1 Health and Ageing-Lifetime Research: Longitudinal Studies from Home and Away Whitlam Institute Forum 30 September, 2003 Robert J. Willis University of Michigan

2 1. Demographic Trends in Australia Similar to those in U.S. and Europe World wide trends of declining fertility, increasing length of life imply –Slower rate of population growth –Population aging Intergenerational transfers used to support economic welfare and health care for elderly –Role of family –Public sector taxes and transfers Changing age structure makes existing welfare state programs infeasible in the long run Search for sustainable policies

3 Economic Implications of Slower Population Growth: The Good News Slower population growth provides potential for higher per capita economic welfare –Given rate of saving creates more physical capital per person –Given rate of investment in education creates workers with more human capital per person Implies feasible lifetime income and consumption is higher when population growth is slower

4 Economic Implications of Slower Population Growth: The Bad News Sustainability of social welfare programs financed by tax and transfer schemes is threatened by population aging –Social security/Medicare represent transfers from younger to older generations –Population aging implies that a given rate of taxation of workers who maintain a given age schedule of labor supply will not produce revenues sufficient to maintain a given level of transfers to retired elderly

5 Effects of Increasing Expectation of Life

6 Social Security Taxes and Benefits

7 Intergenerational Report Priorities: Fiscal Sustainablity of Health Care Depends on Savings and Employment 1.Balanced budget, government debt low 2.Efficient and effective medical health system, complemented by widespread participation in private health insurance 3.Containing growth in the Pharmaceutical Benefit Scheme (PBS) 4.Affordable and effective residential aged care system 5.Preserving a well-targeted safety net 6.Encouraging mature age employment 7.Encouraging private saving for retirement

8 2. Consequences of Social Welfare and Retirement Policy In Developed Countries for Employment

9 Trends in Labor Force Attachment of Older Men Source: J. Gruber and D. Wise, Social Security Programs and Retirement Around the World, U. Chicago Press, 1999.

10 Retirement Policy Shapes Retirement Behavior Source: J. Gruber and D. Wise, Social Security and Retirement Around the World (NBER, 2000) Percent Penalty for Continued Work Percent Early Retirement US Sweden Canada Spain Germany UK France Holland Belgium Italy

3. Correlation between Health and Wealth: What Causes What?

12 Mean Net Worth by Health of Husband and Wife Source: Robert J. Willis, “Theory confronts data: how the HRS is shaped by the economics of aging and how the economics of aging will be shaped by the HRS,” Labour Economics, Volume 6, No. 2, page 119, June, 1999.

13 Causal Directions? Wealth Causes Health –Early life experiences –Social gradient –Access to medical care Health Causes Wealth –Affects long run human capital accumulation –Health shocks disrupt work/earnings –Health shocks lead to (uninsured) medical costs Health and Wealth Caused by Third Factor –Rate of time discount (willingness to defer satisfaction) More weight on future leads to more education, higher earnings, higher savings rate, better health habits leading to correlation between health and wealth

14 New Health Problem in 1992 Reduces Wealth between HRS (People 51-60) Source: James P. Smith. "Healthy Bodies and Thick Wallets," Journal of Economic Perspectives 1999.

15 New Health Problem in 1993 Reduces Wealth from 1993 to 1995 AHEAD (people 70+) Source: James P. Smith. "Healthy Bodies and Thick Wallets," Journal of Economic Perspectives 1999.

4. Challenge of Dementia in an Ageing Population Lower mortality Rapid growth of oldest old Lower fertility Increased relative number of older to younger persons Increased cost to taxpayers

17 Rapid Growth Of Oldest Old Source: Frank B. Hobbs with Bonnie L. Damon, 65+ in the United States, U.S. Department of Commerce -- Economics and Statistics Administration and Bureau of the Census and U.S. Department of Health and Human Services -- National Institute on Aging, page 2-8, April, 1996

18 Severe Cognitive Limitation by Age and Gender Source: Mary Beth Ofstedal: Health and Retirement Survey 1998 (N= 13,093) Definition of severe cognitive impairment: Errors on half or more of 9 very easy items from a standard geriatric screen for mental status for self-respondents; IQCODE score of 3.9 or higher on Jorm proxy assessment.

19 Informal Care: Adjusted Weekly Hours, by Severity of Cognitive Limitation Langa K, Kabeto M, Herzog AR, Chernew M, Ofstedal MB, Willis R, Wallace R, Mucha L, Straus W, Fendrick AM. “The quantity and cost of informal caregiving for the elderly with dementia: Estimates from a nationally representative sample,” Journal of General Internal Medicine 2000; 15 (Suppl. 1): 76 (abstract). Funding for this project was provided by the Robert Wood Johnson Foundation, the Aetna Quality Care Research Fund, and Merck and Co., Inc. Langa K, Kabeto M, Herzog AR, Chernew M, Ofstedal MB, Willis R, Wallace R, Mucha L, Straus W, Fendrick AM. “The quantity and cost of informal caregiving for the elderly with dementia: Estimates from a nationally representative sample,” Journal of General Internal Medicine 2000; 15 (Suppl. 1): 76 (abstract). Funding for this project was provided by the Robert Wood Johnson Foundation, the Aetna Quality Care Research Fund, and Merck and Co., Inc.

5. Global Efforts to Study Economics of Ageing and Health Health and Retirement Study (HRS) English Longitudinal Study of Aging (ELSA) Survey on Health Aging and Retirement in Europe (SHARE) –Austria, Belgium, France, Denmark, Germany, Greece, Italy, Netherlands, Spain, Sweden, Switzerland Mexican Health and Aging Study (MHAS)

What is the Value of Comparable Longitudinal Surveys in Many Nations? Each country can learn “what if” lessons from relationship between policies and outcomes experienced in other countries Argued at length in National Academy of Science, Preparing for an Aging World: The Case for Cross-National Research (2001)