Aging: A Question of Policy

People in Europe are worried about pensions, labor shortages and healthcare; they need to be ready for structural changes

Europeans are getting older – and fast. By 2060, almost three times as many people will be over 80 years of age, according to Eurostat, the agency that analyzes and provides statistical information on the European Union. It’s not because the population is shrinking: the EU census figures will continue to grow from 495 million in 2008 to peak at 521 million in 2035, before leveling off to 506 million by 2060.

But not because fewer babies are being born; actually fertility rates in Europe will remain about the same – lower in Germany and Austria, 1.38 and 1.41 respectively, and higher in countries like France and Ireland, with rates of 2.10 and Iceland, 2.15, according to the Vienna Institute of Demography.

What has changed is the expected life spans of those who are already alive and to an even greater extent, those who are yet to be born. People are simply living longer – a lot longer.

The repercussions have long been in the headlines and on the rosters of public discussions, with labor shortages and the danger of the collapse of the pension system leading the list. At the Center of Social Innovation in Vienna, research director Josef Hochgerner spoke of dramatic figures, how the number of people who have ever lived has long since surpassed 100 billion. By 2050 nearly 10% of that population will be living in the 21st-century, with the highest percentage living right now. The world population will grow to nine billion by 2050 from 6.9 billion in 2009, according to the United Nations, an increase of over two billion people, of whom a full 20% will be over 60.

“There is a strong trend toward increasing life expectancy in developed countries,” the Demographic Institute’s Tomas Sobotka told The Vienna Review, with some demographers predicting that “children born now will probably live up to 100 years of age.”

One of these is James W. Vaupel, founder and the director of the Max Planck Institute for Demographic Research in Rostock, Germany. Vaupel looks at the most advanced countries in the last 120 to 150 years and measures how life expectancy is changing. The trend, he found, is very stable, with a yearly increase in life expectancy of 0.20 – 0.22 years. In another words, every year extra 2.5 months are added to the life span, or an average of five hours a day.

“But we never know for sure,” emphasized Sobotka, “This prediction is based on the long term trends,” and other factors can always intervene.

The trends have important implications for social policy and national budgets. For example, as long ago as 1996, only seven per cent of the population died before reaching retirement age, up from 40 per cent in 1948, wrote British philosopher and cultural critic Raymond Tallis, in The Sunday Times in 2006. A 65-year-old male in 1997 could have expected to die at 83, while by 2005, the age was over 86. Projections for 2015 rise to 90.

The reasons, says Sobotka, are advances in medical science and healthier lifestyles.

“Of course, that’s the matter of debate, [but] one factor which is clearly driving these improvements in life expectancy is the huge technological advance – changes due to the developments in the technology and science, that make possible treatments of the diseases that were once fatal,” Sobotka says. “There are more chances nowadays to survive cancer, and diseases like cholera or typhus no longer represent danger, as was the case in the 19th century.”

The other factor, he says, is that many people try to lead a healthier lives, and care more about food and exercise than earlier generations. A third factor is the environment: “In the high-income countries, air and water pollution are minimal compared to other places.”

The changes can have profound effects on the economies of nations.  With the growing number of the elderly, the percentage of the working population diminishes and therefore fewer to ensure the viability of the current pension system. The consequent labor shortage could also have an impact on other factors like wages and salaries, and less tangible things like innovation.

“What we are facing now is the transformation of the population structure from the younger to the older and, of course, it triggers some changes,” said Rainer Münz, head of Research & Development at Erste Bank AG and Senior Fellow at the Hamburg Institute of International Economics. “People are worried because if you want to retire early, then you would need somebody who picks up the bill. But if you accept that with longevity, a certain increase of the retirement age should come about, then you can think of it as a steady state equilibrium.”

The aging of the population is more worrisome in agricultural societies that need to produce calories out of the soil. “If there are fewer people, fewer calories are produced,” says Münz, a huge factor in certain counties in Africa where agriculture is almost the only income. “But many societies nowadays are industrial or postindustrial, so the number of people actually doesn’t matter. When you substitute capital for labor in the agricultural sector, one big machine does what 20 workers could do, so one machine makes these 20 people redundant. They can find work elsewhere.

“This has decoupled the nation’s wealth from the population size.”

But over all, the data has to be put into the right perspective, says Munz. “It is important to understand that population aging is not a biological phenomenon; it has little to do with the [actual] aging of people. It just means that there are more people above 50 and fewer people below 50, a shift in the age structure as a result of increased life expectancy, and the other is a small number of children.”

Another controversial aspect of the aging population is the labor shortage. While the newspapers scream about the lack of qualified workers, many people are struggling to find a job while those who have reached retirement age still would like to continue working.

“These are the consequences of imperfect system,” comments Sobotka, “It is expensive for companies to keep [high-salaried] older people at work; they let them retire early while employing fewer people.” New occupations, like health-care workers, are in greater demand, and people’s individual job preferences create shortages in some areas.

“People just don’t want certain jobs,” says Münz. “Labor shortage is always related to the educational system and to the wage structure. If there is a boom in the health industry and more doctors and nurses are needed, the educational system needs 5-6 years more to deliver these people then immediately arises shortage.”

Immigration may help, as would bringing more women, particularly mothers into the labor force, while keeping the elderly in the work force longer. Another strategy is to improve the productivity.

“The aging of Europe is not a very serious problem by definition,” says Dr. Sobotka, “as long as the governments are reacting to this trend.”

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