Is low fertility really a problem? Population aging, dependency, and consumption

Abstract

Longer lives and fertility far below the replacement level of 2.1 births per woman are leading to rapid population aging in many countries. Many observers are concerned that aging will adversely affect public finances and standards of living. Analysis of newly available National Transfer Accounts data for 40 countries shows that fertility well above replacement would typically be most beneficial for government budgets. However, fertility near replacement would be most beneficial for standards of living when the analysis includes the effects of age structure on families as well as governments. And fertility below replacement would maximize per capita consumption when the cost of providing capital for a growing labor force is taken into account. While low fertility will indeed challenge government programs and very low fertility undermines living standards, we find that moderately low fertility and population decline favor the broader material standard of living

Demographic dividends, human capital, and saving

“…In this case the capital-output and human capital-output ratios are exogenous while the saving rates are endogenous (Lee, Mason et al 2014). Net production per worker in equilibrium is given by: $$false(1-sfalse)\frac{Y}{L}=false(1-false(\lambda +n+{\delta }_{k}false)k-false(\lambda +n+{\delta }_{h}false)hfalse)k^{\frac{\alpha }{1-\alpha -\beta }}{h}^{\frac{\beta }{1-\alpha -\beta }}Afalse(tfalse)$$ …”

A cost of living longer: Projections of the effects of prospective mortality improvement on economic support ratios for 14 advanced economies

“…In view of the sacrifice of leisure utility which such solutions entail, they are not necessarily the most desirable responses. In theory, substituting capital for labour, for example, in care for the elderly, and thereby increasing the rate of growth of labour productivity may be seen as a more desirable alternative (Lee et al 2014). Assessment of the desirability of raising labour force participation as a response to increasing longevity would also raise a host of philosophical questions about the broader nature of 'population wellbeing', a subject beyond the scope of this paper (Parr and Guest 2014 The time component of an additional factor is modelled by an autoregressive (AR) model of order p: k t,i,j = a 0,i,j + a 1,i,j k t−1,i,j + a 2,i,j k t−2,i,j + · · · + a p,i,j k t−p,i,j + v t,i,j…”

“…Mortality change, related changes to health, and population ageing more broadly can also affect population size and the size of the labour force, growth rate, productivity, income, consumption and saving, government expenditure, and taxation revenue. All of these may in turn affect labour force participation rate (Auerbach and Kotlikoff 1992;Lee et al , 2001Lee et al , 2014McDonald and Kippen 2000;Kelley and Schmidt 2005;Skirbekk 2008; Lee and Mason 2010;Williamson 2013;Parr and Guest Prskawetz and Sambt 2014;Scherbov et al 2014). Because of the extensive data and modelling requirements that would be involved in the consideration of such effects, they were not taken into account in our study.…”

“…Economic support ratios relate economic resources to a population's consumption need (Cutler et al 1990;UNPD 2013b;Lee et al 2014;Prskawetz and Sambt 2014). For each country we focused primarily on projections of a form of the support ratio measured by the ratio of hours worked per week to total population.…”

How to Measure Population Aging? The Answer Is Less than Obvious: A Review

“…Governments are primarily interested in the fiscal support ratio, while private individuals are primarily interested in the support ratio. NTA finds large variation among countries in these ratios and in the underlying drivers, such as the chronological age when one becomes a net recipient of transfers [15]. Because public transfers go mainly to the elderly, especially in rich countries, while private transfers mostly go to children, “the age structure that favors public finances is much younger than the age structure that favors the combined finances of public and private sectors.”…”