by Gary Burtless Senior Fellow, The Brookings Institution, Washington, DC
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Transcript of by Gary Burtless Senior Fellow, The Brookings Institution, Washington, DC
Pension policy in developed countries
Assessment of alternative reforms in response to population aging
by Gary BurtlessSenior Fellow, The Brookings Institution,
Washington, DC
Old-age dependency burden
Immense concern, especially in countries with low fertility - - Japan, Italy, Spain
Narrow focus of concern: Public cost of programs that support elderly
Broader view of dependency:
Aged dependents – 65+
Child dependents – 0-14
Non-working adult dependents – 15-64
Age profile of factor incomes /Paygo transfer benefits
Figure 1. Stylized Distribution of Factor Incomes and Paygo Benefits, by Age
Factor income of 35-54 year-olds = 100
48
100
73
286 8
39
66
18 14
0
20
40
60
80
100
120
15- 34 35- 54 55- 64 65- 94 15-94
Age group
Factor income
Paygo benefits
Age profile of factor incomes: USA
Factor income received by average 45-49 year-old = 100
7
33
62
77
8894
100103
94
72
49
3832 31
262132
59
71
8185 88 87
74
48
10 3 2 36
20
60
20
40
60
80
100
120
15-19 25-29 35-39 45-49 55-59 65-69 75-79 85-89
Age group: United States
Capital income
Labor income
Age profile of paygo transfers
LIS Income Reports: Transfers received measured as % ofAverage Factor Income Received by 45-49 year-olds /a/
0
10
20
30
40
50
60
15-19
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65-69
70-74
75-79
80-84
85-89
Age group
Germany
Finland
UK
USA
Impact of aging on tax rate needed to finance paygo transfers
Tax in 2000 = 100
90
100
110
120
130
140
150
2000 2010 2020 2030 2040 2050
Effect of shifting agedistribution onfactor incomes
Effect of shifting agedistribution on
benefit payments and distribution of
factor incomes
Total impact of shifting agedistribution, including
interaction effects
Japanese dependency burden: Alternative estimates of child dependent costs
t (Percent of contemporaneous wage)
10
20
30
40
50
1950 1975 2000 2025 2050
0.75
0.50
0.25
0.10
a =
Japanese & USA dependency burdens: Alternative child costs
t (Percent of contemporaneous wage)
10
20
30
40
50
60
1950 1975 2000 2025 2050
Japan (a = 0.75)USA (a = 0.75)
USA (a = 0.10)
Japan (a = 0.10)
Old-Age Dependency Ratios in G-7 Countries, 2000-2050
66.8
64.6
53.2
50.8
45.9
45.3
37.9
28.8
27.7
26.6
27.2
20.4
26.6
21.7
0 20 40 60 80
Italy
Japan
Germany
France
Canada
UK
USA
Old-age dependency ratio (%) /a/
2000
2050
Old-age pension spending in G-7 countries, 2000-2050
13.9
15.9
16.8
8.5
10.9
6.2
3.6
14.2
12.1
11.8
7.9
5.1
4.4
4.3
0 5 10 15 20
Italy
France
Germany
Japan
Canada
USA
UK
Public pensions as % of GDP
2000
2050
Decline in average old-age pension relative to real average wage, 2000-2050
-3.7
-6.4
-13.7
-21.3
-30.6
-38.4
-47.0
-50-40-30-20-100
USA
Canada
Germany
France
Italy
Japan
UK
% benefit cut /a/
Poverty among aged persons in G-7 countries, 1992-1997
5.3
7.0
9.8
12.2
13.7
18.4
20.7
0 5 10 15 20 25
Canada
Germany
France
Italy
UK
Japan
USA
Percent of elderly population in poverty /a/
U.S. poverty rate among aged and non-aged adults, 1959-2003
Percent in poverty
0
5
10
15
20
25
30
35
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Persons 65 and older
Persons 18 to 64years old
Japanese dependency burden with faster growth in labor force participation, 1950 - 2050
t (Percent of contemporaneous wage)
10
15
20
25
30
35
40
45
1950 1975 2000 2025 2050
Pe
rce
nt
of
ea
rnin
gs
With a higher participation rate
With participation rates of 2000
0
2
2
2
4
1
3
4
5
5
7
7
7
2
3
4
5
6
6
6
8
10
10
11
12
13
14
9
29
0 3 6 9 12 15
Sweden
Japan
United States
Switzerland
United Kingdom
Australia
Canada
Unwtd. avg. of these countries
Finland
Germany
Italy
France
Spain
Belgium
Netherlands
Percentage change in 15-64 year-old work force
With 1960 retirement pattern
With 1980 retirement pattern
Estimated change in 2030 labor force under alternative retirement scenarios, selected OECD countries