Saturday, April 11, 2009

Consequences Of Ageing Population In Developing Countries

If there were to be another bigger problem for the global economy in the near future, it will not be another episode of global recession but rather the issue of ageing population. Recession is just a ‘sweetener’ to the crisis of ageing people within an economy. Furthermore, the problem seems to be ideally ‘permanent’ as improvement in economic performance is always followed by falling mortality rate & birth rate

The proportion of people aged between 60 years & above in the world will double between 2000 & 2050, an up from 10% to 21%. As a matter of fact, populations are ageing even faster in developing world as fertility rates have declined more rapidly in recent years than developed world.

Asia, Latin America & Caribbean are the world’s fastest ageing regions. Even Sub-Saharan African with lowest number of elderly people than any region (due to low life expectancy), is projected to see its older population grew 2.3 between 2000 & 2030 (refer diagram below)

Proportion of elderly populations around the world in 2000

Proportion of elderly populations around the world in 2050


(1) Increase in dependency ratio. It is given by the formula of:

[ (number of children 0-15) + (number of pensioners, >65 years) ] / (number of working population, 15-65)

It is worth to take note that falling birth rates (lesser newborns) & falling mortality rates (people live longer) will inflate the numerator figure. Due to falling newborns, the number of people falling into the working age group will decline over time, putting a downward pressure onto the denominator. As such (bigger number) / (smaller number) will therefore increase dependency ratio. If the ratio is 1.2, it means for every 10 working individuals, there will be 12 dependents

Younger generations will be under immense pressure to provide sufficient financial support to the dependents, especially their parents. They are equally divided between working longer hours outside to earn more income & spending more time with the old ones at home. The financial commitment is potentially large since elderly people have poorer health & yet the cost of medication in developing countries is ballooning over the years. This problem will be more significant upon married people as there are other commitments too e.g. spouse, mortgages, cars, children’s education etc

(2) Non-productive labour force. Productivity is defined as output per worker. While it is true that retirement age can be extended, some quarters argued that elderly workforce will pose more problems. They are often forgetful, slow work pace, took many sick days leave & less motivated than young ones. AS curve will shift leftward. There will be lesser work done, thus lesser output within an economy

Evaluation: This is often not true. The argument above is more suitable to cater for manual skills like working on construction site & farm, which requires physical ability. With the emergence of services sector in developing countries such as healthcare & education line, elderly workforce is highly respected for their experience. Many of them are retained due to difficulty to find replacement of such ‘gold standard’ in human capital. Experienced senior surgeons can train more young doctors while experienced lecturers & professors are needed to conduct research & passing on their knowledge to younger generations. Therefore in these areas their productivity is very high

(3) Higher level of pension provision. This is never an issue as long as each successive generation is of approximately the same size (working age vs. retirees). A large group of pensioners with a smaller group of workers however means that sums do not add up. The only way to sustain the growing number of elderly people is to continuously revise tax levels upward, which is often very politically unpopular. The other way would be to reduce pensions. However, many feel that this would deprive pensioners of payments that they have committed for during their working lives & are entitled to

Domestics savings around the world

Evaluations. However, not all governments from developing world face immense pressure in pension provision. Consider East Asia with countries like China, Hong Kong, South Korea, Singapore, Indonesia, Philippine & Malaysia which have among the highest domestic savings rate in the world. It is also an indicator that elderly people in these areas can be self sufficient in their older days, reducing their dependency on government & their kins

(4) Greater demand for healthcare. Elderly people generally frequent hospitals more than the young ones due to deteriorating health. With a ballooning number of ageing populations in near future, governments will be under great financial constraint to build more hospitals, train more doctors & nurses, paying more wages, import more medicines & specialised surgery equipments which easily costs billions. Increase per capita health expenditure onto elderly adults is afraid to create opportunity costs to other sectors like education & infrastructures

Evaluation. Providing state-of-art healthcare centres are utmost important to ensure that ageing people can still contribute actively to the economy, thus maintaining the level of growth. Furthermore, it is an issue of universal basic rights. Besides, governments can collaborate with private sectors especially insurance firms to educate younger generation regarding the importance of owning a personal insurance & medical card. Doing so, will reduce its financial commitments of providing ‘subsidise’ medical treatments to the citizens

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