Demographics problem – not just limited to developed economies

It was a matter of time before demographics again come to mainstream economics discussions. It was such an important area and then came the global financial crisis. Now, slowly people are again beginning to look at this issue.  

I posted on this superb speech from BoJ chief who shows why this recession could be different because of demographics.

World Bank has done two studies which point to a different idea. The two studies are – Some Consequences of Global Aging,  and case studies on in New EU Member States and Croatia: Challenges and Opportunities.

The studies say ageing problem is not limited to developed economies but is going to strike developing and middle income economies as well. What is worse is that unlike developed economies who are rich and some have buffers (though crisis has done a lot of damage), developing economies do not have any such things. They are likely to fall in this trap before reaching prosperity levels.

Once considered a rich country phenomenon because of its origins in high national incomes and better personal health, the ‘graying’ trend has now reached developing and middle-income countries, according to new research by the World Bank. These countries are catching up, but largely without the economic means to cope with the social and economic challenges posed by such a profound demographic shift.

“Population aging is a global issue that is affecting, or will soon affect, virtually every country around the world, at a time when family support and other traditional safety nets have become less certain,” says Daniel Cotlear, co-author of a recent Bank report “Some Consequences of Global Aging,” and a lead economist in the World Bank’s Human Development Network.

“What we find is that many developing countries are getting older before they become more prosperous, which is the reverse of the OECD experience, and cause for worry,” he says.

Why this change? The answer is improving life expectancy and fertility rates:

Life expectancy at birth grew by 11 years between 1950-55 and 2005-10 in more developed countries, but the gains have been much greater in less developed regions (excluding the least developed countries), where life expectancy increased by 26 years, and in the least developed countries, where life expectancy increased by 19.5 years. Further gains are anticipated in the coming decades.

However, the authors say it is not a time ticking bomb. It can be managed with proper policies:

Along with his co-authors Andrew Mason and Ronald Lee, Cotlear argues against the common ‘time bomb perception’ of aging populations and says that with smart policies in labor markets, social security, long-term care and public health in place, governments can manage the economic and social needs of their aging societies.

“In looking at how other countries have approached this problem, it became clear to us that there really is no ‘one size fits all’ solution,” says Johannes Koettl, a co-author of the new report and an economist in the World Bank’s Europe and Central Asia Human Development team.

“From tax-financed social safety nets like Medicaid in the United States, to universal entitlements financed either from taxes as in Austria, or social security contributions as in Germany and Japan, what is clear, in all cases, is that some public risk-pooling is needed,” he says. “Based on our review, we are suggesting that new European Union member states and Croatia consider a universal system of basic protection for all individuals requiring long-term care service.”

Reading both these studies is going to be very interesting.

We are already fatigued with research on crisis. Demographics studies will pick up going ahead.

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