Aging and Social Policy:
An International Perspective
Andrew Mason
Sang-Hyop Lee
Ronald Lee
Chong-Bum An
Outline
I.
II.
Background: National Transfer Accounts
Estimating the Economic Lifecycle
1.
2.
III.
The Age Reallocation System
1.
2.
IV.
Consumption and labor income by age for Korea
Comparison with Taiwan and the US
Estimates for Korea
Comparison to Taiwan and the US
Conclusions
National Transfer Accounts
• System for measuring economic flows across
age groups in a manner consistent with National
Income and Product Accounts
• Comprehensive
– Asset-based reallocations
• Public and private saving
• Public and private credit
– Public transfers
– Private transfers
• Inter vivos inter-household
• Intra-household
• Bequests
National Transfer Accounts
• Issues being explored:
– How do economic support systems evolve within
countries and differ across countries?
– How do economic support systems interact with age
structure to influence macro-economic performance
and generational equity?
– How should policies with respect to public pensions,
health care, and education change over time?
– What are the appropriate roles of the family and the
state in providing support to children and the elderly?
NTA Project Organization
• Coordination
– Ronald Lee (UC – Berkeley)
– Andrew Mason (East-West Center/UH)
• Core support: National Institute on Aging
• Website: www.ntaccounts.org
• Countries currently participating in the project
– Korea: An Chong-Bum (SungKyunKwan University)
– Taiwan: Andrew Mason and An-Chi Tung (Academia
Sinica, Taipei)
– US: Ronald Lee
– 14 other countries are members of the project
II. The Economic Lifecycle
The Economic Lifecycle of Korea, Annual
Aggregate Flows, Nominal Values, 2000
14000
12000
Labor Income
10000
8000
6000
4000
Consumption
2000
Deficits
90+
85
80
75
70
65
60
55
50
45
40
35
30
25
20
15
10
5
0
0
Won (billions)
.
Surplus
Features of the Economic Lifecycle
• Age refers to people not household heads.
• Consumption
– Includes all public and private consumption
– Age allocation is based on consumption surveys
(private) and administrative records (public)
• Labor income includes
– wages and salaries
– labor’s estimated share of mixed income
– taxes paid by employers on behalf of employees
including a portion of indirect taxes
.
Lifecycle of Korea (2000), Per
Capita Values
1.6
Relative to Yl(20-39)
1.4
Labor Income
1.2
1
Consumption
C declines
with age
Female
LFPRs
0.8
0.6
Education
Spending
0.4
0.2
0
0
10
20
30
40
50
60
70
80
90+
.
Lifecycle of Taiwan (1998) and
Korea (2000), Per Capita Values
1.6
Relative to Yl(20-39)
1.4
Labor Income
T
1.2
K
1
Lower C
in ROK
T
Consumption
0.8
0.6
K
0.4
0.2
0
0
10
20
30
40
Higher LFPRs
50
60
In ROK70
80
90+
Lifecycle of US (2000) and Korea
(2000), Per Capita Values
Relative to Yl(20-39)
.
US LFPRs >
1.6
ROK LFPRs
1.4
Labor Income
US
US
1.2
K
1
High US C is
health care
Consumption
0.8
0.6
K
0.4
ROK LFPRs >
0.2
US LFPRs
0
0
10
20
30
40
50
60
70
80
90+
Some Implications
• A given rise in the older population has a much
greater impact in the US given current LC.
However, aging is much more rapid in ROK.
• Importance of female employment.
• Reducing the LC deficit at old ages is not simply
a matter of higher LFPRs among the elderly.
High productivity jobs needed.
• Rising health care costs is the Achilles heel if US
experience is any guide.
The Age Reallocation System
Table 1. A Classification of NTA Reallocations (revised 1/13/06).
Asset-based Reallocations
Capital and Other
Non-Financial
Assets
Credit
Transfers
Public
Public infrastructure
Public land and subsoil minerals
Public debt
Student loans
Money
Public education
Public health care
Unfunded pension
plans
Private
Housing
Consumer durables
Factories, Farms
Private land and
sub-soil minerals
Inventories
Consumer credit
Familial support of
children and parents
Bequests
Charitable
contributions
Source: Adapted from Lee 1994.
The Transfer Option
14000
Tax workers.
Provide cash
and in-kind
payments to
the elderly
12000
Consumption
10000
8000
6000
4000
2000
Labor Income
90+
85
80
75
70
65
60
55
50
45
40
35
30
25
20
15
10
5
0
0
The Saving Option
14000
Labor Income
12000
10000
8000
Consumption
Invest
6000
Asset
Income &
Dissaving
4000
2000
90+
85
80
75
70
65
60
55
50
45
40
35
30
25
20
15
10
5
0
0
Transfers vs. Saving
• Both can satisfy reallocation objectives.
• Transfers can do so immediately; saving
only with a delay.
• Saving is pro-growth.
• Other research shows that aging can lead
to substantial capital deepening if transfer
programs are kept in check.
Age Reallocations, Korea, 2000,
Per Capita Annual Flows
Asset-based Reallocations
Inter Vivos Transfers
Public Transfers
Bequests
15000
Total Inflows
10000
5000
0
-5000
Total Outflows
0
10
20
30
40
50
60
70
-10000
80
90+
.
How are Taiwan, Korea, and the
US financing old-age consumption?
Percent of consumption
100
90
Work
80
Asset-based
70
reallocations
60
much greater
in the US!50
Asset-based
Reallocation
Total transfers
much greater
in Korea
40
30
20
Large 10
public 0
transfers
in US
Familial
Transfers
Public
Transfers
US (2000)
Korea (2000) Taiwan (1998)
Note. Familial transfers do not include bequests.
Why are asset-based reallocations so
low in Korea and Taiwan?
• Did familial transfers crowd out saving?
• Did familial transfers fill a gap that saving
could not meet?
– High rates of growth in Korea and Taiwan led
a 6-fold increase in lifetime earnings each
generation.
– Unlikely that saving rates could be high
enough to achieve the flat age profiles of
consumption.
Lesson to Draw
• Familial transfers served East Asia well by
maintaining generational equity during a
period of very rapid economic growth.
• Slower economic growth and population
aging  shift to asset-based reallocations.
• High saving rate and shift away from
familial support systems are welcome
developments.
The End
NT Flow Account Identity:
• Inflows
–
–
–
–
• Outflows
–
–
–
–
Labor income
Capital income
Interest income
Transfer inflows
Consumption
Investment
Accumulation of credit
Transfer outflows
yl  yk  ym    c  I K  I M  


NT Flow Account Identity:
Lifecycle Deficit =
C  yl
Age Reallocations =
Capital-based Reallocations +
yk  I k
Credit-based Reallocations +
ym  I M
Net Transfers

NT Flow Account, Aggregate. Taiwan, 1998 (NT$ billion), nominal
Age
Total
0-19
20-29
30-49
50-64
65+
Age Reallocations
832
1894
6
-1569
-25
526
Asset-based
reallocations
861
-16
-210
605
299
184
Asset Income
2,456
3
139
1492
585
237
Less: Saving
1,595
19
349
887
286
54
-29
1910
216
-2174
-323
342
2
579
76
-692
-138
176
-31
1330
65
-1568
-95
236
0
0
75
86
-91
-70
Transfers
Public, current
Private, current
Capital transfers
Lower panel measures the reallocation systems employed to satisfy
the lifecycle deficits and surpluses at each age. Asset-based
reallocations combine capital, other non-financial assets, and credit.
Source: Mason, Lee, Tung, Lai, and Miller, forthcoming.