Global Aging
and Global Economics
Issues, some answers, and many
more research questions for you !
Axel Börsch-Supan
Mannheim Institute for the Economics of Aging (MEA)
and NBER
RAND Summer Institute 2004
1
Contents
1. Fundamentals: Demography (and
open questions on links to economics)
2. The Wealth of Nations:
Labor Market Issues (Macro/Micro)
3. Product Markets: Sectoral Change,
Trade and Infrastructure
4. The Strategic Role of Capital Markets:
Asset Meltdown, Portfolio Effects,
Globalization and Diversification 2
1. Demography
Open Questions in Economic Demography
• Deterministic and stochastic projections:
How reliable are they?
• Is demography exogenous? Do we understand
causality? Economic incentives to fertility and
migration
3
2. Labor Market
The Wealth of Nations
Economy:
Y = A * F(L, K)
Individual:
Y/N = A * f(L/N, K/L)
Globalization: GDP vs. GNP
4
Labor supply in Germany
Abbildung 1: Erwerbstätige in Deutschland, 2000-2050 [in Millionen]
40
38
36
34
32
S z enario E 3
30
28
S z enario E 2
S z enario E 1
26
24
22
50
20
45
20
40
20
35
20
30
20
25
20
20
20
15
20
10
20
05
20
20
00
20
Germany will face a
shrinking work force
-shrinking economy?
Quelle: Berechnungen des Autors auf Basis der Bevölkerungsprognose B2
5
⇒ Support ratio
(Employment/Consumer)
Abbildung 2: Stützquote (Erwerbstätige pro Erwachsene), 2000-2050 [in %]
60,0%
55,0%
50,0%
Szenario E3
Szenario E2
45,0%
40,0%
20
00
20
05
20
10
20
15
20
20
20
25
20
30
20
35
20
40
20
45
20
50
35,0%
Quelle: Berechnungen des Autors auf Basis der Bevölkerungsprognose B2.
Szenario E1
-15%
in 25 years
-0.45 ppt
per annum
6
⇒ German GDP per capita
(net of exogenous GDP growth)
7
2. Labor Market
Research issues:
Y = A * F(L, K)
Response of L to aging (retirement age,
entrance age, female LFP, unemployment)
Response of A to aging (age profile of
productivity, health, capital intensity)
8
Age-Specific Labor Productivity?
force
Clerical
Abbildung 4:Sales
Alters- und
senioritätsspezifische Verdienste
workers
(on
salary)
b) Büroangestellte
20
20
15
30
10
40
5
0
Alter
Verdienst [1000$ pr o Jahr]
25
60
50
20
40
30
35
30
40
20
45
10
50
0
55
60
20
24
28
32
36
40
44
48
52
56
60
64
68
30
20
24
28
32
36
40
44
48
52
56
60
64
68
Verdienst [1000$ pr o Jahr]
(on
piece rate)
a) Vertriebsmitarbeiter
Alter
Quelle: Kotlikoff und Wise (1989), ), Employee Retirement and a Firm’s Pension Plan, in D.A. Wise, ed., The Economics of Aging, Chicago: University of Chicago Press, 279-334.
9
⇒ Effect on aggregate
labor productivity
Abbildung 9: Relative Arbeitsproduktivität von Vertriebspersonal und Büroangestellten
Abbildung 4: Alters- und senioritätsspezifische Verdienste
40
5
Alter
60
64
68
52
56
36
40
44
48
28
32
0
30
35
30
40
20
101,0%
100,0%
45
10
50
0
55
60
64
68
30
10
20
40
44
15
50
48
52
56
20
32
36
40
20
60
20
24
28
25
Ve rdie nst [1 0 00 $ pro Ja hr]
b) Büroangestellte
30
20
24
Verdienst [10 00 $ pro J ahr]
a) Vertriebsmitarbeiter
60
99,0%
Alter
Quelle: Kotlikoff und Wise (1989), ), Employee Retirement and a Firm’s Pension Plan, in D.A. Wise, ed., The Economics of Aging, Chicago: University of Chicago Press, 279-334.
98,0%
Salesmen
97,0%
Salarymen
96,0%
95,0%
94,0%
93,0%
2000
2010
2020
Quelle: Berechnungen des Autors
2030
No effect
2040
2050
vs.
0.15 ppt p.a.
(10% of growth)
10
3. Product Markets
A European (?) issue:
Large structural changes in the product
market require more sectoral mobility in
the labor market
11
Consumption demand shifts
Abbildung 5: Altersspezifische Konsum ausgaben [Gütergruppen in Prozent]
100
P e rs ö nlic he A us ta ttung u.ä .
[% ]
90
Mobility demand
B ild ung und U nte rha ltung [% ]
80
70
V e rk e hr- und
N a c hric hte nüb e rm ittlung [% ]
60
G e s und he its - und
K ö rp e rp fle g e [% ]
shrinks to 50% ...
50
40
Ü b rig e G üte r f.
H a us ha lts führung [% ]
30
E le k trizitä t, G a s , B re nns to ffe
[% ]
20
W o hnung s m ie te n u.ä . [% ]
10
K le id ung , S c huhe [% ]
0
unte r 3 5
3 5 -4 5
4 5 -5 5
5 5 -6 5
6 5 -7 0
7 0 und
m e hr
Quelle: Statistisches Bundesamt, Fachserie 15, Heft 5, EVS 1993.
N a hrung s m itte l, G e trä nk e ,
Ta b a k w a re n [% ]
12
Consumption demand shifts
Abbildung 5: Altersspezifische Konsum ausgaben [Gütergruppen in Prozent]
100
P e rs ö nlic he A us ta ttung u.ä .
[% ]
90
B ild ung und U nte rha ltung [% ]
80
… but demand for
healthcare doubles
G e s und he its - und
over the life course
K ö rp e rp fle g e [% ]
V e rk e hr- und
N a c hric hte nüb e rm ittlung [% ]
70
60
50
40
Ü b rig e G üte r f.
H a us ha lts führung [% ]
30
E le k trizitä t, G a s , B re nns to ffe
[% ]
20
W o hnung s m ie te n u.ä . [% ]
10
K le id ung , S c huhe [% ]
0
unte r 3 5
3 5 -4 5
4 5 -5 5
5 5 -6 5
6 5 -7 0
7 0 und
m e hr
Quelle: Statistisches Bundesamt, Fachserie 15, Heft 5, EVS 1993.
N a hrung s m itte l, G e trä nk e ,
Ta b a k w a re n [% ]
13
⇒ Large sectoral labor mobility!
Abbildung 5: Altersspezifische Konsumausgaben [Gütergruppen in Prozent]
100
P e rs ö nlic he A us ta ttung u.ä .
[% ]
90
B i ld ung und U nte rha ltung [% ]
80
70
V e rk e hr- und
N a c hri c hte nüb e rm ittlung [% ]
60
G e s und he its - und
K ö rp e rp fle g e [% ]
50
30
E le k trizitä t, G a s , B re nns to ffe
[% ]
20
W o hnung s m ie te n u.ä . [% ]
10
=
bzw.
Ü b ri g e G üte r f.
H a us ha lts führung [% ]
40
K le id ung , S c huhe [% ]
0
unte r 3 5
3 5 -4 5
4 5 -5 5
5 5 -6 5
6 5 -7 0
7 0 und
m e hr
Quelle: Statistisches Bundesamt, Fachserie 15, Heft 5, EVS 1993.
N a hrung s m itte l, G e trä nk e ,
Ta b a k w a re n [% ]
Abbildung 6: Zu- und Abnahme der Beschäftigung nach Gütergruppensektor
G es undheits - und K örperpflege [% ]
8,0%
P ers önlic he A us tattung u.ä. [% ]
6,0%
E lek triz ität, G as , B renns toffe [% ]
4,0%
W ohnungs m ieten u.ä. [% ]
2,0%
Every sixth job
will be moved to
a different sector
Nahrungs m ittel, G etränk e,
Tabak w aren [% ]
0,0%
Übrige G üter f. H aus halts führung
[% ]
-2,0%
K leidung, S c huhe [% ]
B ildung und Unterhaltung [% ]
-4,0%
V erk ehr- und
Nac hric htenüberm ittlung [% ]
-6,0%
2010
2020
203 0
2040
2050
Quelle: Berechnungen des Autors auf Basis der Bevölkerungsprognose B2 (vgl. Abbildung 1), der Ausgabenanteile aus Abbildung 5, sowie des Statistischen Jahrbuchs „Umsätze pro Beschäftigte“ nach Sektoren.
14
4. Capital Markets
Strategic role of capital markets
in the course of global aging:
-Substitution of scarce and costly labor
-Intertemporal resource shifting
-International diversification
But:
Asset meltdown? Scarcity of capital supply?
15
„Asset Meltdown“ Hypothesis
Saving rate by
age and
cohort
16%
14%
12%
11%
1909
1914
1919
1924
1929
1934
1939
1944
1949
1954
1959
1964
Sparquote
10%
8%
6%
5%4%
2%
0%
20
25
30
35
40
45
50
55
Altersgruppe
60
65
70
75
80
85
16
„Asset Meltdown“ Hypothesis
Saving rates 140,0%
by
age and cohort
120,0%
(relative to age 40)
100,0%
Germany
80,0%
Italy
60,0%
France
40,0%
NL
20,0%
0,0%
-20,0%
25 30 35 40 45 50 55 60 65 70 75
17
4. Capital Markets
Research issues:
• How responsive are age-saving profiles to
public policy (tax privileges, pensions)?
• Realistic general equilibrium models of
capital accumulation
Quite sophisticated, but:
• Risk (life span, earnings, returns)
• Portfolio effects
• Capital market frictions (home bias, FDI)
• Behavioral reaction to pension reform
18
Saving rate
8%
5%
⇒ saving rate declines, but neither abruptly nor dramatically
19
Capital stock: Asset Meltdown?
Capital stock
as multiple
of GDP
Small, only relative,
and diversifiable!
20
Rate of return: Asset Meltdown?
OLG models indicate so far:
7,8%
(4,8%)
Demographically induced
decline of rate of return is nonnegligible, but far from a
capital market breakdown
6,8%
(3,8%)
21
Safe versus risky assets?
8%
7%
Aktien g=2,0%
6%
Risky:
equity
Aktien
g=1,0%
5%
Equity Pr. g=1,0%
Aktien g=1,5%
4%
Equity
premium
Equity Pr. g=2,0%
3%
Geld g=2,0%
Equity Pr. g=1,5%
Safe:
savings
Geld
g=1,0%
accounts
Geld g=1,5%
2%
1%
0%
2000
2010
2020
2030
2040
2050
22
Implications of differential aging
Support
Ratio
0,7
OECD 13
USA
0,6
EU 14
Germany
Japan
0,5
2000
2010
2020
2030
2040
2050
Note: Share persons of working age in total population
23
Induced international capital
flows
0,7
Multi-country
OLG model
⇒ Net capital flows
OECD 13
USA
0,6
EU 14
80%
Germany
0,5
2000
2010
2020
2030
2040
2050
Note: Share persons of working age in total population
60%
net capital exports/
total capital flows
Japan
USA
40%
Germany
20%
OECD 12
0%
Japan
-20%
EU 14
-40%
-60%
Support ratio
-80%
2000
2010
2020
2030
2040
2050
year
24
4. Capital Markets
Final issue: Corporate governance
• Capital productivity important part of TFP
• Strategic role of capital markets makes
corporate governance more important
• Feedback effects of pension reform
25
Resumé
Where to set priorities?
• Aging and productivity (need firm data!)
• Behavioral responses to pension reform:
retirement age, saving (need international
data! Time-honored questions with limited
answers)
• Macroeconomic effects of risk management
26
• Global capital flows (home bias, frictions)