An ageing world poses new challenges for development strategists
Older persons are more likely to be poor than working- age adults so social protection systems need to be deepened to ensure old age security in developing countries
The graying of industrialized countries resulting from declining birth rates and increased life expectancy has been making headlines for quite some time. Yet eyebrows were raised when DESA’s Population Division announced recently that nearly eighty percent of people aged sixty years or over are predicted to be living in developing nations by the year 2050. The developing world is indeed ageing more rapidly than the more advanced regions, and this shift is set to test the viability of long-term development strategies.
According to the newly released 2006 report on World Population Prospects, for the first time in history the number of older persons in the world is set to surpass the number of children by 2045. This demographic crossover is the product of a long-term decline in mortality and, especially, fertility rates globally, which in turn have led to a steady ageing of the world’s population. Europe, whose inhabitants are the oldest in the world, already found itself home to more elderly persons than children ten years ago, and the trend shows no signs of abating. Elderly persons in Asia, Latin America and the Caribbean, North America and Oceania are expected to account for a quarter of the population by 2050, while thirty-five percent of the population in Europe will be aged sixty or over. In Africa, the proportion of aged persons is expected to double by 2050, to ten percent.
Although the case of Europe stands out, “the biggest change will occur in the developing world, and developing countries will have to cope with a much more aged population,” says Hania Zlotnik, Director of the DESA Population Division. Due to significant reductions in fertility, the median age in Asia will rise from twenty-eight to forty years by mid-century, while in Latin America it will increase from twenty-six to forty years. In China alone, about one third of the population or roughly 430 million people will consist of retirees by 2050. Even Africa with its large youth population can expect to see an increase in median age from nineteen years today to twenty-eight years.
Demographic shifts of this magnitude will trigger changes in the labour market and the world economy, and force a review of health care and social protection systems, but not all countries are equally ready to face these challenges. As Sergei Zelenev, Chief of the Social Integration Branch in the Division for Social Policy and Development puts it, “Developed countries have become aged when they are affluent, and have ammunition to tackle a growing older population.” Less advanced countries must “face ageing problems when are still relatively poor, and have to solve them simultaneously with many other development-related issues.”
A potential shortage of workers is viewed as one of the main problems. The proportion of the population of working age is expected to decline between 2005 and 2050 in every major area of the world except Africa. By 2050, Europe is expected to have fourteen workers for every ten dependants, most commonly children and persons aged sixty-five or over. In other areas, the ratio is likely to range from sixteen to ten in North America, to nineteen to ten in Africa.
It has almost become a mantra that a shrinking number of workers will have to support a growing number of elderly people to maintain public pension systems as we know them. Many developed countries have started to adjust pension and health-care programmes to make them sustainable for future generations. In his report on major developments since the Second World Assembly on Ageing, the Secretary-General points out that early retirement is increasingly discouraged, and that providing incentives to motivate older persons to stay in the work force longer appears an effective and realistic response to the income security problem.
In the developing world, few older persons can afford retirement as pension systems are scarce. This is especially true in the least developed countries. Older persons are also more likely to be poor than persons of working age, stresses the Secretary-General in his report on world population monitoring, focusing on the changing age structures of populations and their implications for development. In Bangladesh, China and India, efforts are underway to curb poverty in old age by granting older workers better access to credit for small business development, especially for workers in rural communities. Given the mass migration of rural youth to cities in recent years, such policies provide a development windfall by offering income opportunities for older workers while at the same time closing the rural-urban gap.
The sense of alarm over pensions that prevails in the developed world does not generally arise in developing countries simply because the majority of individuals lack access to formal pension plans, says Mr. Zelenev. For many, formal pension are an unattainable luxury which perpetuates, and sometimes exacerbates, inequality. He cites the example of India, where ninety percent of workers lack any form of labour market social protection. Moreover, the scale of the informal economy can make it difficult to set up contributory pension plans.
A few developing countries have, however, introduced social pensions or non-contributory pensions that guarantee a subsistence income to low-income older persons whether or not they have worked in the formal economy. Social pensions are important tools for providing a minimal level of protection to older people who have spent most of their lives in the informal sector, or who have never been employed. Recent studies by the International Labour Organization challenge the widely-held view that universal social protection is unaffordable for the poorest countries. According to the ILO, social pensions and health care can be delivered at low per capita costs.
Social pensions have proven to be very effective in reducing poverty among elderly people. Botswana, Mauritius and Nepal have all established universal social pension plans. Even Lesotho, one of the world’s poorest countries, has gone down this path. Bangladesh and Thailand are implementing similar old-age allowances.
In the face of globalization and growing competition, the State should not withdraw from social protection systems nor lose sight of vulnerable people, stresses Mr Zelenev. The ratio of workers to retired people in densely populated countries such as China does complicate matters and caution is certainly advised, but says Mr. Zelenev of the current debate on reform of social protection systems, “We have to face reality” and take appropriate action to address demographic and social imbalances. “Very hast steps, such as drastic privatization measures, could have nasty consequences.” Raising the retirement age, if controversial, seems to be a preferred option.
It is a popular perception that migration is a useful means of offsetting the impact of population ageing on labour shortage and a guarantee of sustainable pension systems. That perception is wrong. According to the 2006 revision of World Population Prospects, up to 103 million migrants will move to the more developed regions between now and 2050. Yet far from a replacement effect, migration will have a moderate impact on the age structures of those economies. “We do not expect that migration is going to drive population growth at the levels that fertility has driven them in the past,” foresees Ms. Zlotnik. “At best, it is going to keep the population constant or palliate the decline.”
For example, the DESA Population Division has estimated that the number of immigrants admitted to Europe annually would need to be twice as high between 2000 and 2050 as it was between 1995 and 2000 to counter population decline. The volume of immigration needed to offset projected drops in the working-age population would have to be even larger.
Similarly, developing countries with ageing populations are not likely to be able to “import” enough migrants to keep their economies growing, according to the Population Division forecast. Though countries with fertility rates – mainly in sub-Saharan Africa and South and Central Asia – will not have a problem with a lack of labour supply in the next decades, workers will still have to support an ever increasing population of older persons.
The spread of elderly people in societies with low fertility rates will also trigger new patterns of consumption. Codrina Rada, Associate Economic Officer in the Development Policy and Analysis Division in DESA, points to an increase in demand for services. In the current context of global integration, a significant demand for services in developed countries could spill over to the economies of the developing world and the global economy as a whole. Two scenarios are envisaged. More demand for services could lead to lower demand of tradable goods from developing countries. “This could have major implications for export-led growth in developing countries,” forecasts Ms. Rada. On the other hand, “Since labour supply in developed countries is expected to decline, many services could be outsourced – a scenario that would spur faster growth in developing countries.”
A huge demand for caregivers in ageing societies could, however, result in movement of human capital in the opposite direction. Migrants from developing countries may move to developed countries and to ageing developing countries to meet the demand. Although migration would not have a major impact on the host countries, as Ms Zlotnik points out, it may affect the developing economies from which migrants come. There is already a strong demand for such caregivers in many developed nations. The upside for developing countries is a boost in foreign remittances. On the downside, the brain drain, or loss of workers during their most productive years, can wreck havoc on the economic and social fabric of developing countries.
The WHO World Health Report 2006 has referred to a “current crisis in the global health workforce,” revealing an estimated shortage of almost 4.3 million doctors, midwives, nurses and support workers worldwide, a shortage that is certainly most severe in the poorest countries, especially in sub-Saharan Africa where health workers are most needed. Dire as it may sound, the problem can be tackled over the next ten years provided we start now. The WHO offers ambitious proposals to that end.
At the same time, ageing populations will necessitate a shift in labour from low to higher productivity jobs to make up for potential lower growth in declining working-age populations. Moreover, the presence of a rampant, low-productivity informal sector in many developing regions emerges as a clear impediment to a balanced ratio of workers to retired. All the same, there is a window of opportunity in areas such as Asia and Latin America and the Caribbean. The Secretary-General indicates in his report on World population monitoring, focusing on the changing age structures of populations and their implications for development, that those regions still have a couple of decades to translate an expanded working age population into high productivity economies with improved living standards capable of financing old age security – provided jobs can be generated for an increasing number of workers.
Despite the challenges brought about by an ageing society, the elderly need not be a drain on the economy. “Older persons are not simply dependants who are taking from the system, but full participants,” underlines Mr Zelenev. “They make contributions as consumers and can keep on being productive by enhancing their skills and through continuous education.”
Five years ago, more than 150 countries adopted the Madrid International Plan of Action on Ageing and recognized that ageing is both an achievement of society and a challenge. The Plan of Action lays the groundwork for ensuring that older persons are empowered and full participants in society and for advancing health and well-being in old age. It also calls for strengthening solidarity between generations. Care-giver responsibilities, for instance, often take on an intergenerational dimension with older persons looking after grandchildren and young adults who in turn provide long-term care for seniors.
The Madrid Plan of Action provides practical tools to cope with the development challenges of ageing such as the need for long-term health care, income security, and social protection. It also calls for mainstreaming ageing issues in the UN development agenda with the struggle against poverty among older persons a pivotal goal. Of course, each country must decide what it is in its own best interest, but the Madrid Plan is a good point of departure. As Secretary-General Ban Ki-moon has said, “We should implement its vision.”
DESA’s World Economic and Social Survey 2007 will be devoted to development in an ageing world. The publication is expected to be released in July during the high-level segment of the Economic and Social Council session in Geneva.
The 2006 revision of the World Population Prospects can be found at http://www.un.org/esa/population/publications/wpp2006/wpp2006.htm.
More information on the Madrid International Plan of Action on Ageing and the UN programme on ageing is available at: http://www.un.org/esa/socdev/ageing/ .