1. Discussion of Entitlements and Population Aging: Crisis, Problem, or Opportunity by Henry Aaron David Wise ShovenFest 6-7 June 2012

2. The achievement The changing demographic environment over the past five decades represents both an achievement and a problem. Mortality rates have declined and life expectancy has increased substantially in industrialized countries. This is the achievement.

3. What is the problem? Declining birth rates together with longer lives  the proportion of old to young is increasing. As the number of older persons increases Social Security costs will increase And health care costs will rise, – not only because of the increase in the number of older people – but also because advancing technology will likely create better and perhaps more expensive health care treatments. And while the cost health care and social security rises, there will be fewer persons in the labor force to pay for these increasing costs.

4. The problem The problem has been magnified by the departure—until mid-1990s—of workers from the labor force at ever-younger ages Along with substantial increases in the number of years they spend in retirement. John Shoven and colleagues say the median number of years in retirement for men increased almost 50 percent between 1965 and 2003, from 13 years to almost 19 years (Goda, Shoven, and Slavov, 2009)

5. Not just a US problem In other industrialized countries, the trend has been more extreme.

6. 30% 37% -29% -77% -80% -60% -40% -20% 0% 20% 40% 60% Percent Increase in life expectancy and decline in labor force participation of men: 1960s to early 2000s Life expectancy at 65Labor force participation, 60-64

7. Slow to adjust In short: we (and other countries) did not adjust to the demographic title wave that washed over us. Did not adjust to declining mortality, longer lives, and improving health Expansions in “work capacity” not matched by more work

8. But here is the opportunity Social and economic choices can reasonably adjust as the age structure of the population changes And, in particular, some of the bounty of longer lives can reasonably be allocated to prolonging the labor force participation of older workers. – Increased production and more revenue – Can help to pay for SS and health care – And, perhaps most important, education for the young May indeed increase health—Michael Marmot

9. Some evidence Better health and increasing capacity to work Age 75 is the new age 65 Mortality and work 1977 and 2007

10. -- 62 64 66 68 70 72 74 76 196019701980199020002010 Age Year How old do you need to be to "feel like" a 65 year old in the 1960s?Men in the US 9.2 Years

11. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0%1%2%3%4% Mortality Employment by mortality, men in the US, 1977 & 2007 1977 2007 1.5% Employment 50 57 62 68 74 69 63 55

12. Change in LFP Add up differences from age 55 to age 69 Men in this age group worked on average 3.7 fewer years in 2007 than in 1977--a decline of 31 percent Or, if at each mortality rate, men in 2007 worked as much as men in 1977, employment in the 55 to 69 age range would have been approximately 45 percent greater that it was. Modest indexing to life expectancy and/or to dependency ratio could smooth adjustment

13. Conclude So, there has been an achievement, there has been a problem, and there is an opportunity; there does not have to be a crisis.

14. 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Mortality Employment Age Employment and mortality by age, men in the US 1977 and 2007 Employment 1977 Employment 2007 Series3 Mortality 1977 Mortality 2007

15. 0 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.00 0.05 0.10 0.15 0.20 0.25 0.30 5051525354555657585960616263646566676869707172737475 Mortality Rate Fair - Poor Health Rate Age Mortality and SAH 1970s and 2000s, US 1970s SAH fair-poor 2000s SAH fair-poor 1970s Mortality 2000s Mortality