proceedings Workshop on Global Aging Organized by the University of Michigan Retirement Research Center Sponsored by the Social Security Administration University of Michigan Table of Contents Retirement Research Agenda 1 Center Foreword 2 Proceedings 7 Biographies 30 The aims of the Michigan Retirement Research Center are to foster research on retirement issues, to convey findings to the academic and policy communities and to the public, to support the training of a new generation of scholars, and to facilitate access to relevant data and information. Michigan Retirement Research Center University of Michigan Institute for Social Research P.O. Box 1248 Ann Arbor, MI 48106-1248 Phone: (734) 615-0422 Fax: (734) 615-2180 E-mail: [email protected] Website: http://www.mrrc.isr.umich.edu/ The opinions expressed herein are solely those of the authors and discussants and should not be construed as representing the opinions or policy of the Social Security Administration or any agency of the Federal Government or the Retirement Research Centers. Agenda 12: 30 p.m. Welcome John Laitner, Director, University of Michigan Retirement Research Center Paul Hewitt, Deputy Commissioner for Policy, Social Security Administration SESSION I: Presentation of World Economic Forum Report on Global Aging 12:40 p.m. Living Happily Ever After: The Economic Implications of Aging Societies Sylvester Scheiber, Watson Wyatt Worldwide Discussants: Edward Gramlich, Federal Reserve Board Alan Gustman, Dartmouth College Richard Jackson, Center for Strategic and International Studies John Shoven, Stanford University SESSION II: Topics for Future Research on Global Aging: Discussion of Two Reports 3:00 p.m. Moderator: Peter Heller, International Monetary Fund Global Aging: Issues, Answers, More Questions Axel Börsch-Supan, University of Mannheim The Impact of Aging on Financial Markets and the Economy: A Survey Barry Bosworth, Ralph Bryant, and Gary Burtless Brookings Institution Discussants: Marilyn Moon, American Institutes for Research Moritz Kraemer, Standard & Poor’s Andrew Abel, University of Pennsylvania 4:55 p.m. Closing | 1 | Foreword On May 17, 2004, I had the workforce more promptly, and pleasure of co-organizing, with firms to use labor more frugally. Paul Hewitt, on behalf of the If we foresee that the price of Michigan Retirement Research new capital goods will fall in the Center and the Social Security near future as global aging Administration, a Workshop on perhaps reduces the need for global aging. The write-up investment expenditures, prices below, containing excellent of common stocks should begin summaries by Amanda Sonnega, a gradual decline now, in reviews highlights from the anticipation. In the end, it seems event. The MRRC web site that markets by themselves may contains copies of the original be able to cope well with some papers.1 Although the of the outcomes of global aging documents speak for themselves, identified in the summaries the Workshop is one step in an below. ongoing research agenda, and I would like to use the present Looking beyond markets, one introduction to begin to address role for government is to the following overall question: enhance the development and What is the role of government diffusion of information about in coping with the challenges coming changes. Small as well and likely consequences of as large businesses should be global aging, and what facets are aware, for instance, of best left to private-sector predictable changes in the size markets to deal with alone? and composition of the labor force in coming years – so that In a market system, prices are markets can generate efficient supposed to adjust constantly to responses. Publications, public maintain the balance of supply discussion, and sponsored and demand. If demographic research are, of course, tried and forces influence saving more or true mechanisms for obtaining less than investment, interest and spreading knowledge. rates should move to re-equate the two. If labor supplies One possible gap in knowledge, diminish, the price of labor—the it seems to me, relates to the wage rate—should rise. The inevitability and time path of latter should encourage older global aging itself. Global aging workers to postpone retirement, results from declining fertility younger workers to join the and increasing longevity. Historical data enable us to 1 predict trend lines for each of See www.mrrc.isr.umich.edu. these two forces, and the | 2 | analyses in the Workshop the President 2004, ch.6, for extrapolate these trends. example, highlights solvency However, fertility is a problems from an even longer- complicated topic. Presumably term perspective. The children are a luxury good, so Workshop presentations, that households tend to want beginning with Sylvester more as incomes rise; yet, Schieber’s, emphasize this children are also expensive in looming crisis. terms of parental time, so that as wages rise, households will The Workshop had, on the other tend to want less. Professor hand, less chance to consider Gary Becker of the University related budgetary challenges of Chicago has provided a from aging. A number of general model in which parental presenters noted that private concern with child quality can pension plans of the defined lead to changes in fertility. benefit nature face pressures Additional time series and from rising ratios of retirees to international cross-sectional workers analogous to those data sources are increasingly confronting Social Security; available. If discussions of however, we could go further to global aging can be grounded in worry about the Federal a quantitative, theoretical model Government’s role, and potential of fertility, we can better predict liabilities through the Pension which factors will mitigate, or Benefit Guarantee Corporation, exacerbate, projected trends in in protecting the integrity of the future. For example, if these pensions.2 global aging causes wages to rise in the future, might fertility Perhaps even more important, decline even further? with the exception of Marilyn Moon’s discussion, the A second role for government is Workshop tended not to dwell to prepare its own budget for on budgetary challenges the changes that demographic stemming from rising medical trends will bring. The report of costs. Medical expenditures in the President’s Commission to the U.S. were less than 5% of Strengthen Social Security GDP 25 years ago; today they about two years ago warned that are 10-15%. Their future course the pay-as-you-go U.S. Social is risky to predict. The federal Security System will encounter government has had a direct serious solvency troubles within financial responsibility in this 30-35 years as Baby Boomers retire. The Economic Report of 2www.mrrc.isr.umich.edu/conferences/ past/rrc04-belt.pdf | 3 | area since the advent of Fourth, government sets the Medicare and Medicaid in the legal and regulatory environment 1960s. The Economic Report of for market actions, and through the President 2004, Chart 6-5 taxes and budgetary (ch.6), shows that Medicare and commitments it tries to Medicaid together today account compensate for forces external for about the same slice of the to market-price incentives. One federal budget as Social Security area of special concern in this benefits; however, the Chart sphere is the age at which shows that by 2080, Medicare workers choose to retire. As and Medicaid may well have advances in health care lengthen over twice as large a budget life spans, one might expect share as Social Security. Parts people to choose later and later of Medicare have exactly the ages for retirement. This does same pay—as—you—go not seem to be happening – in structure as Social Security. It is fact, the contrary seems to be difficult to see how the federal occurring, especially in parts of government can control its Europe. If existing Social budget deficits, and stabilize or Security and tax statutes tend to reduce the national debt, without encourage retirement at earlier reforming medical spending as ages than would otherwise well as Social Security. This prevail, global aging increases would be a challenge without the urgency for consideration of global aging; with global aging, reform. the challenge will surely be greater. Another issue is private pensions. Many companies are A third role of government lies changing from defined benefit to in the provision of human defined contribution plans. capital. In the U.S., we entrust Private pensions are an government, primarily state and important resource for retirees; local government, to finance given the concerns of this much of our education system. Workshop, the integrity of In an era of falling ratios of private pension systems is likely workers to retirees, enhancing to assume even more the productivity of remaining significance in coming years. workers is vital. As part of its Government, through the response to global aging, Pension Benefit Guarantee perhaps government should be Corporation, for example, reassessing its planning in this shouldered some responsibility area. for defined benefit pensions in the private sector; it may want to | 4 | take a corresponding role for interesting analysis remains to defined contribution plans. A be done. The Centers that new concern is that some comprise the Retirement workers have little experience Research Consortium will in the management of a continue to conduct research and financial portfolio that a defined engage in the policy analysis that contribution plan requires. this task requires. International capital flows might raise additional worries for investors and regulators. Although several Workshop presentations noted the potential John Laitner, Director MRRC of foreign financial investment in less developed countries to preserve high rates of return in the face of aging OECD populations, investments in “emerging markets” have proven risky in the past. It is also true that countries undergoing rapid growth may not (perhaps recalling a colonial status in the past) welcome foreign owners, and they may generate surprisingly high domestic savings rates – even rates high enough to exceed their extraordinary rates of physical investment (e.g., China).