1. Demographics, Economics and Social Choice ADAIR TURNER November 6, 2003 R:\Live Files\IBK Management\Inbox\ADAIR TURNER\ln000rsm.ppt 06/11/2003 10:25:00 (1)

2. 2 R:\Live Files\IBK Management\Inbox\ADAIR TURNER\ln000rsm.ppt 06/11/2003 10:25:00 (2) Table of Contents Presentation to The Economist Table of Contents

3. 3 R:\Live Files\IBK Management\Inbox\ADAIR TURNER\ln000rsm.ppt 06/11/2003 10:25:00 (3) Three Dimensions of Demographic Change Increasing Longevity Declining Fertility Baby Boom Cohort

4. 4 R:\Live Files\IBK Management\Inbox\ADAIR TURNER\ln000rsm.ppt 06/11/2003 10:25:00 (4) ____________________ Source:GAD for UK; United Nations for World Note:These are “Period” Life expectations, which actually underestimate the expected life span of a baby born in the year specified, but which are easier to calculate than the correct “cohort” figures and therefore frequently used in international comparisons. See footnote x in lecture text for explanation Life Expectancy at Birth (1) - Male

5. 5 R:\Live Files\IBK Management\Inbox\ADAIR TURNER\ln000rsm.ppt 06/11/2003 10:25:00 (5) ____________________ Source:Eurostat demographic year book; GAD for UK Note:On “Period” basis Life Expectancy at 60 (1) - Male

6. 6 R:\Live Files\IBK Management\Inbox\ADAIR TURNER\ln000rsm.ppt 06/11/2003 10:25:00 (6) Total Fertility Rates – Europe and North America 1950-2000 ____________________ Source:United Nations In chart minimum value in y axis is 0.5 and crosses at 0.75 In PowerPoint a white fill box has been used to blank out the 0.5

7. 7 R:\Live Files\IBK Management\Inbox\ADAIR TURNER\ln000rsm.ppt 06/11/2003 10:25:00 (7) Total Fertility Rates – Asian Countries 1950-2000 ____________________ Source:United Nations In chart minimum value in y axis is 0 and crosses at 0. 5 In PowerPoint a white fill box has been used to blank out the 0

8. 8 R:\Live Files\IBK Management\Inbox\ADAIR TURNER\ln000rsm.ppt 06/11/2003 10:25:00 (8) -55-65-75-85-05-95-15-25 Total Fertility Rates – Iran, Turkey, Brazil, 1950-2020 ____________________ Source:United Nations 20201950 In chart minimum value in y axis is 0 and crosses at 0. 5 In PowerPoint a white fill box has been used to blank out the 0 1950 and 2020 are text boxes in PowerPoint with a white fill

9. 9 R:\Live Files\IBK Management\Inbox\ADAIR TURNER\ln000rsm.ppt 06/11/2003 10:25:00 (9) From Pyramids to Columns 0 - 4 5 - 9 10 - 14 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 90 - 94 95 - 99 100 + Age Group A B A B

10. 10 R:\Live Files\IBK Management\Inbox\ADAIR TURNER\ln000rsm.ppt 06/11/2003 10:25:00 (10) P.A.Y.G. Pension Systems: Key Ratios No population growth No productivity growth Average retirement income = Implicit rate of return on contributions = 0 Average worker contribution Working years Retired years Population growth positive No productivity growth Rate of return = Population growth rate = Population growth * R. I. W. C. W. Y. R. Y. Population growth positive Productivity growth positive Rate of return = population growth rate + productivity growth rate = R. I. W. C. W. Y. R. Y. Population growth * Productivity growth *

11. 11 R:\Live Files\IBK Management\Inbox\ADAIR TURNER\ln000rsm.ppt 06/11/2003 10:25:00 (11) Demographic Drivers of Support Ratio “Support Ratio” No. of Workers No. of Retired Working Years Retired Years Population Growth == *

12. 12 R:\Live Files\IBK Management\Inbox\ADAIR TURNER\ln000rsm.ppt 06/11/2003 10:25:00 (12) Support Ratio Dynamics

13. 13 R:\Live Files\IBK Management\Inbox\ADAIR TURNER\ln000rsm.ppt 06/11/2003 10:25:00 (13) Support Ratio Forecasts 2000-2050 Ratio of 20-64 Year Olds to 65+ 20002050 UK3.72.1 Italy3.41.4 USA4.82.8 China8.82.4 Korea9.01.7 World7.83.6 ____________________ Source:UN Medium Variant

14. 14 R:\Live Files\IBK Management\Inbox\ADAIR TURNER\ln000rsm.ppt 06/11/2003 10:25:00 (14) P.A.Y.G. Schemes: Three Alternatives If support ratios for any given retirement ages fall, then three possible solutions Increased retirements ages Poorer pensioners Bigger worker contributions

15. 15 R:\Live Files\IBK Management\Inbox\ADAIR TURNER\ln000rsm.ppt 06/11/2003 10:25:00 (15) Support Ratio Dynamics under Different Demographic Challenges Increase in longevity - no change in fertility Support ratio effect can be fully offset by proportional rise in retirement age Decline in fertility in addition to increase in longevity Proportional rise in retirement age insufficient to offset support ratio effect

16. 16 R:\Live Files\IBK Management\Inbox\ADAIR TURNER\ln000rsm.ppt 06/11/2003 10:25:00 (16) Support Ratio Dynamics

17. 17 R:\Live Files\IBK Management\Inbox\ADAIR TURNER\ln000rsm.ppt 06/11/2003 10:25:00 (17) Are Funded Systems Different? In any pension system today’s pensioners are dependent on resource transfer from today’s workers Funded systems only help overcome demographic challenges if they increase savings – in current and future generations Funded systems face demographic risks The implications are closely similar for funded and non- funded systems

18. 18 R:\Live Files\IBK Management\Inbox\ADAIR TURNER\ln000rsm.ppt 06/11/2003 10:25:00 (18) Demographic Change in UK and China – UN Medium Variant % Population by Age Band 20502000 UK China Roy Waterhouse 26-8-03: MS Graph charts. This time, they have been done as Stacked Bar charts, the X-axis running from 0% to 100%. To achieve the appearance of the charts, they are done in three rows, with the middle one containing the ‘real’ data Blank values of equal amounts are put in either side (with the colours changed to white), and the whole row adds up to 100 (see screen dump right). The bars then have to be re-coloured manually. The Legend is done manually. 60+15-590-15 Years ____________________ Source: OECD Historical Statistics: OECD Economic Outlook

19. 19 R:\Live Files\IBK Management\Inbox\ADAIR TURNER\ln000rsm.ppt 06/11/2003 10:25:00 (19) Demographic Conditions and Investment Attractiveness ____________________ * Projection per UN Medium Variant

20. 20 R:\Live Files\IBK Management\Inbox\ADAIR TURNER\ln000rsm.ppt 06/11/2003 10:25:00 (20) Immigration Only Responses – UN Migration Scenario To maintain the ratio of 15-64 year olds to 65+ year olds constant requires:

21. 21 R:\Live Files\IBK Management\Inbox\ADAIR TURNER\ln000rsm.ppt 06/11/2003 10:25:00 (21) Rising Longevity, Fixed Retirement Age and Stable Support Ratios Initial Structure Plus Rising Longevity Plus Immigration to Keep Support Ratio Constant Retirement Age

22. 22 R:\Live Files\IBK Management\Inbox\ADAIR TURNER\ln000rsm.ppt 06/11/2003 10:25:00 (22) Support Ratio Dynamics ?

23. 23 R:\Live Files\IBK Management\Inbox\ADAIR TURNER\ln000rsm.ppt 06/11/2003 10:25:00 (23) Europe and Its Neighbours – Population ____________________ Source:UN Medium Variant * Note:UN definition plus Pakistan, Afghanistan and Iran European Union Western Asia* Africa Eastern Europe Russia, Ukraine & Belarus Millions

24. 24 R:\Live Files\IBK Management\Inbox\ADAIR TURNER\ln000rsm.ppt 06/11/2003 10:25:00 (24) Population Density – US and Europe ____________________ Source:GAD 000s per Sq.km: 2000

25. 25 R:\Live Files\IBK Management\Inbox\ADAIR TURNER\ln000rsm.ppt 06/11/2003 10:25:00 (25) Demographics and Geopolitical Weight

26. 26 R:\Live Files\IBK Management\Inbox\ADAIR TURNER\ln000rsm.ppt 06/11/2003 10:25:00 (26) Italy’s Population Structure 1970-2050 Age Band 80-100 60-80 40-60 20-40 0-20 197020002050 ____________________ Source:U.N. Medium variant for 2050 projection Millions

27. 27 R:\Live Files\IBK Management\Inbox\ADAIR TURNER\ln000rsm.ppt 06/11/2003 10:25:00 (27) Fertility Intentions of Women England & Wales

28. 28 R:\Live Files\IBK Management\Inbox\ADAIR TURNER\ln000rsm.ppt 06/11/2003 10:25:00 (28) European Fertility Rates - 2001 ____________________ Source:GAD