Challenge of Global Aging

1
The Challenge of Global Aging how
demography will reshapethe world of the 21st
century Richard Jackson CSIS Global Aging
Initiative White House Conference on Aging July
20, 2005
2
The whole world is agingand todays developed
countries are leading the way.
Year 2005
3
Pyramid inversion in the developed world1950 to
2050.

• More Developed Regions UN Constant Fertility
  Scenario

year 1950 median age 28.6 THIS IS WHERE WE
WERE IN 1950
Men
Women
Population in Thousands
4
Pyramid inversion in the developed world1950 to
2050.

• More Developed Regions UN Constant Fertility
  Scenario

year 1955 median age 29.0
Men
Women
Population in Thousands
5
Pyramid inversion in the developed world1950 to
2050.

• More Developed Regions UN Constant Fertility
  Scenario

year 1960 median age 29.6
Men
Women
Population in Thousands
6
Pyramid inversion in the developed world1950 to
2050.

• More Developed Regions UN Constant Fertility
  Scenario

year 1965 median age 29.8
Men
Women
Population in Thousands
7
Pyramid inversion in the developed world1950 to
2050.

• More Developed Regions UN Constant Fertility
  Scenario

year 1970 median age 30.6
Men
Women
Population in Thousands
8
Pyramid inversion in the developed world1950 to
2050.

• More Developed Regions UN Constant Fertility
  Scenario

year 1975 median age 30.9
Men
Women
Population in Thousands
9
Pyramid inversion in the developed world1950 to
2050.

• More Developed Regions UN Constant Fertility
  Scenario

year 1980 median age 31.9
Men
Women
Population in Thousands
10
Pyramid inversion in the developed world1950 to
2050.

• More Developed Regions UN Constant Fertility
  Scenario

year 1985 median age 33.1
Men
Women
Population in Thousands
11
Pyramid inversion in the developed world1950 to
2050.

• More Developed Regions UN Constant Fertility
  Scenario

year 1990 median age 34.4
Men
Women
Population in Thousands
12
Pyramid inversion in the developed world1950 to
2050.

• More Developed Regions UN Constant Fertility
  Scenario

year 1995 median age 35.8
Men
Women
Population in Thousands
13
Pyramid inversion in the developed world1950 to
2050.

• More Developed Regions UN Constant Fertility
  Scenario

year 2000 median age 37.3
Men
Women
Population in Thousands
14
Pyramid inversion in the developed world1950 to
2050.

• More Developed Regions UN Constant Fertility
  Scenario

year 2005 median age 38.7 THIS IS WHERE WE ARE
TODAY
Men
Women
Population in Thousands
15
Pyramid inversion in the developed world1950 to
2050.

• More Developed Regions UN Constant Fertility
  Scenario

year 2010 median age 40.0
Men
Women
Population in Thousands
16
Pyramid inversion in the developed world1950 to
2050.

• More Developed Regions UN Constant Fertility
  Scenario

year 2015 median age 41.2
Men
Women
Population in Thousands
17
Pyramid inversion in the developed world1950 to
2050.

• More Developed Regions UN Constant Fertility
  Scenario

year 2020 median age 42.3
Men
Women
Population in Thousands
18
Pyramid inversion in the developed world1950 to
2050.

• More Developed Regions UN Constant Fertility
  Scenario

year 2025 median age 43.4
Men
Women
Population in Thousands
19
Pyramid inversion in the developed world1950 to
2050.

• More Developed Regions UN Constant Fertility
  Scenario

year 2030 median age 44.5
Men
Women
Population in Thousands
20
Pyramid inversion in the developed world1950 to
2050.

• More Developed Regions UN Constant Fertility
  Scenario

year 2035 median age 45.4
Men
Women
Population in Thousands
21
Pyramid inversion in the developed world1950 to
2050.

• More Developed Regions UN Constant Fertility
  Scenario

year 2040 median age 46.0
Men
Women
Population in Thousands
22
Pyramid inversion in the developed world1950 to
2050.

• More Developed Regions UN Constant Fertility
  Scenario

year 2045 median age 46.3
Men
Women
Population in Thousands
23
Pyramid inversion in the developed world1950 to
2050.

• More Developed Regions UN Constant Fertility
  Scenario

year 2050 median age 46.4 THIS IS WHERE WE
WILL BE IN 2050
Men
Women
Population in Thousands
24
Five Challenges
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The fiscal challenge.

• Declining support ratio of workers to retirees
• Rising cost of pay-as-you-go retirement
  benefits
• Large tax hikes, large benefit cuts, or
  exploding public debt
• Growing political paralysis over unpopular
  budget choices

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The number of workers available to support each
pensioner will decline.
two taxpayers for each retiree
27
Public retirement benefits will consume a much
larger share of GDP.
28
Elders in most countries are highly dependent on
government benefits.
All
3rd Households
Quintile US 35 54 Canada 42
62 Sweden 57 70 Netherlands 54
74 UK 50 75 France 67
78 Italy 59 83 Germany 61
84
Public Benefits as a Percent of After-Tax Elderly
Income
Source CSIS (2002)
29
The labor challenge.

• Shrinking workforces and labor shortages
• Aging workers and aging union memberships
• Pressure to increase immigrationand popular
  backlash
• Growth in cross-border outsourcing

30
The growth challenge.

• Long-term zero or negative GDP growth
• Declining rates of savings and investment
• Falling demand for infrastructure (highways,
  housing) and capital goods (offices, mills)
• Shrinking consumer markets, overcapacity, and
  declining profits

31
The financial challenge.

• Danger of Great Depreciation in financial
  markets when Boomers retire
• Unsustainable government borrowing to fund
  pensions
• Possible collapse of regional economic entities
  like the EMU
• Capital-flow reversals Emergence of developed
  debtors (Japan? Germany?) and developing
  creditors (China? Mexico?)

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The geopolitical challenge.

• Will youthful developing societies ? feel
  demographic pressure to expand? ? translate
  faster economic growth into global leadership?
• Will aging developed societies ? find the
  resources to meet their security
  commitments? ? be willing to sacrifice for the
  sake of the future?

33
If demography is destiny, global leadership may
pass to the Third world.
1 2 3 4 5 6 7 8
9 10 11 12
1950 China Soviet Union India United
States Japan Indonesia Germany Brazil United
Kingdom Italy France Bangladesh
2000 China India United States IndonesiaBrazil
Russian Fed.PakistanBangladeshJapanNigeriaMex
icoGermany
2050 India China United States PakistanIndonesi
aNigeriaBangladeshBrazilCongoEthiopiaMexico
Philippines
12 Largest Countries Ranked by Population
Source UN (2001)
34
The US Age Wave in Global Perspective
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The United States enjoys considerable
advantages.

• The youngest population in the developed world
• The developed worlds deepest capital markets
  and most flexible labor markets
• A relatively inexpensive Social Security system
• A well-developed private pension system

36
Americas age wave is comparatively small.
37
In many fast-aging countries, the working-age
population will shrink dramatically.
38
Countries with slowly growing workforces may have
slowly growing economies.
39
The United States must also overcome some real
obstacles.

• The worlds most expensive health-care system
• Large gaps in private pension coverage
• Unsustainable budget and current account
  deficits
• An entrenched entitlement ethos, a powerful
  senior lobby, and growing political gridlock

40
Older voters will increasingly dominate the U.S.
electorate.