Defusing the Population “Time Bomb”

Demographic phenomena have often been cited as causes of poverty, environmental damage, resource depletion and other social and economic crises. One of the latest examples of this is the attempt to explain problems associated with the sustainability of welfare systems, such as rising old-age dependency, pension and healthcare costs and tax burden, with reference to population ageing. To what extent is this conceptualization of population ageing as a societal threat – a “time bomb” that would threaten the long-term viability of our society and economy – a valid one?

Underpinning the population “time bomb” discussions is the notion that for every productive worker in employment there will be a rising number of older dependent citizens. This notion is often based on the Old Age Dependency Ratio (OADR), which assumes that people are only economically active from age 15 to 64 and become totally dependent at age 65. The problem with this is that in reality many are still economically active after age 65 and “younger” than their peers in earlier cohorts due to a rise in life expectancy (Spijker and MacInnes 2013). The real balance of dependency also varies by the size of the working population, which in turn is determined by variables such as fertility, education and retirement age. A better way to understand the degree of population ageing is to supplement our ways of quantifying ageing with one that takes into account future changes in life expectancy through prospective median age and prospective old age dependency ratio, i.e., the expected remaining years of life rather than the chronological age (Sanderson and Scherbov 2007).

It is widely believed that a growing elderly population will increase the costs of healthcare. In fact, such direct cost implications are uncertain because with increasing life expectancies the period in which medical expenditures could be especially high has been shifted to later ages rather than being prolonged (Miller 2001). The growth in healthcare spending may be attributed to other key factors such as rising per capita incomes, the availability of costly new medical technology and workforce shortage (Scitovsky 1994). The extent to which different healthcare systems are affected by ageing population also varies. For instance, keeping other factors constant, a country with a healthier population is more likely to be able to moderate cost and deliver a productive economy. It is also more likely that generous and comprehensive welfare systems will be impacted more significantly by population ageing than residual welfare systems.

Another prominent argument is that pension costs will increase drastically in order to cope with an increasingly elderly population. Such an assertion overlooks that fact that incremental updates to pension programs have consistently been put into place to help contain costs and prevent them from skyrocketing. For instance, the state pension age in the UK is likely to gradually rise from 65 to 68 for men and from 60 to 68 for women by the mid-2030s (Reuters 2013). The cumulative effect of these small incremental adjustments may result in “considerably lower and more unequally distributed public benefits, instead of higher bills” (Hinrichs and Kangas 2003). Other contextual factors such as the cultural background for the particular country should also be considered. In countries like Hong Kong where an extended family support system supported by Confucian values persists, the impact of ageing population on public costs is partially moderated (Castles 2004).

Not only is the crisis rhetoric based on incomplete demographic projections, the tendency to focus on the rising economic costs is also too narrow and passive. Nonetheless, the population time bomb rhetoric has been enthusiastically embraced by various stakeholders to advance their own agenda. Anxieties concerning the demographic change have not only been leveraged to support arguments to cut back public budgets but have also been used in political battlefields as a discursive weapon to criticize public finance decisions made by previous administrations. Furthermore, it is a compelling pretext for reducing the role of the state in welfare provision via privatization – setting the stage for various companies to promote their products in face of the seemingly insurmountable old-age risks.

What governments need to do is to rethink and adjust allocation of resources to meet current needs – because existing welfare systems were designed based on assumptions (e.g. higher fertility, lower life expectancy and stable employment) which no longer hold. Although the speed of population ageing is increasing in many countries, the process is gradual and steady instead of dramatic. Success in handling this phenomenon rests on the extent to which governments are able to reform accordingly and leverage opportunities that ageing population has to offer – from tapping into the “silver hair” market in which consumers have vast purchasing power, to sharing care responsibility with the retired in cultures with strong intergenerational ties. Further and more comprehensive analysis, taking into account the country’s overall welfare arrangement, socio-economic conditions, demographic structure, cultural background, is needed to achieve a more holistic understanding of the impact of ageing population.

References

Castles, Francis G. (2004). “Population Ageing and the Public Purse” In The Future of the Welfare State: Crisis Myths and Crisis Realities, by Francis G. Castles, 117-139. Oxford: Oxford University Press;

Hinrichs, K. and Kangas, O. (2003). “When a change is big enough to be a system shift”, Social Policy & Administration, 37, 6: 573–91;

Miller, T. (2001). “Increasing longevity and Medicare expenditures.” Demography 38(2): 215-226;

Sanderson, Warren C., and Sergei Scherbov. (2007). “A new perspective on population aging” Demographic Research 16: 27–57;

Scitovsky AA. (1994). “The high cost of dying” revisited. Milbank Q 72:562–91;

Spijker J, MacInnes J (2013). “Population ageing: the timebomb that isn’t?”. British Medical Journal. 347:f6598.


2 thoughts on “Defusing the Population “Time Bomb”

  1. This is a very interesting counter argument to a lot of the rhetoric that is used to scare us into privatization and put down the socialization of medicine. It is well articulated and argued. I would be interested in seeing some of the statistics that support this view as well as what types of specific economic reforms could help a government tackle rising costs in cultures where poverty and lack of education creates a self feeding loop of health care issues.

    Thanks for tackling this topic! It is timely and important to solve!

  2. Yes I think the ageing population’s needs should be dissected respectively, rather than considering them as a whole. Many factors interact to create problems which can be specific to a nation. Let’s say, the number of off springs, economic well being, or health care systems may also affect the retirement age and living costs of old people. Whilst it is difficult to draw a definite conclusion for global population ageing, cases can be compared among different countries for better understanding.

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