The Price of Maturity

• Author: Ronald Lee and Andrew Mason
• Position: a Professor of Demography and Economics at the University of California, Berkeley, and Chair of the Center on the Economics and Demography of Aging. is a Professor of Economics at the University of Hawaii and a Senior Fellow at the East-West Center.

THE WORLD’S POPULATION will reach 7 billion this year and is projected to exceed 9 billion in 2050. But despite the overall increase, hidden behind these headline numbers are important changes in the age distribution of the population. In the rich industrial nations as well as some middle- and lower-income countries, populations will age as the proportion of elderly people within the mix rises dramatically.

Surprisingly, this population aging is driven more by low fertility than by longer life. Low fertility means fewer children to grow up and enter the workforce, while the number of elderly keeps rising. But people are also living longer, which reinforces the effects of low fertility. Between now and 2050, about 1 billion working-age adults and 1.25 billion members of the age 60+ population will be added to the global population, while the number of people younger than 25 is projected to hold steady at 3 billion (UN, 2009).

These changes have worrisome implications for both policymakers and individuals, since most elderly people are no longer part of the labor force and their consumption must be funded by their younger family members, by public or private pensions, or by their accumulated asset holdings. As the ratio of elderly to working-age people rises, it becomes more difficult to fund them through public or private transfers, and asset accumulation is often inadequate.

We examine how the elderly are supported in different countries and discuss how these support systems will be affected by population aging. The ways populations have supported the elderly in the past won’t always work in the new demographic reality.

More elders

Why will the number of elderly people grow faster than the number of working-age people? Countries around the world had unusually large cohorts of children during the second half of the 20th century. Many high-income countries experienced a baby boom after World War II, while in low-income countries the driving force was a rapid decline in infant and child mortality, leading to much larger numbers of surviving children. Over time these large cohorts are aging, adding first to the working-age population and later to the population of seniors. The oldest baby boomers are just reaching retirement age.

The baby boom ended in the 1960s, and fertility rates are now at low levels—in some cases, very low—in east Asia and Europe. The situation in the developing world is highly varied. Fertility rates have declined almost everywhere, but there are exceptions. In Africa the total fertility rate is just below 5 births per woman. In Asia, Pakistan’s fertility rate is 4, while in India and Bangladesh the rate is approaching 2. In China, by contrast, the fertility rate has declined to very low levels—about 1.5 births per woman.

Countries are aging at different rates:

• In lower-income countries, the dominant demographic trend is growth in the working-age population, while total dependency ratios are falling. This will continue to be the case for several more decades in countries like India and those in sub-Saharan Africa.

• In the richest countries, the dominant trend is growth in the older population. Although these populations have already aged considerably, the most challenging phase of population aging is yet to come, when the ratio of old people to those of working age—the so-called old-age dependency ratio—nearly doubles by 2050.

• In many emerging economies, the share of the working-age population is just now reaching a peak. In the coming decades, these countries will experience the population aging that high-income countries are already confronting. Ignoring...