Eugene Steurle
It is an honor for me to make a presentation here. In many ways, I have the easiest and the
toughest task. I get to speak very
broadly about economics. That’s easy
for me to do. The tough task is to try
to relate all of it to technology and to the particular issues that are of
concern to this conference. To tie it
all in, I am going to talk to you about aging from several economic
perspectives. First, we need to define
aging in a more precise way, or at least distinguish between the components of
aging. Then we will look at the
economics of aging: its effect on such things as dependency ratios, where the
budget debate impacts, the implication for needs, and labor market
issues--which I think are really important--and the role technology plays. Finally, we will take a broad view of where
we might be headed as a society as we think about aging. In many cases, we tend to think about aging
the way we might have thought about it in the 1930’s or maybe even the 1870’s,
but not really about where we want to be in the 21st century.
I often attend conferences on aging, social security and
other related subjects and pose the question to the audience: “What do they
think are the greatest needs of society?”
Education is a common answer. In
the recent presidential campaign, both candidates listed education as a
priority. A lot of people list crime as
a priority. We have had some reduction
in crime rates, but crime among youths is still on many agendas. Youth poverty is always a top priority. What is never listed is the fact that we’re
living longer. That isn’t seen as a
problem. Better health care isn’t a
problem. However, if you think about
priorities from a budget standpoint, aging, social security, Medicare, and so
on, are clearly budgetary problems. In
some sense, we have an upside-down sort of system. I believe this is largely because our thought processes of
thinking about aging to be very stagnant.
To illustrate, think about someone who is age 60 in 1900 and then think
about someone who is going to be age 60 in the year 2050: two very different
paradigms.
Aging has two very important components, and I hope, if
nothing else, you think about this throughout the conference. The two components have very different
implications. The first is that we are
living longer. The second is that we
have changed birthrates in society.
Living longer does not necessarily mean we are aging. As President Clinton suggested a couple
years ago, people born today might be living to over 100, so it is not clear
that we want to be defining them as seniors at age 62. Living longer does not necessarily mean that
your needs are increasing. I know my
wife gets upset when I tell her that we are now soon eligible to get the lower
discount at the movie theater because we’re defined as seniors in our
mid-50’s. Being in your mid-50’s or
your early 60’s today is not the same as it was 50 years ago. People now retire about 5 years earlier,
younger, than they used to retire, and they live about 5 years longer. So they are living about 10 more years in
retirement today than when Social Security was first established.
If you factor in lower birthrates, it becomes apparent that
the population under 18 and the population over 65 are now approximately equal,
compared to the past when the population under 18 tended to be at least 2 times
larger. This does have economic
implications. A higher proportion
of the population is now older. And, as
the baby boomers move into retirement without a proportionate population
entering the work force behind them, the economic impact of a population over
65 becomes dramatic. In addition, while
baby boomers were in the labor force, they offset the impact of birthrate
declines, which stretch back to the 1920s.
Now, as they retire, we are forced to make a three generational change
in our retirement systems in the framework of one generation. In addition, a larger proportion of our
population will be in the last 10 percent of their life. This is perhaps where technology can most
benefit.
The second issue is that of dependency ratios. With baby boomers moving into retirement
age, there will be a dramatic increase in dependency ratios. In fact, using current projections of
workers to retirees, in 2030, about 1/3 of the adult population will be
dependent, at least partly dependent, upon social security for its cash
benefits. A similar proportion is
projected to be dependent upon Medicare.
I should indicate that these projections reflect a view that people are
going to continue to retire in the future as they do today. That is, people are not going to be working
longer. Men, in particular, have been
retiring at younger and younger ages, and this reflects the view that this will
continue to be the norm. Given the lack
of savings, even among the most middle class people, it means we will have a
significant portion of these people on Social Security and Medicare and
dependent upon other taxpayers for their support.
What is the implication for technology and for thinking
about design? It is very different when
we think about a population where 1/3 of them are on social security, with an
increasing percentage moving from the “young old”, with typically 1/3 of their
adult lives remaining, to the “old old”, who may really be in the last years of
their lives and more likely to need long term care assistance, whether in their
own home or elsewhere. The debate
centers around savings, whether through more of the budget surplus or throuch
individual accounts. In either case,
this fundamental, dramatic drop in workers per dependents does not change. Additional savings may give us some more
resources as a society, but there is still a very real projection that we will
have this very large increase in dependency ratios.
The third issue is the about the budget itself. Essentially, in the 20th century,
we made a decision as a society, and it was not just simply a decision in terms
of government programs. It was also in
terms of private programs. We decided
that we would spend vastly increasing proportions of our national wealth on
retirement and health. Office of
Management and Budget projections show expenditures in Social Security,
Medicare and Medicaid as a percent of GDP to be continually rising since 1940
and to continue to do so through 2075.
These three programs alone are projected to eventually absorb all
projected government revenues. Which
begs the question of how do you pay for everything else: education, our
defense, our National Institutes of Health, research, and the list goes
on. This is a 20th century
decision. The question is do we stay on
that trend line? Current programs say,
yes, we will. Whether, indeed, we can
or will afford it is the driving force of our budget debates.
I would like to return for a moment to the concept of “young
old” and “old old”. The needs of the
“old old” are very different from the people who are retiring in their early
60’s. In fact, they are almost a
generation apart. I do not believe this
point can be driven home enough. If we
start defining all seniors as being alike in terms of needs, I think we make a
drastic mistake. Seniors in their early
60’s, have about a third of their adult lives left, by most life-expectancy
charts, and are in very different situation than are the “old-old”. Older seniors are not only more likely to
have physical and/or mental impairments but, they are also less likely to have
spouses around to provide them support or to exchange services between
themselves when they get older. We must
distinguish economically between the needs of different parts of the elderly
population.
The fifth economic implication has to do with what has been
going on in the labor market in recent years.
This involves what I am calling the non-employment rate. This is the percent of the male population
that is not employed in the labor force, so it includes some amount of
unemployment, but it is mainly driven by retirement. In 1948, only about 14% of males were not employed. Remember people were living shorter periods
of time. Males, in 1948, were typically
retiring at age 68, rather than today’s average age of 63.
With a quarter of males not working, the rate of
unemployment for males has actually gone up, because of larger numbers able to
enjoy retirement at an earlier age and for a long part of their lifespan. We see this phenomena despite an overall
decreasing unemployment rate because of the influx of women entering the
workforce over the same time period.
However, what about the future? Women have pretty much caught up with their male counterparts in
filling existing labor demand. Assuming
that age-specific employment stays constant, the number of unemployed males in
2030 grows to a third of the male population.
It is not possible for women to continue to offset the increase in male
unemployment, and, as they too start retiring, we will see an tremendous
increase in the unemployed rate.
The interesting question beyond social security, beyond the
budget, is what will really happen?
Will the demand for labor that is taking place out there really start to
make an offset and will the demand for labor now have an impact upon the demand
for older workers. I am one of those
who is predicting that there will be a significant increase in demand for older
workers. I say older, but I am somewhat
reluctant when people have a third of their adult life left in their early 60’s
to call them “seniors” anymore. I think
they are in their late middle age and I think that the demand for workers in
their late middle age will go up significantly. This will dramatically change the face of labor. It will be reflected, for instance, in the
incentives that employers provide. You
can already see it in debates over changes in pension plans and in health care.
And so we come back to the question of technology. Is technology going to make this
possible? Can it break down the
barriers so that physical impairments are no longer a real impairment towards
work.
The economic issues boil down to living longer and lower
birthrates. They are very different in
terms of their impact. We do have this
dramatic, significant increase in dependency ratios being projected for the
future. We need to be careful about
discerning who is really most dependent in terms of needs. The budgetary implications are going to be
played out for the next 10 or 15 years.
In fact, it will probably be the dominant budget issue. We certainly have implications for thinking
about what needs we want to accommodate among the elderly. And the fascinating issue overriding all of
this is how will labor markets adjust?
If more people work, then it increases the number of taxpayers and
reduces the dependency ratio. It does
all sorts of things to help ease whatever other budgetary problems we may have.
Finally, I’d like to suggest to you that there is an even
broader vision that I think we need to be thinking about as a society. We should consider that our education model
may no longer be the one society needs or wants. Currently, we focus on education until age 21, work from about 21
to 60, and then spend the last third or more of our adult lives in retirement
and leisure. Maybe our new demographics
require that we distribute this more evenly over the entire age cycle. We have already seen movements in the
direction of not confining education to the young. It is not clear, in fact, why education is confined to all the
hours before 3 o’clock in the afternoon and months other than summer months. This is a throwback to a farm sector
economy. It is not clear that labor,
especially in an information age, is something that we only think about as a
burden upon society and is not something that people actually want to engage in
older years. It is also not clear that
this leisure should not be distributed more evenly over the economic cycle.
I think that we need to be flexible, whether we are
designing technology or designing public programs for the future. We must look at our greater needs as a
future society and adjust our designs to the demand of the various people who
will make up that future population mix.