the workforce and increase in dependency on those who do work A fall of 1% in workforce growth = a 0.5 – 0.7 % fall in growth of GDP. In 20 years, Singapore’s GDP growth would fall by 2.1% - 3% Implies lower average standards of living; a step backward in welfare Shortage of workers leads to wage inflation and subsequently higher taxes This causes a disincentive to work and invest, possibly leading to a further fall in productivity and growth
- Overall increase in expenditure and change in where money flows Increases in spending on pensions, health care and long-term care as relatively more people claim these benefits. Fewer people working and paying income tax Decrease in national savings: more people draw down assets, reducing total private saving available for productive investment Social security and health programmes blow out in favour of the elderly Spending shifts from education and children’s services to primary healthcare, health promotion, senior citizens centres and appropriate recreation
- Increase in age is likely going to lead to an increase in healthcare costs, with the elderly making up a relatively high proportion of health budgets. It will not be sudden: there will likely be a moderate increase in acute care expenditure and a large increase in long-term and social care. End of life costs will likely NOT increase: the age of death continues to be pushed back, which reduces yearly deaths. But costs outside of the hospital will increase: more spending on long-term and social care Ordinarily, the availability of informal care (family etc) would help offset healthcare spending. However, lower birth rates mean that there are proportionally fewer people available to care for the elderly. This leads to a relative increase in the price of care Governments will be forced to either increase spending to fill the gap, or allow a significant proportion of the elderly (if they cannot afford private care) to do without.
- Secular stagnation: little to no growth of the market. GDP growth slows and firms may be discouraged from investing loanable funds. If governments have to borrow more to pay benefits, capital for the workforce may be crowded out Adults may need to save less Firms and wealthy adults may invest elsewhere, in foreign markets if they think output and consumption will slow
- A shift in the demographic leads to a shift in consumption patterns. The market will shift to accommodate the interests of the older population Extra spending on healthcare etc may lead to a fewer funds available for education, children’s services and youth unemployment The shrinking workforce may offset unemployment to some extent However, the market will change. There may be increased demand for services such as medicine and social care, and less demand for services and products deemed less relevant to the older population This leads to a mismatch in skill sets and the jobs actually available As the market shifts, younger Asians may find it difficult to find services relevant to them, e.g. entertainment services and fewer job opportunities. Those who are able to do so may need to migrate and search for these services elsewhere This could mean a loss in potential income for the government as a valuable, albeit smaller, consumer group is crowded out
- Fewer people in the workforce could possibly mean more capita available per worker in the form of funds, equipment and machinery. This in turn leads to higher productivity and higher wages. Although there is lower aggregate growth, there may be higher individual growth As long as this offsets the higher number of dependents per worker, living standards may not fall but could potentially even increase
- The elderly do pay for consumption privately Not all will cease to work immediately at retirement age. Their experience and knowledge of their respective fields may prove valuable to economic growth The elderly tend to have a significant amount of assets (EPF, savings etc) which they rely on to pay for consumption The burden will not fall entirely on the working population in the form of higher taxes
- Changes will likely need to be made in terms of expenditure, healthcare, the labour market, boosting productivity and ensuring that public services are available and affordable From the Policy Mapping on Ageing in Asia and the Pacific Analysis Report: Where policies exist, they must be detailed, researched and have budgetary details included. They must be shared publicly in one place. Further analysis must be made to assess the strengths and weaknesses of national policy There should be a clear focal point in which areas must be targeted
- The care gap and possible economic changes may have effects on the cost of care For long-term planning to be made, accurate healthcare demand and cost statistics are vital. Current NHS cost predictions are overly simplistic as they assume healthcare costs will remain the same in future Inflation aside, the care gap and possible economic changes may have effects on the cost of care The largest increase in cost will be in long-term care outside of hospitals as most patients will choose to age at home Current treatments focus on existing and chronic diseases which will prolong the life expectancy of those who are already sick A better approach would be to invest in preventive treatment to negate the need for as much long-term care in the future Health must be maintained and heavier focus put on damaging lifestyles (e.g. smoking), to improve overall quality of life rather than simply deferring death By extension this will lower the cost of acute care
- “Products that ‘radically’ innovate are likely to be cost-increasing due to an expansion in the number of people treated, while ‘incrementally’ innovating products appear to be cost-saving as they substitute for other treatments.” Short-term technological investment will be an increase in cost Long-term, however, they may prove to be cost-saving
- Early palliative care has been associated with clinical improvements. Integrated care increases efficiency Clear options are available to patients, making treatment potentially more effective and reducing costs when swift action is taken Integrated care increases efficiency by improving links between social and health resources: the Symphony project in South Somerset, England, collaborates between primary, community, mental health, acute and social care. It could be beneficial to dedicate specialized think tanks to care of the elderly Vietnam gives responsibility to state, commune, ward and township health stations to give medical exams and treatment to the elderly South Korea holds public health institutions responsibility to register older people and ensure regular visits to their houses for examinations and treatment
- East Asians are in a good position for reform: we already work longer than most societies and have high savings rates The older members of society must be capitalized upon where possible. Their skill base should be researched Many will be skilled and well-educated, and their experience may be valuable to the workforce as consultants It may be necessary to push the age of retirement back further through phases Once retired, they could be encouraged to pursue investments rather than exiting the workforce entirely
- On average, women tend to have longer lifespans. Few governments address this within national policy Women should be encouraged to join the workforce later in life as well as in middle adulthood This can be done through flexible work arrangements and adapting workplaces to the needs of older workers Otherwise, nations are missing out on a large proportion of possible workers
- Innovation is needed in ensuring age-specific participation imporvements through training programmes, credit access and employment programmes Anti-age discrimination should be implemented and incentives given to ensure that the older population is able (even encouraged) to stay in the labour force
- Not only must investment made in education, but in the areas of education that will prove to be most vital in future areas of economic growth Where needed, incentives could be given to encourage workers to learn the skills we need This helps to stabilise both employment and the gap in services needed by the elderly
- All older people will need access to appropriate training, housing, transport, recreation and health Benefits given to older people might need to adjusted: Singapore currently gives discounts in groceries, telecoms, bus concession, tourist attractions and recreations, in addition to silver support schemes at 65.
- There are many possible ways to handle the economic changes that will be brought about by the age shift Governments could wait for budget deficits to occur, and then raise taxes accordingly This might work, as average household income will likely increase as time goes by However this translates to a potentially very high income tax rate that many workers will not be able to afford, providing disincentive to work and stay in Asia Alternatively, if taxes stay as they are, debt could be increased as new costs come up This avoids having to cut back on costs in the short-term, but is unsustainable
- The population of the very young will not grow by much in many Asian countries; education and childcare services may be cut down in proportion However, the welfare ramifications are negative The burden will largely fall on those who cannot afford to replace those reduced services privately
- The most responsible solution is increased and sustained economic growth Higher labour productivity, capital deepening (higher quality capital) and education/training investment will help with this This way, we will be better able to meet the costs of ageing as and when they occur Focus should therefore not be on cutting costs, but on increasing rate of growth
- A focused approach is best Healthcare will likely be a big challenge, but treatment should be preventive and specialized The labour force will shrink, but retirees will still be a valuable resource Spending will likely change. Benefits are necessary but might need to be adjusted so they are sustainable. Future investment, projects and skills should be tailored to fit our needs, as these are not static The key to meeting new costs is by expanding the size of the economy