Pensions are a Problem in a Global Recession

There has been a lot of discussion in the United States and Europe about the cost of state-funded pensions--which are almost always PAYGO (pay as you go--current workers are paying for current retirees). The age structures of richer countries are heavy on the elderly of retirement age and light on the younger people of working age. This is why schemes are promoted to have workers pay into their own private pension plans over their lifetimes. In the current global recession, however, investments in the stock market, which are the major ways to "grow" your own pension, are going down, not up. As a report by Reuters notes, this may wind up forcing a delay in the retirement age even if governments don't push such a legislative agenda.

Pension funds in developed economies are facing a new crisis as falling equities and tumbling bond yields widen their deficits, threatening the incomes and retirement dates of future retirees.

At the heart of their problems is a steady move by pension plans in the United States, euro zone, Japan and the UK to cut exposure to risk after the financial crisis.

But this "de-risking" may end up depressing their long-term returns from stock market investment and challenge the conventional wisdom that shares generate higher returns than bonds.

The Demographics of Job Creation

One of the topics that keeps popping to the surface in the swirl of discussion around the debt ceiling and the deficit is: How do we create more jobs? More specifically, the observation is routinely made that Ronald Reagan was able as President to create jobs and reduce taxes at the same time. This of course ignores the fact that taxes actually rose several times during the Reagan administration before coming down, but setting that aside, Reagan was blessed by an unusually propitious age structure. He was the beneficiary of America's age dividend. The Baby Boomers blossomed during his presidency, providing a cohort of young workers (young = cheaper than older workers in most circumstances) without a large group of older people that the government had to pay for, and without a large group of younger dependents. During his administration from 1981-1989 the percent of the US population aged 15-29 was 27--higher than at any time since the end of WWII and it has not been that high since. The population aged 20-44 was 40 percent during his presidency--higher than at any time since the end of WWII and it has not been that high since.

Children Are at an All-Time Low as a Percent of US Population

The Population Reference Bureau this week released a report on some of the major findings from the 2010 Census, and among the things picked up by the press was that children now represent an historic low as a percent of the US population.

Currently, the share of children in the U.S. is 24 percent, falling below the previous low of 26 percent of 1990. The share is projected to slip further, to 23 percent by 2050, even as the percentage of people 65 and older is expected to jump from 13 percent to 19 percent due to the aging of baby boomers and beyond.

In 1900, the share of children reached as high as 40 percent, compared to a much smaller 4 percent share for seniors 65 and older. The percentage of children in subsequent decades held above 30 percent until 1980, when it fell to 28 percent amid declining birth rates, mostly among whites.

Social theory would suggest that as the number of children declines, then there should be greater investment in each child--trading quality for quantity. That may work in the classic family setting of two parents and their children, with no older people to care for, but the analogy may not cross over into the community setting.

Will the Boomers Blow Out the Housing Market?

This Thursday the Census Bureau will release more geographically detailed 2010 census data, including homeownership numbers, and that has whetted journalists' appetites for stories about the housing market. One story that NPR raised today, and which has been floating around for awhile, is what will happen to the housing market as the baby boomers age?

The oldest of the baby boomers — the generation of 78 million Americans born between 1946 and 1964 — have already turned 65. As the generation continues to age, some warn that there won't be enough Americans around of working age to buy all their houses.

"Older people are a ticking time bomb for the housing market," says Dowell Myers, a demographer at the University of Southern California. "What we've gone through recently could be nothing compared to what we have five years from now. When the boomers start to sell off their houses, there are going to be too many boomers and not enough buyers."

AARP Says that 50 is the New 65

The American Association of Retired Persons (AARP) is launching a new advertising campaign in which they are emphasizing the value to marketers of the Baby Boom generation as it ages. Since the boomers are people born between 1946 and 1964, the youngest boomers are having their 47th birthday this year, while the oldest are turning 65. This bulging age cohort has created new markets in almost everything as they have moved through time, and the AARP obviously does not see this trend as ending anytime soon. 

AARP’s new marketing effort will promote the baby boom generation, as it ages, as a viable consumer target for advertisers. The campaign, which includes print and digital ads, will run in trade publications like Advertising Age starting Monday.

“Our sense is that we’ve reached a tipping point,” said Patricia Lippe Davis, the vice president for marketing at AARP media sales. “People are really recognizing the value of the audience that we speak to.”

The campaign is intended to reach what Ms. Davis calls “thought leaders,” senior marketing executives who tend to be middle-aged, and “media mavericks,” media planners and buyers who tend to be younger. She said she hoped it would debunk myths about older Americans.

Do Demographics Explain the Latest Drop in Crime Rates?

The Federal Bureau of Investigation has just issued its latest crime report and the New York Times reports that the data reveal a drop in crime in the US:

The number of violent crimes in the United States dropped significantly last year, to what appeared to be the lowest rate in nearly 40 years, a development that was considered puzzling partly because it ran counter to the prevailing expectation that crime would increase during a recession.

All of the experts interviewed for the story were baffled by this trend, and that immediately called to my mind the highly controversial theory put forth by Steven Levitt and Stephen Dubner in their very popular book Freakonomics. In Chapter 4 of that book they argue that:

New UN Projections Suggest Higher Population by Mid-Century

The United Nations Population Division released its latest round of population projections today, and they suggest that by 2050 the world's population may reach 9.3 billion--higher than the 9.1 billion that they had projected two years ago. The changes are due both to fewer deaths and more births than previously expected. The new projections also suggest that the world's population could reach 10 billion by the end of this century, if the current trends do not change. In particular, as we continue to improve health around the world (thus lowering the number of deaths), this must be offset by increasingly fewer births. As Reuters reports:

Baby Boomers May Voluntarily Delay Retirement

The Associated Press has reported the results of a new survey that it recently commissioned among the US baby boomers. The data suggest that boomers are staying in the labor force longer than many had expected, and that they are experiencing relatively little age discrimination thus far.

Nearly half of those born between 1946 and 1964 now work for a younger boss, and most report that they are older than most colleagues. But 61 percent of the baby boomers surveyed said their age is not an issue at work, while 25 percent called it an asset. Only 14 percent classified getting older as a workplace liability.

The first post-World War II baby boomers reach 65 this year. But two-thirds say they'll work at least part-time past retirement age for financial reasons, either because they'll need to or because they'll want extra spending money. Another 29 percent said they'll keep working just to stay busy. About 1 in 4 boomers still working say they'll never retire, and about the same fraction say they have saved no money for retirement. [That's pretty scary!]

It's an important snapshot of the nature of the nation's economic rebound at a time when the jobless rate remains persistently high. Workers from the wave of 77 million people born during the post-World War II boom are sweeping toward retirement age and beyond. Even as the economy begins to grow, the swollen workforce at the older end of the spectrum could mean fewer jobs for younger workers and those who became unemployed during the recession.

World's Oldest Man Dies at Age 114

The oldest man in the world, Walter Breuning, has died at age 114 in the state of Montana. His "secrets" for a long life have been a big hit on the internet:

• Embrace change, even when the change slaps you in the face. ("Every change is good.")
• Eat two meals a day ("That's all you need.")
• Work as long as you can ("That money's going to come in handy.")
• Help others ("The more you do for others, the better shape you're in.")
Then there's the hardest part. It's a lesson Breuning said he learned from his grandfather: Accept death.
"We're going to die. Some people are scared of dying. Never be afraid to die. Because you're born to die," he said.

Don't Plan to Retire Until Age 70

That is the message of a special section of this week's Economist, written by Philip Coggan. And, in fact, it is virtually impossible to argue with the idea that as life expectancy in the older ages keeps going up, it does not automatically mean that we should have more years of retirement. As you know, of course, this would not be such a big issue were it not for the fact that in virtually all of the richer countries with high life expectancy the birth rate is below replacement level. 

THIS SPECIAL REPORT has shown how the cost of providing pensions is rising across the developed world as the baby-boomers retire. Rich countries now face difficult trade-offs. They must keep costs in check without condemning many elderly people to decades of poverty. And if they move from a tax-funded system to one dependent on the performance of the stockmarket, more risks and costs will pass to the workers.

The best way of reducing the overall pensions burden, almost everyone now agrees, is for people to work longer. They will get paid for the extra years, national output will be boosted and the cost of pensions will fall. Reforms are already pushing workers in that direction. Thanks to the steady demise of defined-benefit schemes in the private sector, employees will be more prepared to do so because they need to build up higher pensions in defined-contribution schemes. And as the supply of younger workers dries up, employers will become more willing to use older ones. With rising life expectancy, the pension age across the board is probably heading for 70.

Do Frustrated Young People Mean That Revolution is Coming?

The political uprisings in the Middle East have generally been instigated and powered by younger, urban segments of each society. The Iranian revolution of the 1970s was similar in that regard, as are most revolutions. Does that mean that having young, frustrated men in your midst is a dangerous thing? That seems to be the message of an Op-Ed piece in today's New York Times by 24-year-old research assistant Matthew Klein at the Council on Foreign Relations. 

My generation was taught that all we needed to succeed was an education and hard work. Tell that to my friend from high school who studied Chinese and international relations at a top-tier college. He had the misfortune to graduate in the class of 2009, and could find paid work only as a lifeguard and a personal trainer.  Unpaid internships at research institutes led to nothing.  After more than a year he moved back in with his parents.

Millions of college graduates in rich nations could tell similar stories. In Italy, Portugal and Spain, about one-fourth of college graduates under the age of 25 are unemployed. In the United States, the official unemployment rate for this group is 11.2 percent, but for college graduates 25 and over it is only 4.5 percent.

The uprisings in the Middle East and North Africa are a warning for the developed world. Even if an Egyptian-style revolution breaking out in a rich democracy is unthinkable, it is easy to recognize the frustration of a generation that lacks opportunity. Indeed, the “desperate generation” in Portugal got tens of thousands of people to participate in nationwide protests on March 12. How much longer until the rest of the rich world follows their lead?

Will Demography Slow Down Economic Growth in the US?

As the world climbs out of a deep recession, people are naturally trying to figure out what lies down the road. The McKinsey Global Institute, the research arm of the large McKinsey & Company consulting firm, has just issued a report titled "Growth and Renewal in the United States: Retooling America's Economic Engine." A major takeaway from this report is that America's demographics will likely be a drag on the economy. Ben White of Politico summarized the report this way:

Should the nation be bracing for a new economic reality of slow growth, high unemployment and a declining middle-class standard of living? That’s what a provocative McKinsey Global Institute study suggests, arguing that without significant productivity gains, the United States faces decades of slow growth with possibly devastating implications.

Are Demographics Involved in the Protests in Libya?

There are plenty of reasons for Libyans to be fed up with their government, but the role of demographics is not easy to tease out. When Gaddafi took over the country in 1969 there were fewer than 2 million people in Libya, but in the past 42 years it has more than tripled to 6.5 million--which is still smaller than many cities in the world. In 1969 the TFR in Libya was 7.6 and the IMR was 105. Since then the TFR has dropped to 2.7 and the IMR has plummeted to 18 per 1,000--accompanied by a 20 year rise in life expectancy from 52 to 72. Although it is a young country because fertility is still well above replacement, the percentage of the population that is in the critical ages of 15-24 is now only 17, down from 19 when Gaddafi too over. Most importantly, oil revenues have pushed up the average income in Libya and it is now $16,400 per person, according to World Bank data. Overall, then, it is a very different type of country than either Egypt or Tunisia, and if Gaddafi's regime is toppled, it would be difficult to say that demography was the most important reason.

What Do the Demographic Tea-Leaves Suggest About Algeria?

Protests have erupted in Algeria, following the successful revolts in Tunisia and Egypt. On the surface, the youth demographics in Algeria are similar to those in Egypt--slightly more than one in five Algerians is between the age of 15 and 24, and since 1980 the population has doubled from 18 to nearly 36 million, putting a tremendous strain on social and economic resources. At the same time, however, life has been improving more rapidly in recent years for Algerians than it has for Egyptians. The World Bank does not provide poverty data for Algeria, but the per person income in Algeria (in USD) is $8,110 per year--44 percent higher than the $5,680 in Egypt. Furthermore, since 1980, the fertility rate in Algeria has dropped from a level higher than Egypt at that time to a level now that, at 2.4, is lower than in Egypt. This has been accompanied by a similarly more rapid drop in infant mortality in Algeria than in Egypt, and life expectancy is higher in Algeria than in Egypt. These comparisons are not meant to suggest that Algerians have no reason to complain about their government, but they do suggest that the level of frustration of the average Egyptian has probably been more intense than among Algerians.

Japan May be Wasting its Youth

As one of the most rapidly aging societies in the world, one might think that in Japan the older population would look approvingly on the younger generation that is helping to support them economically. A story in the New York Times suggests that this may not be the case, as young people are stymied by a system that protects older workers to the detriment of the young.

“There is a feeling among young generations that no matter how hard we try, we can’t get ahead,” said Shigeyuki Jo, 36, co-author of “The Truth of Generational Inequalities.” “Every avenue seems to be blocked, like we’re butting our heads against a wall.”

An aging population is clogging the nation’s economy with the vested interests of older generations, young people and social experts warn, making an already hierarchical society even more rigid and conservative. The result is that Japan is holding back and marginalizing its youth at a time when it actually needs them to help create the new products, companies and industries that a mature economy requires to grow.

A nation that produced Sony, Toyota and Honda has failed in recent decades to nurture young entrepreneurs, and the game-changing companies that they can create, like Google or Apple — each started by entrepreneurs in their 20s.

Employment figures underscore the second-class status of many younger Japanese. While Japan’s decades of stagnation have increased the number of irregular jobs across all age groups, the young have been hit the hardest.

Are Demographics Involved in the Protests in Yemen?

The turmoil in Egypt, especially Cairo, has grabbed the headlines for the past few days, but protests have been ongoing in Yemen, as well, as reported by the BBC:

Yemen suffers from high population growth, unemployment running at 40%, rising food prices and acute levels of malnutrition.

Yemeni protesters are calling for a more responsive, inclusive government and improved economic conditions but - with oil production falling - the current economic trend is heading downwards.

Public demonstrations across the region are raising the stakes for change in Yemen.

President Ali Abdullah Saleh came to power in 1978, first as president of North Yemen and then, after unification with South Yemen in 1990, as leader of the newly united republic.

Are Demographics Involved in the Egyptian Turmoil?

David Kirkpatrick of the New York Times, who has been lead reporter on the stories of the new revolutions in Arab states, has pointed out that the street demonstrations in Cairo and elsewhere in Egypt appear to have erupted among young people, and may be more secular in origin than necessarily being related to any specific influence from the Muslim Brotherhood, although the Muslim Brotherhood seems clearly to becoming more involved. As in Tunisia, social networking on the (now-disconnected) internet was an important means of spreading the message. But does this mean that demographic trends played a specific role?

I think that the answer to this question has to be 'yes.' When Hosni Mubarak assumed the Egyptian presidency in 1981, following the assassination of Anwar El-Sadat, the population of Egypt was 45 million and the average woman was bearing 5.5 children. Mubarak, like El-Sadat, Mubarak was generally in favor of family planning among married women and under his 30 years of rule, the total fertility has dropped to 2.8--albeit still well above the replacement level. However, the relative slowness of that decline, accompanied as it was by a rapid drop in infant mortality, has meant that the population of young people has grown enormously. As of this year, 52 percent of all Egyptians are under the age of 25, and one in five is between the ages of 15-24--the ages of many of those out in the streets demonstrating against the government. When Mubarak took office, there were 9 million youth aged 15-24, and now there are 17 million, according to data from the UN Population Division. That's a lot of people to be dissatisfied with the difficulty of finding jobs, paying the bills, and saving money to marry and raise a family. To be sure, the mere presence of this large youth population would not, on its own, spark a revolution. But it was dry tinder waiting for the spark, which seemed to have been lit in Tunisia.

Oldest African-American Died Recently

Just a few days ago, the oldest African-American, Mississippi "Sweetie" Winn (a woman, not surprisingly) died at age 113. Despite her name, she lived most of her life in Louisiana. At the time of her death, she was the seventh-oldest living person in the world, according to Robert Young of the Gerontology Research Group in Los Angeles, which verifies information for Guinness World Records. Her great-niece Mary Hollins described her as:

"A strong-willed person, a disciplinarian" who believed that elders should be respected. "She was living on her own until she was 103," Hollins said, cooking for herself and taking walks. "She just believed she could handle anything."

A Rebellion of the Young in Tunisia

The President of Tunisia, Zine el-Abidine Ben Ali, fled the country yesterday and sought refuge in Saudi Arabia, the victim what appears to be the first successful street demonstration rebellion in the Arab world. According to a story by David Kirkpatrick in the New York Times:

The antigovernment protests began a month ago when a college-educated street vendor named Mohamed Bouazizi in the small town of Sidi Bouzid burned himself to death in despair at the frustration and joblessness confronting many educated young people here. But the protests he inspired quickly evolved from bread-and-butter issues to demands for an assault on the perceived corruption and self-enrichment of the ruling family.

The self-enrichment issue related especially to Ben Ali's second wife "the former Leila Trabelsi, a hairdresser from a humble family whose relatives have amassed conspicuous fortunes since her 1992 marriage. 'Policeman, open your eyes, the hairdresser is ruling you,' they chanted, addressing Mr. Ben Ali."

Look Out! The Baby Boomers Are Coming of Age

2011 is the year in which the first of the Baby Boomers reach age 66--the age at which their full Social Security benefits are available to them. The Economist covered this story in its 2010 end-of-year issue, and, although they didn't call it this, they did a very nice age-period-cohort analysis of the political impact that this is going to have. The age part is obvious. At 65 in America you qualify for Medicare, the government-funded health insurance program for older (as well as disabled) persons, and, as noted, at 66 the full Social Security benefits kick in. By "full" I mean that by waiting to age 66, baby boomers can collect Social Security and continue to earn other income without any reduction in their pension benefit. 

The cohort effect refers to "the notion that a person’s lifelong voting habits are established early on. Charlie Cook, a political analyst, says today’s retired were shaped by the perceived failure of Jimmy Carter in the late 1970s and the success of Ronald Reagan in the 1980s. In 2008 some may also have identified more with the 72-year-old John McCain than the 47-year-old Mr Obama."