1. Aging and Social Policy: An International Perspective Andrew Mason Sang-Hyop Lee Ronald Lee Chong-Bum An

2. Outline I.Background: National Transfer Accounts II.Estimating the Economic Lifecycle 1.Consumption and labor income by age for Korea 2.Comparison with Taiwan and the US III.The Age Reallocation System 1.Estimates for Korea 2.Comparison to Taiwan and the US IV.Conclusions

3. 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

4. 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?

5. NTA Project Organization Coordination –Ronald Lee (UC – Berkeley) –Andrew Mason (East-West Center/UH) Core support: National Institute on Aging Website: www.ntaccounts.orgwww.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

7. II. The Economic Lifecycle

8. The Economic Lifecycle of Korea, Annual Aggregate Flows, Nominal Values, 2000 Labor Income Consumption Surplus Deficits

9. 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

10. Lifecycle of Korea (2000), Per Capita Values Labor Income Consumption Education Spending Female LFPRs C declines with age

11. Lifecycle of Taiwan (1998) and Korea (2000), Per Capita Values Labor Income Consumption K K T T Lower C in ROK Higher LFPRs In ROK

12. Lifecycle of US (2000) and Korea (2000), Per Capita Values Labor Income Consumption K K US US LFPRs > ROK LFPRs High US C is health care ROK LFPRs > US LFPRs

13. 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.

14. Table 1. A Classification of NTA Reallocations (revised 1/13/06). Asset-based Reallocations Transfers Capital and Other Non-Financial AssetsCredit Public Public infrastructure Public land and sub- soil minerals Public debt Student loans Money Public education Public health care Unfunded pension plans Private Housing Consumer durables Factories, Farms Private land and sub-soil minerals Inventories Consumer credit Familial support of children and parents Bequests Charitable contributions Source: Adapted from Lee 1994. The Age Reallocation System

15. The Transfer Option Labor Income Consumption Tax workers. Provide cash and in-kind payments to the elderly

16. The Saving Option Labor Income Consumption Invest Asset Income & Dissaving

17. 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.

18. Age Reallocations, Korea, 2000, Per Capita Annual Flows Total Inflows Total Outflows

19. How are Taiwan, Korea, and the US financing old-age consumption? Note. Familial transfers do not include bequests. Large public transfers in US Total transfers much greater in Korea Asset-based reallocations much greater in the US!

20. 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.

21. 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.

22. The End

23. NT Flow Account Identity: Inflows –Labor income –Capital income –Interest income –Transfer inflows Outflows –Consumption –Investment –Accumulation of credit –Transfer outflows

24. NT Flow Account Identity: Lifecycle Deficit = Age Reallocations = Capital-based Reallocations + Credit-based Reallocations + Net Transfers

25. NT Flow Account, Aggregate. Taiwan, 1998 (NT$ billion), nominal Age Total0-1920-2930-4950-6465+ Age Reallocations83218946-1569-25526 Asset-based reallocations861-16-210605299184 Asset Income2,45631391492585237 Less: Saving1,5951934988728654 Transfers-291910216-2174-323342 Public, current257976-692-138176 Private, current-31133065-1568-95236 Capital transfers007586-91-70 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.