Ronald Lee, UC Berkeley, 8/22/14, Jackson Hole 1

How Population Aging Affects the

MacroeconomyRonald Lee

University of California at BerkeleyDemography and Economicsrlee@demog.berkeley.edu

PANEL ON DEMOGRAPHICS

Jackson Hole, August 22, 2014

Ronald Lee, UC Berkeley, 8/22/14, Jackson Hole 2

• NTA goes beyond national accounts in two important new ways.

• breaks down national accounts by age. • estimates transfers within families and households, between

households, and through the public sector.

• Andy Mason and I co-direct NTA• 45 countries have NTA teams working on their accounts. • Based on existing surveys and administrative data• Centralized methods, quality control, training, workshops.

NTA

Ronald Lee, UC Berkeley, 8/22/14, Jackson Hole 3

Countries with NTA Teams

Ronald Lee, UC Berkeley, 8/22/14, Jackson Hole 4

Recent publications, both free downloads (see ntaccounts.org)

Also coming: special NTA issue of Journal of Economics of Aging

Ronald Lee, UC Berkeley, 8/22/14, Jackson Hole 5

The basic budget identity: Inflows = Outflows at each age for individual or for generation

Cons + Transfers Given + SavingAsset Inc + Labor Inc + Transfers Rcvd =

Income inflows = Expenditure outflows

Transfers Rcvd - Transfers Given + Asset Inc - Saving Cons - Labor Inc =

Life cycle deficit = Reallocations

OR, rearrange to

NTA estimates these flows, and subcomponents, public and private, and by specific type. “Age Profiles”.

Ronald Lee, UC Berkeley, 8/22/14, Jackson Hole 6

0 10 20 30 40 50 60 70 80 900.0

0.2

0.4

0.6

0.8

1.0

1.2

Average Consumption and Labor Income for 6 High Income and 6 De-veloping Countries

Age

Pe

r C

ap

ita

Va

lue

, Re

lati

ve

to

Av

g L

ab

or

inc

om

e Cons-Hi Inc

Labor Inc-Develop-ing

Cons-Developing

Labor Inc-Hi Inc

Developing: Kenya, Nigeria, India, Philippines, China, Indonesia High Income: Germany, Japan, Austria, Finland, Sweden, United States

Ronald Lee, UC Berkeley, 8/22/14, Jackson Hole 7

Age profiles may change: US cons over past half century: 1960, 1981 and 2007 (Ratio to labor income ages 30-49).

0

0.5

1

0 10 20 30 40 50 60 70 80 90

1960

0

0.5

1

0 10 20 30 40 50 60 70 80 90

1981

0

0.5

1

0 10 20 30 40 50 60 70 80 90

2007

Public Other

Private Other

Owned HousingPrivate Health

PublicHealth

Public Education

Private Education

Source: US National Transfer Accounts, Lee, Donehower and Miller, 2011

Ronald Lee, UC Berkeley, 8/22/14, Jackson Hole 8

Ronald Lee, UC Berkeley, 8/22/14, Jackson Hole 9

Population age distributions and support ratios• How many working age people are available to support a society’s

consumers? • Calculate hypothetical workers and consumers multiplying changing

population age distributions times baseline NTA age profiles.• “Support ratio” is:

• Resources available per capita are proportional to this support ratio.

hypothetical workers

hypothetical consumers

Ronald Lee, UC Berkeley, 8/22/14, Jackson Hole 10

Ronald Lee, UC Berkeley, 8/22/14, Jackson Hole 11

Support ratios based on the average developing country profiles and UN Population Projections

Rate of change of support ratio China India Nigeria Costa RicaTrough to Peak 0.67 0.37 0.27 0.67Peak to 2100 -0.26 -0.17 na -0.31

Ronald Lee, UC Berkeley, 8/22/14, Jackson Hole 12

Rate of change of support ratio , 2010-2050 (%)

Germany Japan Spain US

-0.66 -0.66 -0.78 -0.34

Support ratios based on the average rich country profiles and UN Population Projections

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How the “life cycle deficit” is financed at each age (US 2003)

-1

-0.5

0

0.5

1

1.5

2

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90

Uni

ts o

f Avg

YL

30-4

9

Financing the Lifecycle DeficitComponents at Each Age

Pub Trans

ABR

Priv Trans

Private transfersPublic transfersAsset income - savings

For Elderly (65+): How is consumption net of labor income funded? Shares of Family Transfers, Public Transfers and Asset income not saved sum to 1.0

Ronald Lee, UC Berkeley, 8/22/14, Jackson Hole 14

Ronald Lee, UC Berkeley, 8/22/14, Jackson Hole 15

The “general support ratio” (GSR) reflects both labor income and asset income: how dependent are the elderly?• Do the elderly actually depend on workers to fund their

consumption? • Suppose elderly use their own savings for consumption?• GSR reflects use of asset income by elderly to fund own consumption

(asset inc – saving).• GSR isolates the impact of population aging on transfers (public and

private).• Change in GSR over time shows consequences of pop change if age

profiles of consumption, labor income, and asset income remain constant.

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Standard support ratios (blue) and general support ratio (red), scaled to 1.0 in 2010