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Riding the Demographic Wave: Policy Options for the Ageing Baby Boomer Generation in Europe

May 17
2012

Never before has the human population grown so rapidly and never before has it aged so quickly. At a conference in Warsaw organised by the Warsaw School of Economics and Population Europe, politicians, scientists, and NGOs discussed facts, myths, and action plans on active ageing.

"It is time to make decisions regarding the ageing society. The issue is a problem that all of Europe has to face," said the Polish President, Bronislaw Komorowski. The president supported and hosted the conference in the Presidential Palace. To face the ageing society, one cannot just look at the present, but also must take the future into account. "This is a longer process. It cannot be done overnight," Władysław Kosiniak-Kamysz, Polish Minister for Labour and Social Policy, explained. "We know that the demographic development has a big impact on the economy, and on how society is working," said Janina Jozwiak, Director of the Institute of Statistics and Demography of the Warsaw School of Economics, and partner of the science network, Population Europe. "The burden has to be carried by the older and by the younger generation."

Global changes are inevitable

It was shown that demographic change will have a strong impact on financial resources, but it also calls for a new structure of life course and new timetables of learning, having children, working, relearning and entering retirement.  

According to Jane Falkingham (University of Southampton), the number of people on the globe was relatively static until just 200 years ago. It was only during the last 200 years that the world population has increased exponentially reaching 7 billion in 2011. Today however population growth is slowing, with the largest population growth now occurring in Africa.  As well as a more populous world, we also live in a much healthier world, in which life expectancy has risen across the globe. Whereas the average life expectancy in Africa was 28 in the 1950s, it is now 55. Worldwide life expectancy has changed over the last 50 years from about 48 years in 1959 to 68 today. This, Falkingham said, is an increase of 20 years in half a century, or two in every five years, or four months in every year. Children who are born now have a good chance of reaching the age of one hundred. On the other hand, the number of children a woman gives birth to has started to decrease. Most of the world's population now lives in countries where the fertility rate is under 2..1 children per woman, the birth rate necessary to secure population replacement over time. The changing age structure, Falkingham said, is not only a European problem, but a worldwide one: “Europe is not alone, experiencing this ageing population, and such a change of transformation is taking place right across the globe.” Africa, too, will see the rising of average age just a little later than Europe. “We happen to be living in the one of the most exciting times to be a demographer, because we are living in a transformation or a revolution in terms of our age structure," Falkingham pointed out. We are moving from a time with high fertility and short life spans to a time with low fertility and long life expectancy. The big challenge is how to restructure the life course, regarding “work, family life, social policy, public policy, pension systems. Everything has to change,” she said.

Cognitive flexibility and education can help

Projections by Vegard Skirbekk, who works for the International Institute for Applied Systems Analyses (IIASA) in Laxenburg, show that longer working lives could be the most effective policy response to maintaining fiscal sustainability when populations are ageing. How long people are able to work depends to a significant extent on their productivity, which is partly determined by the level of cognitive functioning. Skirbekk's research suggests that older people now tend to have better cognitive abilities than older people 20 years ago, and that international differences in the onset of these generational shifts could explain international differences in the burden of ageing. “For example, in northern Europe or the United States where there is a relatively large population over the age of 65, we found that cognitive function is higher for this age group than for the same age group in Mexico, India, and China. Overall, even though Europe and the US may be chronologically older, but they are ‘functionally’ younger,” he said. The cause for the difference in cognitive function may be that seniors in some regions of the world experienced better conditions during both childhood and adulthood in terms of nutrition, education, and physical and social activity. To achieve a good cognitive functional level at senior ages, it is “very important to improve and maintain cognition,” explained the Norwegian researcher and group leader at IIASA. Therefore, investment in education and life-long learning is particularly important to encourage economic output and to maintain productivity in an ageing society.

This was also the key message of Agnieszka Chlon-Dominczak (Warsaw School of Economics). Because the share of workers aged over 50 is increasing, education and life-long learning policies should focus on adult learning, she said. “We live in a dynamically changing environment in which the demand for competences is changing, particularly with technological development. That is why life-long learning should become a part of everybody's life.” Highly educated people are more likely to acquire further qualifications. Although people with only informal education could catch up, once they enter the workforce they are less likely to take part in life-long learning or relearning activities later on. Life-long learning policies should focus on older age groups, as well as those with lower formal qualifications. Chlon-Dominczak concluded that it is necessary to teach children right from the beginning to “learn how to learn”, so that they are open to life-long learning throughout their lives. 

Five myths about working longer

Still, one problem for politicians is a common antipathy against an increase of the retirement age. However, Axel Börsch-Supan (Munich Centre for the Economics of Ageing) emphasised that it is necessary to change the pension age if the standard of living is to remain the same. Without pension reforms, living standards would decrease by 16 percent, warned Börsch-Supan. One of the main problems is the financial impact of pensions if people spend a longer time in retirement, due to increasing life expectancy and the shrinking workforce. Increasing the age when people leave the workforce is therefore essential. However, there is significant popular resistance against this, which according to Börsch-Supan, is mainly caused by myths:

The first myth, he said, is the idea that older people are ill and cannot work any longer. Börsch-Supan indicated that this is not the case. Although there is a slight decline in the health of people over a certain age, the variation within an age group is much higher than between various age groups. This supports the notion that the retirement age can and should be flexible. The second argument put forth is that older people are less productive than younger people and therefore should not work longer. Börsch-Supan demonstrated that this notion is false. Data show that although older people make more mistakes performing some tasks, this is compensated by the amount of experience they have. All in all, the error rate is not higher. The third argument claims that older people do not want to work longer. However, the findings presented by Börsch-Supan indicate that life satisfaction decreases after early retirement, and people tend to lose their cognitive abilities earlier. Furthermore, the argument that old people block opportunities for younger people, is also not valid. Axel Börsch-Supan showed that in fact the opposite seems to be true: In countries with lower retirement ages, unemployment rates among young people are higher than in countries where people retire later. Finally, he insisted that demographic change cannot be compared to a tsunami. A tsunami was a natural catastrophe, which people can do very little to prevent. In the case of demographic change, negative effects were not simply determined by fate, argued the researcher. He is convinced that demographic change can be managed if reforms took place.

Demographic change is manageable

The European Commission has worked for several years on strategies for coping with the long term challenges of population ageing. The latest results were launched in the 2012 Ageing Report, which Per Eckefeldt (Directorate General for Economic and Financial Affairs at the European Commission) presented. He showed that in projections up until 2060, progress with pension reforms in EU Member States has a positive impact on employment rates. “We do not have an ageing problem, but a retirement problem,” he said. Eckefeldt explained there are three successful strategies for pension policies: Firstly, an upward adjustment of the retirement age is important and this should be linked to life expectancy in the future. Secondly, access to early retirement should be restricted. Thirdly, the development of supplementary pillars should be encouraged, so that the retirement incomes of older people are supported. Eckefeldt is convinced that these measures would lead to "higher living standards for all and to an important contribution to the sustainability of public finances."

Edward Whitehouse (OECD) also sees later retirement as a key factor for political action. The team leader for pension analysis posed the question of how pension systems could support postponement of retirement. He showed that “over a long period from 50 years from 1950 onwards, people were living longer and the pension ages were in fact coming down.” Although half of OECD countries today are increasing their pension age, Whitehouse emphasised that the increase in only in a few cases has been enough to keep pace with rising life expectancy. The size of the workforce in all OECD countries began to shrink two years ago. The OECD has therefore calculated what has to be done to keep the size of the workforce constant over time. Regarding this, it is assumed that 50 to 64 year-olds need to work as much as the 40 to 49 year-olds, and the proportion of working people between 65 and 70 needs to be doubled. Additionally, unnecessary early retirement should be prevented. A number of countries have already taken steps to prolong working lives by tightening rules for early retirement and providing incentives to work longer than the standard pension age. Additionally, "efforts are also needed on the demand side to help older workers find and retain jobs," suggested Whitehouse.

It is also important to increase the number of people who work, claimed Ettore Marchetti (European Commission). Marchetti is responsible for demographic change in the social policy directorate. Policies should help the young "lost generation", who struggled during times of high unemployment rates, by conducting programmes that provide entrance to the labour market. European policies should also focus on "having more women in the labour market and trying to help them to combine the family commitments and work commitments," he explained. Additionally, children of migrants who often struggle in the labour market need special support. On the other hand, the costs that ageing brings can be reduced, for example, by encouraging informal care in families.

Acceptance is necessary

Edward Whitehouse also provided results of an international OECD opinion survey regarding the acceptance of a later retirement age. People in the OECD were asked if they agree or disagree with the statement: “It should be easier for older people to continue working beyond retirement age, if they wish.” All in all, 66 percent of the respondents agreed or mainly agreed, with the highest rate of agreement in Denmark, and the lowest in Greece with 44 percent.

The question of acceptance was also the main topic in the panel debate. Robert Holzman, Director of RH Institute for Economic Policy Analyses in Vienna, said it is essential to keep people healthy, skilled, and motivated. When asked what the ingredients are to age happily, he responded that people need a sense of duty, physical exercise, social embedding, friends, and family.

The Undersecretary of State to the Polish President, Irena Woycicka, said that the most important strategy in raising acceptance is to stay in dialogue with the public and social organisations, to inform people, to discuss the topic, and get people involved. Another challenge for policies is that the investment in life-long learning and human capital are constrained by limited finances.

Mieczyslaw Augustin, a member of the Polish parliament, also points out that intergenerational solidarity is a crucial issue. "There are elements where we can benefit from the old age,” he said. Although it is quite costly to renew the social system in direction of an ageing society, it is necessary to do so. In the end, it is also important not to lose the perspective of the individual level. For that, Augustin quoted the well-known Polish pedagogue Janusz Korzaczak: "There is no child, there is a human being. There are no elderly, there are human beings."

writer: Katrin Schaar