Some unsuspected consequences of the aging society

I’ve been reading the work of George Magnus, 'The age of aging' over the weekend. The book certainly offers a thorough study of the consequences of the aging society on our society, although it contain a few gaps as well. Some of the points I noted:

• George Magnus’ central point is that there will be an insufficient growth (and even a decline) of the number of persons at working age to take care of the inactive persons (since the portion of elderly people will swell due to longer life expectancy), the so-called dependency ratio will rise dramatically. Magnus seems to believe there is a very strong correlation between the number of persons at working age and economic growth –with less persons at working age one cannot produce as much as previously, unless dramatic productivity increases can be found –which Magnus seems to doubt.
  
  All fair and logical points, but it would have been truly complete if Magnus’ would have integrated the impact of automation on economic growth (and unemployment) in his equation. The devil is in the detail… The next 10-20 years we’ll see a massive retirement of baby-boomers from the active workforce, with not enough people to replace them. OK, but there’s an army of unemployed youngsters ready to take their place:
  
  (youth unemployment %, copied from the BBC)
  
  
  But even then, it’s not sure all the retired people’s jobs will need replacement –due to automation-, and it’s not sure that the current unemployed youngsters will be able to take these jobs over –this is an educational issue.
• One thing I didn’t fully grasp before reading this book is the impact of the aging society on our ‘wealth’. The increase of elderly people will certainly put a strain on public finance. It is likely that pension levels will go down in the next decades. As a result elderly people will save less (also because their health care expenditures will increase). This, in combination with the fact that there will be less people at the age where savings are highest (40-60) will result in an overall decline in savings. These savings are usually used for investments, so a decline in savings will also result in a decline of investment capital, and hence of economic growth.
  
  I won’t make this too long, but the overall conclusion is that bigger parts of the population could be much less well off than today. A troubling thought.

• One of the logical solutions to the aging society is to boost the supply of people at working age. You could increase the participation rate, but according to Magnus’ calculation in a country like France for instance retirement age would need to increase by 7 years to make up for the increased amount of retired people. A second solution is to increase immigration, but that is not a solution on the longer term (immigrants get old as well and likely didn’t contribute as much as locals to the social security system, so this worsens the problem). Furthermore, this would require a growth of immigration of more than 20% in the advanced economies in order to keep the same dependency ratio.

There’s plenty more thoughts in this book. And, while Magnus takes care not to fall into dramatization of the subject, the conclusion is that there no structural solution to this challenge, we’ll just have to make them up while we move ahead.

Check out my previous book reviews:

• "Different - how to escape the competitive herd" Youngme Moon
• "The shift" Lynda Gratton
• "The future of work" Thomas Malone
• "Making globalization work" Joseph Stiglitz
• "2030 -Technologies that will change the world" Van Santen, Khoe, Vermeer
• "What Technology wants" David Kelly
• "Crowdsourcing" Jeff Howe
• "The next big thing" William Higham
• "Future Files" Richard Watson
• "Future savvy" Adam Gordon
• "Futurewise" Patrick Dixon
• "Ecological intelligence" Daniel Goleman