aging and social policy: an international perspective andrew mason sang-hyop lee ronald lee...

Aging and Social Policy:An International Perspective

Andrew MasonSang-Hyop Lee

Ronald LeeChong-Bum An

Outline

I. Background: National Transfer Accounts

II. Estimating the Economic Lifecycle1. Consumption and labor income by age for Korea

2. Comparison with Taiwan and the US

III. The Age Reallocation System1. Estimates for Korea

2. Comparison to Taiwan and the US

IV. Conclusions

National Transfer Accounts

• System for measuring economic flows across age groups in a manner consistent with National Income and Product Accounts

• Comprehensive– Asset-based reallocations

• Public and private saving• Public and private credit

– Public transfers– Private transfers

• Inter vivos inter-household• Intra-household• Bequests

National Transfer Accounts

• Issues being explored:– How do economic support systems evolve within

countries and differ across countries?– How do economic support systems interact with age

structure to influence macro-economic performance and generational equity?

– How should policies with respect to public pensions, health care, and education change over time?

– What are the appropriate roles of the family and the state in providing support to children and the elderly?

NTA Project Organization

• Coordination – Ronald Lee (UC – Berkeley)– Andrew Mason (East-West Center/UH)

• Core support: National Institute on Aging• Website: www.ntaccounts.org• Countries currently participating in the project

– Korea: An Chong-Bum (SungKyunKwan University)– Taiwan: Andrew Mason and An-Chi Tung (Academia

Sinica, Taipei)– US: Ronald Lee– 14 other countries are members of the project

II. The Economic Lifecycle

The Economic Lifecycle of Korea, Annual Aggregate Flows, Nominal Values, 2000

0

2000

4000

6000

8000

10000

12000

140000 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85

90+

Won (billions)

. Labor Income

Consumption

Surplus

Deficits

Features of the Economic Lifecycle

• Age refers to people not household heads.• Consumption

– Includes all public and private consumption– Age allocation is based on consumption surveys

(private) and administrative records (public)

• Labor income includes – wages and salaries– labor’s estimated share of mixed income– taxes paid by employers on behalf of employees

including a portion of indirect taxes

Lifecycle of Korea (2000), Per Capita Values

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

0 10 20 30 40 50 60 70 80 90+

Rel

ativ

e to

Yl(20

-39)

.

Labor Income

Consumption

EducationSpending

Female LFPRs

C declines with age

Lifecycle of Taiwan (1998) and Korea (2000), Per Capita Values

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

0 10 20 30 40 50 60 70 80 90+

Rel

ativ

e to

Yl(20

-39)

.

Labor Income

ConsumptionK

K

T

T

Lower C in ROK

Higher LFPRsIn ROK

Lifecycle of US (2000) and Korea (2000), Per Capita Values

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

0 10 20 30 40 50 60 70 80 90+

Rel

ativ

e to

Yl(20

-39)

.

Labor Income

Consumption

K

K

US

US

US LFPRs >

ROK LFPRs

High US C is health care

ROK LFPRs >

US LFPRs

Some Implications

• A given rise in the older population has a much greater impact in the US given current LC. However, aging is much more rapid in ROK.

• Importance of female employment.• Reducing the LC deficit at old ages is not simply

a matter of higher LFPRs among the elderly. High productivity jobs needed.

• Rising health care costs is the Achilles heel if US experience is any guide.

Table 1. A Classification of NTA Reallocations (revised 1/13/06).

Asset-based Reallocations

Transfers

Capital and Other Non-Financial

Assets Credit

PublicPublic infrastructurePublic land and sub-soil minerals

Public debtStudent loans

Money

Public educationPublic health careUnfunded pension

plans

Private

HousingConsumer durables

Factories, FarmsPrivate land and sub-soil minerals

Inventories

Consumer credit

Familial support of children and parents

BequestsCharitable

contributions

Source: Adapted from Lee 1994.

The Age Reallocation System

The Transfer Option

0

2000

4000

6000

8000

10000

12000

14000

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85

90+

Labor Income

Consumption

Tax workers. Provide cash and in-kind

payments to the elderly

The Saving Option

0

2000

4000

6000

8000

10000

12000

14000

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85

90+

Labor Income

Consumption Invest

AssetIncome & Dissaving

Transfers vs. Saving

• Both can satisfy reallocation objectives.

• Transfers can do so immediately; saving only with a delay.

• Saving is pro-growth.

• Other research shows that aging can lead to substantial capital deepening if transfer programs are kept in check.

Age Reallocations, Korea, 2000, Per Capita Annual Flows

-10000

-5000

0

5000

10000

15000

0 10 20 30 40 50 60 70 80 90+

Asset-based Reallocations Public Transfers

Inter Vivos Transfers Bequests

Total Inflows

Total Outflows

How are Taiwan, Korea, and the US financing old-age consumption?

0

10

20

30

40

50

60

70

80

90

100

US (2000) Korea (2000) Taiwan (1998)

Per

cent of co

nsu

mption .

Work

Asset-basedReallocation

FamilialTransfers

PublicTransfers

Note. Familial transfers do not include bequests.

Large public transfers in US

Total transfers much greater in Korea

Asset-based reallocationsmuch greater

in the US!

Why are asset-based reallocations so low in Korea and Taiwan?

• Did familial transfers crowd out saving?

• Did familial transfers fill a gap that saving could not meet? – High rates of growth in Korea and Taiwan led

a 6-fold increase in lifetime earnings each generation.

– Unlikely that saving rates could be high enough to achieve the flat age profiles of consumption.

Lesson to Draw

• Familial transfers served East Asia well by maintaining generational equity during a period of very rapid economic growth.

• Slower economic growth and population aging shift to asset-based reallocations.

• High saving rate and shift away from familial support systems are welcome developments.

The End

NT Flow Account Identity:

• Inflows– Labor income– Capital income– Interest income– Transfer inflows

• Outflows– Consumption– Investment– Accumulation of credit – Transfer outflows

l k my y y K Mc I I

NT Flow Account Identity:

Lifecycle Deficit =

Age Reallocations =

Capital-based Reallocations +

Credit-based Reallocations +

Net Transfers

lC y

k ky I

m My I

NT Flow Account, Aggregate. Taiwan, 1998 (NT$ billion), nominal

Age

  Total 0-19 20-29 30-49 50-64 65+

Age Reallocations 832 1894 6 -1569 -25 526

Asset-based reallocations 861 -16 -210 605 299 184

Asset Income 2,456 3 139 1492 585 237

Less: Saving 1,595 19 349 887 286 54

Transfers -29 1910 216 -2174 -323 342

Public, current 2 579 76 -692 -138 176

Private, current -31 1330 65 -1568 -95 236

Capital transfers 0 0 75 86 -91 -70

Lower panel measures the reallocation systems employed to satisfy the lifecycle deficits and surpluses at each age. Asset-based reallocations combine capital, other non-financial assets, and credit.

Source: Mason, Lee, Tung, Lai, and Miller, forthcoming.