Population ageing beyond the balance sheet

| April 16, 2013

As the population ages, Rafal Chomik, Senior Research Fellow at the ARC Centre of Excellence in Population Ageing Research (CEPAR), lays out the research about how Australians might use their additional healthy years after retirement.

Every three to five years the Australian Treasury produces its assessment of long-term sustainability of Government policies, known as the Intergenerational Report. The next one is due by 2015. The report’s GDP projections, which underpin the relative cost of programmes such as healthcare and pensions, are based on the product of the ‘three Ps’: (1) Population by age, (2) levels of Participation in the labour force by age, and (3) Productivity per hour worked.

The 3P framework has proved very useful, and the report is both widely read and well-regarded. The exercise gives Australians insight into some of the effects of population ageing – how greater numbers of older people can result in higher government spending and lower GDP and how such effects can be offset by greater levels of labour force participation and productivity.

But what are the likely effects of population ageing on informal production that is not traded in the market and has no obvious price? As the population of older people increases, it is important to ask not only about age-specific productive capacity in the labour market (will older people retire later?) but also about how different age groups engage in unpaid activities which improve the capacity to produce goods and services and increase wellbeing (will older people volunteer more?).

These activities can include care-giving, volunteering, self-maintenance, education and training, and other informal help provided to family and friends. One estimate of the cost to the economy of replacing older Australians who provided unpaid child and adult care with paid workers in 2006 was nearly $5 billion.

Many people can now expect 20 or more years of healthy and independent living after traditional retirement age in which to participate in paid and unpaid activities, before some level of frailty, if any, sets in. What proportion of their extra time can we expect them to dedicate to the benefit of the wider society? Understanding engagement in these activities in the context of the demographic shift to an older society is what is often referred to as ‘productive ageing’.

At the ARC Centre of Excellence in Population Ageing (CEPAR), academics such as Professor Hal Kendig have been looking at the issue of productive ageing in some detail. Driving this research is the premise that there are ethical responsibilities and economic opportunities in valuing older people and their contribution to paid and unpaid activities.

In a forthcoming paper, CEPAR researcher Natasha Ginnivan (with Kaarin Anstey, Kerry Sargent-Cox and other colleagues from CEPAR) is looking at how different cultures perceive ageing and older people. Initial qualitative results suggest that in Australia, with its individualist culture, older people may gain self worth from work and work relationships. This is in contrast to a more collectivist culture, such as that of the Philippines, where self worth might stem more from family relationships. For example, older individuals in the Philippines commented a lot more, and seemed a lot more invested in their grandparent roles than older Australians who commented more about their work colleagues when speaking of ‘inter-generational contact’. It confirms the intuition that, upon retiring from formal work, older people in Australia may find themselves in a more difficult social situation and their participation in informal work may be under-appreciated.

A key first step is to understand the current level and determinants of productive engagement. In a recent paper, Vanessa Loh and Professor Kendig have analysed the role of social and demographic factors that enable or constrain participation in productive activities over the life course and as individuals age. They find that 55 to 64 year olds provide more care of adults and more childcare (for children of others) than any other age group; and that 65 to 74 year olds volunteer more than any other age group. Perhaps unsurprisingly, they find that health and education have the potential to enable greater engagement.

Next, they aim to investigate how engagement changes between years and how a person’s time is allocated between competing productive activities by looking at time-use data. This is important, since there is a trade-off between paid and unpaid work. Time-use analysis by the OECD found that on average Australians spent a greater number of minutes per day engaged in unpaid work than most other developed countries but that this was at a cost of fewer minutes per day in paid work. It’s unclear how these trends will change as the population ages and how Australians will use their additional 20 or so healthy years toward the end of life. But plenty of researchers are now looking at it.