Implications of an Aging Society on Asia’s Economies

Opinion23.05.2017
elderly woman

Humanity is facing a development that has never before occurred in human history: Populations around the world are ageing, some more rapidly than others. Some of the world’s most advanced economies are already experiencing the impacts of this demographic shift. It is estimated that between 2015-30, the number of people aged above 60 will grow by 56% and that by 2050 the total global population of older people will be around 2.1 billion. Additionally, this may come as surprising to some, the percentage of people aged 80 and above is growing much faster than that of other older persons overall. Categorized as “the oldest old”, this group will account for around 434 million by 2050. In 2015, this group accounted for only 125 million older persons. It is also projected that Asia will be the second region with the fastest ageing populations, with a projected growth of 66%. While Japan still remains the world’s most aged country, other countries in Asia like South Korea, and Thailand, are moving in the same direction.

This development is due to a number of factors. The rapid advancement in sanitary conditions, medical science and increasing prosperity is the biggest driver. Increased prosperity and better social safety nets mean that people do not have to rely on a large number of children for their survival in old age. Mass education and the steady lengthening of time spent in school, combined with growing female participation in the job market, means that people marry later and that the costs of raising children is steadily rising, both combining to depress birth rates. As societies become richer and more diversified and develop better safety nets, the material impetus to get married and have children is lessening. At the same time, more and more people are able and willing to prioritize individual career development and are less willing to sacrifice those aims to the demands of family. But these developments have consequences. Governments have already started facing challenges that come with this demographic shift, including shifts in labor markets, poverty, and public spending on healthcare.

Labor force Participation

With East Asia projected to be the region’s fastest ageing population group, Asia is already experiencing the effects of an ageing population on the local work force. Shrinking labor pools brought about by the decline in birth rates in advanced economies like that of Japan, South Korea, and Hong Kong, have meant that governments face economic stagnation or even shrinkage, and this coupled with rising pension and healthcare costs would send their countries into a veritable death spiral. Incentivising people to have more children is costly and, on the whole, people’s decisions on marriage and child-bearing are remarkably impervious to government persuasion. Rising birthrates are therefore unlikely to happen on a big enough scale. That leaves three other options: opening societies much more to immigration, encouraging people to work much longer, and restricting health care and pension benefits.

All these are difficult. Japan has had to resort to more open immigration policies to attract workers to fill labor gaps in some of their industries, but Japanese society is notoriously bad at integrating immigrants. Even after several generations the descendants of Korean immigrants still face discrimination, and such attitudes are hard to change. Therefore, governments have also started exploring ways to extend the retirement age of citizens and make older persons significant contributors to local economies. Many jobs in modern industries are far less physically demanding than classical factory jobs and hence can be done by older workers as well. This could result in the creation of new sectors/industries that are best suited for ageing populations in the region. Of course, this trend is not uniform across the region:  it is expected that India and Indonesia will continue to enjoy a growing working-age population for some time due to  fertility rates that are still higher than the replacement rate – but even in these countries they are declining steadily.  

Poverty Levels

Another challenge governments would be faced with is tackling poverty levels that arise from ageing population growth. With ageing populations in some countries not having enough for their retirement, it is estimated that a significant number of older persons will slip into poverty after they retire. This will put more pressure on government spending in the region. With countries still determining how best to increase the retirement age of their work force, those countries where older persons don’t have adequate pension plans along with other reliable sources of income upon retirement would be most vulnerable to poverty pressures. It is therefore crucial that governments in the region adopt more inclusive policies when considering reforms to their pension systems, which reflect the shifting trends of their ageing populations.

Public Spending on Healthcare

With ageing populations, it is estimated that a number of older persons facing certain diseases will also increase. However, it is projected that the number of people living with severe disabilities will decrease due to advancement in medicine. While this is still debated, there is agreement that some diseases will see a rise in cases due to the ageing population shift. In ageing populations, it has been observed that older persons tend to spend more years living with some disability compared to countries where the average lifespan is shorter. These include cancer, dementia, an increase in the number of falls, obesity, and diabetes. These could put pressure on governments’ spending on public healthcare. In Asia, with the current ageing population trends, it is estimated that this pressure could amount to around USD 20 trillion in health care by 2030. This can be attributed to the fact that with populations living longer, there will be a substantial increase in demand for health care while at the same time preventing local economies from benefitting from significant economic contributions from older populations afflicted with chronic diseases and disability. Governments therefore need to figure out effect ways in prolonging the onset of disability or diseases associated with ageing in order to alleviate pressures on public health spending.

We are living longer than ever before. That is, on the whole, a good thing.  Secular trends indicate that our birth rates will continue to decline or stabilize below the replacement level, hence  ageing populations and the attendant challenges are here to stay. This requires painful choices, and, above all, a willingness to confront these issues. Population trends do not change rapidly, and the problems are thus both fairly predictable and certain to materialize, and the longer we wait, the harder it will be to solve those. However, there are policies and strategies that local governments can already start putting in place in order to tackle some of these challenges. One avenue would be investing in advancing medical technology and preventive healthcare so as to prolong the onset of chronic diseases and disability in older populations. Another would be to figure out how to create new sectors and industries where older populations can contribute in the most significant way to local economic growth. Whatever strategy or policy that governments choose to start with, it is important to adopt an inclusive approach that makes ageing populations part of the solution. Lastly, societies will have to grapple with the issue of immigration. As long as societies cling to a national narrative of exclusivity and resists the integration of immigrants, the problems of an ageing population will be much harder to solve, and may end up condemning such societies to a steep decline.