1. Grey new world: Europe on the road to gerontocracy? A.L. Bovenberg June 21, 2007

2. 2 Dependency ratio 2000 -2050 (65+\20-64)

3. 3 Average and median age in the EU

4. 4 Trends in fertility, 1960 and 2005

5. 5 Lower fertility Feminization of work  Better exploitation of female human capital  Lower fertility reduces burden supporting young dependents Social innovation required  combine work and family reduce opportunity costs of children in terms of lost human capital of parents  compensate lower investment in human capital children more work and more funding of pensions

6. 6 Trends in life expectancy at 65, males

7. 7 Increased longevity Human capital more durable  Longer horizon Realization of several ambitions  Combine care and career Social innovation required  better maintenance of human capital  more flexible working patters and more flexible wages elderly

8. 8 Mean age of women at first childbearing, 1980 and 2003

9. 9 Retirement period, 1970 and 2004

10. 10 Modern life course Traditional life course of adults two seasons  summer and winter Two new more moderate life seasons  Young adulthood = spring: delay of parenthood  Active seniorhood = autumn: delay of mortality and morbidity  Thus: people spend more time in households without young kids Compression of working life in ‘rush-hour of life’ (=summer)  Longer adolescence: social adulthood delayed beyond biological adulthood  Longer retirement: social aging precedes biological aging

11. 11 Distribution of time over life cycle, the Netherlands, female

12. 12 Political challenges Older voters block necessary reforms  Treasure human capital and later retirement  More flexible working careers and wages  Exploit fall to support summer  More inclusive labor and housing markets Politics conflicts with economics  Vicious circle of early retirement, low fertility, slow innovation and political instability

13. 13 Linking retirement age to longevity Measures age appropriately Avoids large inactive class of politically powerful citizens Diversifies income sources elderly Reduces political risks and conflicts Maintains human capital better Requires labor-market reforms to be legitimate

14. 14 Stronger position for young parents Give parents one voting right per minor child  More inclusive policies: protect outsiders Institute risk-sharing rules with lower fertility  NDC systems reduce pensions with lower fertility more public benefits for parents with children: investments in human capital  Adults save more for retirement elderly rely more on labor and capital income rather than public transfers

15. 15 Conclusions Economics  Maintain and accumulate human capital  More inclusive labor and housing markets  Transfer passive public support in fall to preventive support in summer  Diversify income sources of seniors Politics  State-contingent constitutional rules for sharing demographic risks Future (implicit) rules and norms shaped by current economic incentives  Implement reforms now to create a large future working constituency with a stake in flexible labor and capital markets to allow citizens to anticipate changes