Panel 1 Panel 1 of people older than 65 to those between ages of 15 and 65) is projected to double by 2050 to around 0.5, REY NEW WORLD G : which implies that about a third of the potential vot- EUROPE ON THE ROAD TO ers is older than 65 (Figure 2). The two main causes of aging are increased longevity and lower fertility, GERONTOCRACY? which we examine below. Introduction Higher life expectancy raises return on human capital ARJI LANS BOVENBERG* Average life expectancy at birth has increased by Scientific Director, Network for Studies on Pensions, more than two years per decennium since 1950 in the Ageing and Retirement (Netspar), Tilburg University G-7 countries and the EU (Figure 3). Life expectan- cy at age 65, which is more relevant for the costs of pensions, rose by about one year per decennium Aging of the population demands major adjustments (Figure 4). From an economic perspective, increased in the way society organizes work and public support longevity is in fact good news since morbidity over the life course. These reforms may be difficult appears to decline in line with mortality. Increased to implement in a democracy, however, because also longevity thus implies that many more people can voters age.After documenting aging and its causes in enjoy healthy and productive lives up to old age. the first section and discussing the required institu- They can accumulate experience and exploit their tional reforms in the second section, this paper abilities longer. In other words, the return on invest- describes the challenges to the political system ing in people rises. raised by aging in the third section. The forth section focuses on how to address increased longevity while Feminization of work implies better use of female the fifth section explores how reasonably high fertil- human capital ity rates may be maintained. The final section con- cludes. As regards the second fundamental demographic trend behind aging, fertility rates have fallen below replacement levels in all developed countries since Aging: its causes the 1960s (Figure 5). Moreover, women bear chil- The median age in the EU has Figure 1 increased from 31 in 1950 to 39 now, and is projected to rise fur- AVERAGE AND MEDIAN AGE OF VOTERS IN EU-25 ther to 48 by 2050 (Figure 1). In 50 Germany, the median age of 48 potential voters will increase 46 from 47 now to 53 in 2030. The 44 median age of actual voters will 42 40 Mean age rise to even higher levels as Median age older voters tend to actually use 38 their voting power more. In 36 many countries, the old-age 34 dependency ratio (i.e. the ratio 32 30 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 * The author would like to thank Gerardo Soto y Koelemeijer for research Source: European Commission. assistance. 17 CESifo Forum 3/2007 Panel 1 Figure 2 premium base for financing DEPENDENCY RATIOa) 1950–2050 pay-as-you-go (PAYG) pen- in % sions, lower fertility initially 0.7 frees time and resources for 0.6 Netherlands Italy working-age adults by reducing France the burden of supporting young 0.5 Germany Spain dependents (see Weil 2006). Sweden 0.4 United Kingdom Moderate seasons in the modern 0.3 life course 0.2 Increased longevity and the 0.1 feminization of work are 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 changing the life course. In the a) The ratio of people older than 65 to those between ages of 15 and 65. modern longer life course, Source: European Commission. adults spend considerable time in households without young dren later in life (Figure 6). Lower and delayed fer- children as a result of lower fertility and delays in tility is the result of better schooling of women and both parenthood and morbidity (and mortality). the feminization of work.The latter development is Indeed, in the “spring” of the modern life course due mainly to technological changes raising the (alternatively termed “early adulthood phase” or demand for communication and creative skills in “playtime of life”), young adults first invest in growing service sectors at the expense of raw mus- their own human capital through extensive educa- cle power in the industrial sector. The increased tion. In this period of extended social adolescence, value of female human capital has raised the they also experiment with relationships and jobs opportunity costs that women face when bearing before they take on the responsibility for raising children. Just as increased longevity, the increased children during the “summer:” the family season use of female human capital on the labor market is when parents bear the responsibility for bringing good news. Moreover, whereas it may erode the up children. Figure 3 Figure 4 TRENDS IN LIFE EXPECTANCY AT BIRTH LIFE EXPECTANCY AT AGE 65 years years 90 24 Males 22 85 Males 20 80 18 75 16 14 70 12 65 10 60 8 90 24 Females Females 85 22 1960 Reihe1 20 1960 Reihe1 80 18 75 16 70 14 12 65 10 60 8 UK UK Italy Italy USA USA Spain Japan Spain EU-25 Japan France France Canada Sweden Canada Sweden Germany Germany change 1960-2005 change 1960-2003 1960 1960 France, Italy, Spain, United Kingdom, USA, Japan: 2002. USA and Japan: 2003; Canada: 2001. Source: Eurostat; OECD (2005). Source: Eurostat; OECD (2005). CESifo Forum 3/2007 18 Panel 1 Figure 5 time (see Avramov 2002). In the TRENDS IN FERTILITY spring and especially the children per family autumn, in contrast, the climate 3.5 is more moderate. Adults thus 2005 1960 3.0 do not have to care for young 2.5 children and enjoy relatively high purchasing power. 2.0 1.5 1.0 Institutional innovation 0.5 0.0 Both a longer life and the femi- EU-25 Germany Spain France Italy Sweden United USA Japan Canada nization of work require chang- Kingdom es in the way society organizes USA: 1970 and 2003; Japan: 2003; Canada: 1970 and 1998. work and maintains the talents Sources: Eurostat. of people over the life course. After their children have grown up, parents typically Treasure human capital spend considerable time in good health in the “autumn” season of their life course (or alternative- The first priority for institutional innovation is safe- ly “the active senior phase”).Tomorrow’s elderly can guarding the production and maintenance of human be expected to be healthier, wealthier and better capital. In a modern knowledge-intensive society, educated than ever before. They thus enter later into human capital is the key to personal fulfillment and the “winter season:” the last phase of life in which social inclusion. At the same time, knowledge and people suffer from serious health problems and specific skills age faster on account of creative require care. destruction associated with fierce competition and rapid innovation. The combination of a longer life The summer season in the modern life course is and faster obsolescence of skills demands mainte- quite hot. During this so-called “rush-hour of life,” nance of human capital through continuous learn- people may experience “combination stress.” The ing. Adaptability, the ability to learn and key non- costs of living are high while time is scarce, as par- cognitive skills (such as social and communication ents invest not only in their children but also in their skills, self-discipline, emotional resilience, self-con- careers. Compared to other European household trol) is shaped early in life during early childhood. types, families with co-residing children are least These personal traits undergird the social legitimacy satisfied with living conditions, including their work of a competitive, innovative economy associated or other main activity, income, housing, and leisure with creative destruction. Moreover, an adaptable labor force can embrace risk, thereby raising the supply of Figure 6 risk-taking capital and entrepre- MEAN AGE OF WOMEN AT FIRST CHILDBEARING neurship. 30 29 Human capital is produced not 2003 1980 28 only in schools but also in fami- lies and firms. Reconciliation of 27 work (including workplace 26 learning in firms) and family 25 (including informal care for 24 young children) is therefore 23 essential. It allows parents to 22 form and maintain a supportive Germany Spain France Italy Sweden United USA Japan family relationship in which Kingdom they build the future work- Spain: 2002; Italy: 1996; France: 2001; United Kingdom: 2002; USA, Japan: 1970 and 2000. force’s capacity to learn, adapt Sources: Eurostat; OECD (2005). 19 CESifo Forum 3/2007 Panel 1 and relate, while cherishing their own human capital to support young parents who are in the summer by remaining durably attached to the labor force. season of their lives. In addition to more flexible Through better maintenance of their human capital, career paths that decompress the working life, people can exploit their longer life to combine the public support should thus be gradually shifted pursuit of a fulfilling career in paid work with the away from the fall and winter seasons of life vital task of raising the next generation of workers. towards the spring and summer seasons when By adjusting the allocation of work over the life human capital is produced. In this way, proactive cycle to the biological clock of women (so that social policies that help people to build up and leisure is not concentrated only at the end of life), manage human talents replace reactive social poli- the reconciliation of work and family thus involves cies that provide passive income support to those the way the entire life course is organized.