Social and Economic Dimensions of an Aging Population - Assignment Example

 The paper is based on the works: 1) population change and economic growth: the long-term outlook and 2) population aging and its economic costs: a survey of the issues and evidence by Frank T. Denton and Byron G. Spencer (2003) which are programs for research on “Social and Economic Dimensions of an Aging Population”. I believe that I have read these research papers thoroughly and in these paper I am only expressing in general “The Social and Economic Dimensions of Aging Population” as a combination of what I have comprehended from these articles and my own opinion on these. The links for the sources are provided in the end. My writing attempts to focus on older population who are on the spectrum of taking a retirement from active participation in work and its effect on the social and economic dimension of a nation. The economical stability and solidarity of a country is determined by its GDP. The fact which cannot be ignored is that with the number of old aged labor force opting for a retirement creates a vacuum in employment sector which is to be filled up by new labor force. The correlated factors such as fertility rate, mortality rate, immigration and emigration determine the rate of increase of labor force and hence productivity and these on a whole influence the GDP. The variation of these correlated factors will cause variation in the rate of increase of GDP. Our study in this context is bounded by a demographic forecast on the rate of increase of labor force over a few decades who will come into play as older population retire over these decades and whether that will be able to sustain the present rate of increase of GDP. Our concern is, depending on all the specified factors what will be our future and national income and whether the society will be capable of improving on the existing social programs or at least try to maintain it. If we assume that the fertility rate increases and mortality rate goes on a downfall, the population rises and provides source for more labor. This could be a good indication and awareness needs to be imparted for this. However if the rate of emigration increases, then the scenario will be poorer, the more is the number of people leaving the country, the more is the decrease in the labor force. If emigration is a major concern, immigration will also affect in its own way, it accounts for the number of people entering the country for working purpose. If the rate of immigration and that of emigration are in same proportion then they get cancelled out without imparting any effect on growth economy but things would be otherwise when they differ. More immigration and lesser emigration could be beneficial to increase the labor force but the other side of the coin would produce negative results. So until there is a sharp increase in the fertility rate, policy can be undertaken to encourage immigration because it serves as the only tool which has an immediate, direct and obvious effect on population and labor force. Our main objective is to ensure the maximum possible number of participation in active labor. But applying a policy like this is a daunting as well as risky affair; unscrupulous entities could enter to cause devastation in the nation. Therefore, one thought would continue to plague us; over the decades as the oldest members of the aged generation reach their retirement tenure, these realities would come into the picture automatically. Thus the term “aging population” might seem to be very simple at its first glance but if we briefly concentrate to its depth as I have tried to, we can visualize the various underlying implications and complications that it throws. In this context I would like to give a mathematical representation of GDP because it would help in a better understanding of what I have tried to explain. The following have been taken from “the population change and economic growth: the long-term outlook” by Denton and Spencer. The players involved in the formation of the equation are: total population, labor force source population, labor force itself and the number of employed persons. GDP=P*(LFSP/P)*(LF/LFSP)*(EMP/LF)*(GDP/EMP) where P=total population, LFSP=labor force source population, LF=labor force and EMP=number of employed people. Now looking back to the historical statistics from the same source by Denton and Spencer, it will be clear as where we stand at the current juncture. In Canada, in the 1950’s and 1960’s the GDP increased one after the other from 4.4 percent to 5.3 percent; this was mainly due to a good strength of labor force accompanied by high productivity growth. But things took a rollback; in the 1970’s the GDP declined to 4.0 percent and even to 2.3 percent in the 1980’s. But in the 1990’s the GDP rose to 3.2 percent. The high fertility rate together with higher productivity in the early years helped to sustain the GDP growth at a high rate. The sharp decline of GDP in the 1980’s is due to a negative participation in active work by older males which however improved on the eve of 1990’s when the downward trend in older male labor force participation rate took a reversal. In 2000 the fertility rate went down to 1.49 percent which is well below the natural rate of 2.2 percent. This trend of having fewer children is continuing to persist even till date; the fear remains that if it continues, the growth rate of GDP will remain restricted. If we carry on a forecast of what might happen in future, we take into consideration that the facts and figures remain the same in all the fields of importance i.e. what happens if “everything remains the same”? We go as far as 2051, when we assume, the fertility rates remain at the same rate as in 2000, the mortality rate continues to fall in the same proportion as they have historically, immigration remains at 230,000 per year and emigration remain at 70,000 per year, the labor force participation remain the same while the unemployment rate persists at 7.5 percent which was the average in the period 1998-2002; i.e. assuming that nothing changes in the next few decades. The result will be alarming; what will happen is that the population will grow at a steadily declining rate until it stops growing altogether. Consequently the labor force growth rate will also fall, switching on to zero by 2021 and even to negative in the following decades. Under the assumption of constant productivity growth, the GDP will increase at a much slower rate; the output per capita (GDP/P) will decrease from 2.2 percent in 1991-01 to 1.8 percent in 2001-11 and to 1.1 percent in the next two decades. So we can well assume, by looking at the factual graphs and records of a impending doom waiting to happen; we must assuage our fears and try to think positive, higher fertility rates (at a moderate pace) coupled with greater immigration, lower mortality rates which heightens average life expectancy and even active labor participation in terms of both male and female appear as the only visible tools to sustain prospective growth rate. Another concept called dependency ratio which is coherently related to aging population requires a bit of explanation in this context. Frank T. Denton and Byron G. Spencer in their article “Population aging and its economic costs: a survey of the issues and evidence” have defined dependency ratio in its simplest form though other research analysts prefer to define it in other ways. To put it in simple words, dependency ratio is the ratio of the total population (they can be self dependent or dependent on others) to the total labor force. If the old age commits dissociation from active labor, the denominator decreases to give higher dependency ratio. So for a radical increase in the proportion of elderly people in the population, the dependency ratio will also increase and we should brace ourselves for a crisis ahead. Another assessment which we are concerned about is, if there is a rapid increase in the number of retiring individuals, it will be a challenge for our society as a whole to be able to meet the demand of imparting additional benefits of pension and healthcare and other associated costs. Particularly if the rate of increase of GDP maintains a stagnancy or it is lowered, it will be a fighting challenge to meet the responsibility of offering benefits to the rapidly increasing older population because these costs are in proportion to the national revenue; if the national income does not increase substantially then how can we proceed with offering benefits? In Canada Denton and Spencer has projected the older population to two and one half times by 2031 and the subsequent cost of maintaining social programs and responsibilities for that population would also increase to two and one half times. So “aging population” will put pressure on some categories of government expenditure. This might well be a thing of concern but thoughts about impending crisis due to aging population often induces us to ignore some matters of importance. One is that while government expenditure may increase, pressure will be released from other parts. That is because, with declining fertility rates, the number of young individuals would be less and with proportionately fewer children one might expect a reduction in expenditure in education; less available work force implies that fewer employment programs would have to be conducted, which again will help to cut costs. So the disadvantages of rising expenditure due to aging population are in a way neutralized to some extent by cost reduction in other areas, though for different reason. However coming back to the problems upheld by aging population, it is quite obvious from the historical statistics that the fertility rates would continue to be lower, so the prospect of an increased fertility rate as a solution to the problem seems unlikely as of now. This is the problem in all developing nations. Henceforth immigration comes along as the only visible savior but enforcing such a policy tool needs both challenge and carefulness. An emphasis to enhance the productivity growth would also help to serve the purpose. References 1) Denton, Frank T. and Byron G. Spencer, POPULATION CHANGE AND ECONOMIC GROWTH: THE LONG-TERM OUTLOOK, SEDAP, available at: http://socserv2.socsci.mcmaster.ca/~sedap/p/sedap102.pdf Read More