Active Aging of the European Baby- Boomers

Prof. Axel Börsch-Supan, Ph.D. Munich Center for the Economics of Aging (MEA) at the Max-Planck-Institute for Social Law and Social Policy

Population Europe Seminar „Riding The Population Wave: Policy Options for the Ageing Baby-boomer Generation in Europe“ under the Honorary Patronage of the President of the Republic of Poland, Warsaw, 17. May 2012

MAX PLANCK INSTITUTE FOR SOCIAL LAW AND SOCIAL POLICY

MAX PLANCK INSTITUTE FOR SOCIAL LAW AND SOCIAL POLICY

Active ageing: wishful thinking?

Perception of an ageing “Old Europe”

Real threats to pension and health care sustainability

Real threats to living standards

Reforms fail due to popular resistance

Much of that due to myths:

Demystify the implications of population ageing!

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2007 2010 2015 2020 2025 2030 2035 2040 2045 2050

Austria

Belgium

Canada

CzechRepublic

Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Ireland

Italy

Luxembourg

Netherlands

Norw ay

Poland

Portugal

SlovakRepublic

Slovenia

Spain

Sw eden

Sw itzerland

UnitedKingdom

UnitedStates

EU27

Pension Expenditures (% GDP) MAX-PLANCK-INSTITUT FÜR SOZIALRECHT UND SOZIALPOLITIK

4

explizit vs implicit debt [%GDP]

MAX-PLANCK-INSTITUT FÜR SOZIALRECHT UND SOZIALPOLITIK

Pension expenditures and public debt

80.0%

85.0%

90.0%

95.0%

100.0%

105.0%

110.0%

115.0%

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

SV-DK-EXFL-DK-EXSV-DK-ENFL-DK-ENSV-SQ-EXSV-SQ-ENFL-SQ-EXFL-SQ-EN

Remove laborsupply restrict.Status quo

Fully fundedpensions Flat PAYG

pensions

Endog. Hoursreaction Fixed hours

Source: Börsch-Supan and Ludwig (2009)

Behavioral

Simulation exercise: Alternative paths of living standards in “Old Europe” (=DE+FR+IT)

MAX PLANCK INSTITUTE FOR SOCIAL LAW AND SOCIAL POLICY

Myth #1: unhealthy, thus cannot age actively

Myth #2: less productive, thus should not stay active

Myth #3: retirement is bliss, thus do not want to age actively

Myth #4: active ageing harms the young, thus must not stay active

Myth #5: ageing is a tsunami, demography destiny, and active ageing just another public relation’s gimmick

Use scientific evidence to prove myths wrong!

PL CZ

IE EE

PT SI

HU

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DK

DE

CH FR

SP IT

GR

BE NL

LU AT

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UK

Korea Japan China

India

Collect data to follow ageing: 2004-06-08-10 plus life histories

Interdisciplinary breadth & depth: -Economics -Health -Health care -Social networks

International: ~ 80.000 respondents 50+ in 20 European countries plus global associates Mexico, Brazil,

Argentina

USA

Survey of Health, Ageing and Retirement in Europe

MAX PLANCK INSTITUTE FOR SOCIAL LAW AND SOCIAL POLICY

Myth #1:

Old folks are unhealthy, thus cannot age actively

Health is good! The foundation for active ageing

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SelfRatedLimitation

10 “Activities of Daily Living”: 1. Walking 100 Meters 2. Sitting two hours 3. Getting up from chair 4. Climbing up one flight of stairs without break 5. Kneeling 6. Bending down 7. Extending arms above shoulder 8. Carrying a chair 9. Carrying weight of 5 kilo 10. Picking up a coin with fingers from table

Subjective: Health good, very good, or excellent

Functional Limitations: „Activies of daily living“ (ADL)

Subjektiv

Funktional

Challenges of measuring health cross-nationally comparably

objective measures of health (e.g. grip strength) help distinguishing actual differences in health from different response styles …

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MittelwertMedianLinear (Mittelwert)

Objektive: Grip strength

Health is good! The foundation for active ageing

Opening conference for the European Year for Active Ageing and Solidarity between Generations 2012 Copenhagen, 18-19 January 2012

Lessons:

1. Health is generally good

2. Decline 60-69 much smaller than variation within each birth cohort

3. Older workers do not primarily retire because of old health

MAX PLANCK INSTITUTE FOR SOCIAL LAW AND SOCIAL POLICY

Myth #2:

Old folks are less productive, thus should not stay active

Myth 2: Older workers are less productive

Age-mixed work teams

Some 100.000 observations

Product and time standardized

Productivity: No errors

…if experience is held constant

Pure age effect W

eigh

ted

num

ber o

f err

ors

(inve

rse

prod

uctiv

ity)

…if age is held constant

Pure experience effect W

eigh

ted

num

ber o

f err

ors

(inve

rse

prod

uctiv

ity)

Combined effect: age plus experience

…no increase in production errors

= no decrease in shop floor productivity

Wei

ghte

d nu

mbe

r of e

rror

s (in

vers

e pr

oduc

tivity

)

Opening conference for the European Year for Active Ageing and Solidarity between Generations 2012 Copenhagen, 18-19 January 2012

Lessons:

1. Older workers are not per se less productive in routine jobs

2. Productivity in a given job remains high: Do not fire older workers

3. Productivity in a new job is harder for the older: Need education efforts

MAX PLANCK INSTITUTE FOR SOCIAL LAW AND SOCIAL POLICY

Myth #3:

Old folks think retirement is bliss, thus do not want to age actively

Life satisfaction after early retirement

-4 -3 -2 -1 0 +1 +2 +3 +4

Controlling for selection effects, thanks to measurement of earlier health!

Myth: Retirement is bliss

Myth: Retirement is bliss

Rohwedder and Willis 2010 Mental retirement

Adam, S., É. Bonsang, S. Germain and S. Perelman. (2007). Retraite, activités non professionnelles et vieillissement cognitif. Une exploration à partir des données de SHARE. Économie et Statistique

Myth: Retirement is bliss

Impact on years of cognitive aging:

Opening conference for the European Year for Active Ageing and Solidarity between Generations 2012 Copenhagen, 18-19 January 2012

Lessons:

1. Retirement provides less social contacts

2. Retirement provides less cognitive stimulus

3. Actively ageing helps staying longer alert!

4. Implications for retirement age?

MAX PLANCK INSTITUTE FOR SOCIAL LAW AND SOCIAL POLICY

Myth #4:

Many believe that active ageing harms the young, thus must not stay active

R2 = 0,1007

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SpainNetherlands

Unemployment rate

Sha

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f 60-

64 y

ear

old

mal

es a

lread

y re

tired

Japan

USA Sweden

FranceBelgium

Italy

CanadaGermany

UK

Share of early retirees among males 60-64 (in %)

Unemployment rate (in %)

Myth: Old workers take jobs away from the young

Biggest obstacle to increasing 55+ employment!

The old should make place…

… for the young!

MAX PLANCK INSTITUTE FOR SOCIAL LAW AND SOCIAL POLICY

Myth #1: unhealthy, thus cannot age actively

Myth #2: less productive, thus should not stay active

Myth #3: retirement is bliss, thus do not want to age actively

Myth #4: old crowd out the young, thus must not stay active

Myth #5: ageing is a tsunami, demography destiny, and active ageing just another EU public relation’s gimmick