Report: Why Australia shouldn’t fear an ageing population

Sustainable Population Australia (SPA) has released an excellent new report, entitled “Silver tsunami or silver lining? Why we should not fear an ageing population”, written by Queensland academic Dr Jane O’Sullivan.

The report expertly debunks the notion that an Ageing population poses a material risk to the Australian economy, alongside self-defeating arguments that Australia needs to run a high immigration program to counter population ageing.

In doing so, the paper answers three main questions:

  • Will an ageing population blow government budgets?
  • Will ageing cause a shortage of workers?
  • Is high immigration and more population growth the answer?

A thorough analysis of the evidence finds that each of these concerns is unfounded. Far from being an economic calamity, our demographic maturity offers many advantages for improving social and environmental outcomes.

Below are the report’s key points and summary:

Key Points

  1. With people living longer than ever and the baby-boomer generation reaching retirement age, some people worry that we will run short of workers and taxpayers. But demographic ageing will stop well before that occurs. Retirees will never outnumber younger adults.
  2. In the countries that have aged the most, there has been no shortage of workers. Instead of less employment, they have less unemployment and underemployment. Economic models that predict less economic activity as populations age are based on false assumptions.
  3. The rise in the proportion of older citizens accounts for only a small fraction of the rise in health costs. The major increase in costs is due to new, improved and more services per person.
  4. Longevity has deferred, rather than extended, the period in which the elderly need more health care and aged care.
  5. High levels of immigration can slow, but not prevent, population ageing. But the cost of extra infrastructure and education to sustain population growth is greater than the avoided costs of pensions, health care and aged care.
  6. Those with vested interests in population growth have overstated ageing concerns, to make high immigration seem essential. The resulting negative social and environmental impacts continue to accumulate for no net economic gain.

Summary

A great triumph of modern civilisation is that most people born are able to live long and healthy lives. But this unquestionable good has become clouded by anxiety about its inevitable consequence: there are more old people about.

Media reports and political discourse on our ageing population often adopt a tone of panic. This discussion paper untangles the facts from the myths, so that Australians can look afresh at the population ageing issue – less from a perspective of panic than one of potential.

Ageing is inevitable but self-limiting

The “demographic transition” describes the shift from pre-modern conditions in which high birth rates were roughly matched by high mortality (particularly of children), to modern conditions where low mortality and long life expectancy is balanced by small families. This
demographic transition process is occurring in all societies, although countries differ in how far and how fast they have progressed.

Australia is reaching the final stages of the demographic transition, where the proportion of older citizens rises steadily, but this is only a transition to a new stable level. If population growth ends, the proportion of people aged 65 and over will settle around 30 to 33%.
The proportion of people aged 15-64 years (traditionally referred to as “working age”) is temporarily elevated in the middle of the demographic transition but falls back to normal levels (around 55%) as the proportion of over-65s rises. At no point would people over-65 outnumber younger adults, even if the population were shrinking steadily.

It has been claimed that, without high immigration into Australia, “by 2050 roughly half of us would be over the age of 65 and we’d essentially be one gigantic floating nursing home somewhere in the Pacific”. Scurrilous exaggerations such as this are designed to sway public opinion through ill-founded fear.

The “dependency” fallacy

Much of the conversation around ageing focuses on the ratio of people over-65 to those of “working age”. This “dependency ratio” assumes that those over-65 depend economically on people aged 15-64, and that there will not be enough people of “working age” to perform all the required work. Both these assumptions are false and misleading.

The workforce responds dynamically to the demand for labour

Despite several countries already experiencing a declining proportion of working-age people for more than two decades, none has seen a related decline in workforce. Compared with Australia, Japan has almost twice the proportion of older citizens but roughly the same proportion of people who have jobs. With the same demand for workers but fewer working-age people competing for jobs, there is less unemployment and underemployment.

Improved wages and conditions attract more people into the workforce. This is what economic theory expects the labour market to do. But the economic models which predict that ageing will constrain the workforce have ignored these feedbacks.

Ageing is a small contributor to rising health costs

While older citizens incur health expenses more frequently than others, the rise in proportion of older citizens accounts for only a small fraction of the rise in health costs. Population growth and increasing provision of health services per person are the main reasons for Australia’s sharp rise in health spending. Internationally, there is little relationship between the extent of population ageing and the national expenditure on health. Older people are getting healthier over time, with high-care needs deferred as longevity increases.

Boosting population growth does not solve ageing

The Australian government’s main response to demographic ageing has been to boost population growth through incentives to have more children (particularly the “baby bonus”) and elevated immigration levels. Neither strategy prevents population ageing in the long run.

As immigration levels are increased, each additional migrant has less and less effect on the population age structure. Boosting births increases the proportion of children rather than working-age people. There is no evidence that boosting the working-age proportion has increased employment per capita. Instead, Australia’s labour market has been oversupplied, with high immigration contributing to youth underemployment, wage stagnation and rising inequality.

The cost of population growth exceeds the cost of ageing

The Parliamentary Budget Office (PBO) estimated that ageing will cost the Federal budget “around $36 billion by 2028-29”. This estimate is based on two false assumptions: (1) that a smaller working-age proportion means less economic activity, and (2) that health and aged care costs rise in proportion to the over-65 population.

Even if the latter were true, the cost of extra infrastructure to support population growth outweighs the small extent to which that population growth could lessen pension, health-care and aged-care burdens. Most of this infrastructure cost falls to State and local governments, and private individuals, rather than the Federal government.

The national interest should not be narrowly defined as merely achieving a balanced Federal budget. The rate of population growth is at the discretion of the Federal government. Changing policies on immigration and pronatalism could quickly ease congestion and improve State government finances, and would allow infrastructure to catch up with our recent growth.

Retirement incomes are threatened by high-growth strategies

The rise of part-time and insecure work, combined with greatly elevated housing costs, means that young adults today are likely to find it more difficult to save for their retirement than their parents’ generation did. These trends have been exacerbated by Australia’s accelerated population growth since 2005. Australia’s current pension system is designed to provide adequate income for retirees who own their own home and are debt-free. As the current youth generation ages, more and more pensioners will be paying rent or mortgages and government will need to supplement the pension to ensure housing security.

Although Australia’s aged-pension outlays are modest by OECD standards, the retirement income system is costly due to very generous tax concessions for superannuation contributions which mostly benefit the richest Australians. Options are available to improve the efficiency and equity of retirement funding.

We need a mature intergenerational conversation

Federal Treasury’s periodic Intergenerational Reports paint a gloomy picture of ageing stifling economic growth and blowing out government budgets. Their solution is the “3 Ps” mantra: population, participation and productivity. We find, however, due to increasing wellness of older Australians and natural feedbacks in the labour force, the negative economic effects of ageing are likely to be much lower than estimated in Intergenerational Reports.

On the other hand, rapid population growth directly undermines both workforce participation (through crowded labour markets) and productivity (through low wages, crowded infrastructure and costly real estate).

To date, the Intergenerational Reports have entirely omitted the costs of population growth, including infrastructure and environmental damage. Inclusion of these costs reveals that the rapid population growth “cure” is worse than the “disease” of ageing that it purports
to fix.

No need for panic

Vested interests in population growth, including property developers and large retailers, have used ageing myths to persuade both government and the public that high immigration is necessary. This panic rhetoric has been used to misdirect and stifle debate about the real costs of continuing population growth. Often it is combined with unfounded assertions that any opposition to high immigration numbers is motivated by racism and xenophobia. Yet concern about population growth rate does not reflect at all on ethnic identity: at any scale,
the immigration program can be nondiscriminatory.

In order for rational policy debate to resume, legitimate concerns about migrant numbers need to be disentangled from issues of multiculturalism, racism and treatment of refugees.

Silver tsunami or silver lining?

An older, numerically stable or decreasing population offers many benefits for quality of life, environmental sustainability and economic stability. Depopulation dividends could make us richer, smarter, safer, fairer, greener, healthier and happier.

It’s an excellent and incredibly detailed report than can be downloaded here.

Unconventional Economist
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Comments

  1. This report reflects my lived experience having looked after 6 people in their final years.

  2. Stupid people don’t do math, and a totally illogical proposition – Germany currently has ~83m people, in 80 years time, with no immigration, that will be 21 million with current birth-rates.

    Numbers generated by Germanys own Federal Stats dept.

    • It’s important not to forget that these are complex systems (with feedback loops etc). Birth rate may increase as population falls and environments become less polluted and overcrowded; as housing becomes more affordable and family creation becomes more viable. Simple extrapolation of a single rate might be maths but it’s not smart.

      • The predictive fallacy or recency bias is to take 1 year result and straight line out for 50 years. There are cycles. There are related issues.
        Otherwise house prices times 20 to to 20 million in 20 years, while wages to 5 times in 20 years?

        Anyway people can continue working, if jobs were only available.

        there are lots of job vacancies for 80 year olds. US President is one!.

        • Yes job vacancies for USA presidents. Japan has a job system in place for aged retirees. Modest payment for part time work, at a level the person can do. Probably not their career job or if so at a different level. This might be a few hours a day where employer had peak need. Could be casual. Bottom line it makes a difference to both parties.

    • Failed Baby BoomerMEMBER

      Rusty, so what?
      The productivity increases due to robotics and AI offset the reduced population.
      Japan has showed the world that we do not need endless growth and migration.
      The Japanese aging population is managing just fine!

      • Yep. It’s unspoken but the proponents of high population growth (and population maintenance) are apologists for established economic growth models – which demonstrably fail the environment and people, but are very good for plutocrats.

        • You won’t see Sullivan’s report, or that from yesterday of Betts and Birrell, on NineFax, Conversation, or Guardian.

          You’ll find that the sage Katharine Murphy knows exactly what’s best for voters. Without even having to ask them.

      • Japan has developed button on prosthetics so an oldie can carry heavy weights easily. Means the skill and workplace knowledge is retained.

    • Stupid people don’t do math, and a totally illogical proposition – Germany currently has ~83m people, in 80 years time, with no immigration, that will be 21 million with current birth-rates.

      And… ?

    • Are you sure about that Rusty?

      2020 pop is 83m and only 20m in 2100, that’s 63,000,000 people die over that 80 yrs, which is a massive fall and to me doesn’t appear right. According to my dumb maths (and it is dumb, no argument there) that is 787,500 deaths pa! Yet, according to worldpopulationreview.com: https:

      Germany’s death rate has been higher than its birth rates since the 1970s. Currently, the birth rate is 9.397 births per 1,000 people, which has been declining every year. The death rate is 11.392 deaths per 1,000 people. Additionally, the fertility rate in Germany is 1.59 births per woman. Link: https://worldpopulationreview.com/countries/germany-population

      So the diff between Bs & Ds is 2 per 1000. Based on the present pop of 83m and losing 2 per 1000 per yr (no immigration), that’s 166,000 deaths pa x 80yrs = 13,280,000m (call it 13m) giving a pop in 2100 of 70m.

      People, have I missed something here; where have I gone wrong?

      I’ve hesitated in posting this as there’s a big discrepancy, but as a rough calc??? I haven’t looked at the fertility rate as I’d have thought the only thing that matters is the diff between Bs & Ds.

      • It’s not going to be a straight line. I assume Germany has a baby boomer equivalent, so as they start dying the death rate will be substantially increased over a decade or two.

        • But to the tune of 63m people? I get the DR would increase as boomers start dying at an increased rate, but wouldn’t it also go the other way as the boomer pig passes through the python (as in a big decrease)?

          • No idea, just making the point that extrapolating the current rate in a straight line is probably not a valid method.

    • Someone ElseMEMBER

      Imagine the birth rate if people could afford basics – food, shelter, education – during their fertile years?

      FFS the whole structure of [email protected] the youth for every cent is the problem. Not the youth.

  3. Its not the aged population they fear, its the theory that the aged are slowly displace by a smaller cohort of aged individuals as time goes by. The ageing population issue is real, just not really a big deal compared to many other issues.

    China has a much bigger Ageing population problem due to their old 1 child policy. The next decade or 2 will be interesting for them.

    • The other “problem” is the older people get, the more $$$ they need to be paid and the harder they are to exploit for their labour.

      You need a steady supply of yoof prepared to work 12hr days for a pittance to help keep wages down.

    • China’s 1 child policy actually slowed the fall in TFR that was underway and which continues in Taiwan, Singapore and Hong Kong.

  4. The systematic problem is currently that the ageing population is hoarding its wealth and won’t accept change that will assist the future. They are denying the opportunities that they had to those that are following them. There is no need to strip them of everything, as some claim would happen should any change be implemented, just adjust the system so that being born at a certain time isn’t a handicap compared to others in society.

    • High population growth is a critical part of this. It means asset prices can be inflated through scarcity, wages can be suppressed, and established economic growth models (horrendous to people and the environment) can continue unabated.

      • Absolutely. Fix the population growth and you fix the high housing costs. Apart from the top 10%, and the top 20% to a lesser extent, most older people have not been hoarding wealth because they don’t have it. 70% of retirees are pensioners (50% full and 20% part), and our Old Age Pension is “flat, frugal, and heavily means tested”, one of the least generous in the OECD,

        https://data.oecd.org/socialexp/pension-spending.htm

      • Of course it is part of it. However, it isn’t all of it. Merely reducing immigration without dealing with the other imbalances within society only goes some way towards re-balancing it and releasing the built up pressures that lead to so much anger.

    • They also “hoard” knowledge in high-skilled jobs and either refuse, or can’t be arsed, helping newcomers.

      This reduction in the traditional mentoring structure, alongside the jobs shortage, means a some sectors (eg: Engineering) have a substantial number of relatively inexperienced workers, which is obviously going to become more and more of a problem as those older workers leave the workforce without properly passing on their skills, knowledge and experience.

      (Naturally the yoof cop the blame for being lazy.)

      • Totes BeWokeMEMBER

        Why would knowledge need to be passed on while enough people including you agree to bringing skills in?

      • Are you touching on loss of Australian identity, cut throat private industry practice, universities turning out progressive parasites. No where is there identification with Aus as our country to which we have a vested interest in its future or survival.my father for example, with a big job as he rose as a public SERVANT….roads, bridges, bushfires, huge logistics, 2.5 days off in his career, one sick, the other family funerals. He considered he worked for the good of Australia. This meant he and we sacrificed in fact. country placements and children in central schools in top 100 passes in the state having to take shit scholarships to get uni education on huge bonds half cost of house, into unpleasant low grade work but have to be jolly grateful. No medicine, architecture, engineering, or doctoral pursuit into physiology of ageing. Sure this is extreme, a modicum of considering self Aus and caring for our future makes a huge difference, Thats been privatised including politics.

        • There’s a lot of New Australians in the workplace that have no qualm in leaving early whilst the rest of the team struggles to get a job done – ‘must catch that early train!’. They aren’t very team orientated.

  5. Excellent article – binary focus on GDP numbers (=increased population) focuses on one factor while excluding much better lagging and leading indicators of things that really matter. GDP does not measure life satisfaction, living standards, per capita GDP, productivity, environment impacts, economic diversity, resilience, health outcomes, educational outcomes et al.

    The article should talk less about the specific issue of population and focus more on how do we build the collective country and world we all want to be a part of.

    • Totes BeWokeMEMBER

      No mistake they use GDP. It more reflects what their donors make. It’s all that matters to them. Until we threaten their power that is.

      If we don’t make it the election issue, we get what we deserve.

  6. ErmingtonPlumbingMEMBER

    Australia’s population should be at least 100 million people!
    Don’t you guys understand. Its populate or perish!
    Reusa gets it.

    • So selfish Ermo! You are just thinking of all that extra work for you coming down the S bends of all the toilets in all the high rises full of dog boxes needed to accomodate those people. If I got paid per terd, I would be for a big Australia too.

      • ErmingtonPlumbingMEMBER

        Actually as a one man band I tell my apartment work enquiries that Im not insured for over 2 story buildings.
        Free standing houses only for me nowadays,…and begrudgingly duplexes.

  7. Totes BeWokeMEMBER

    “including property developers and large retailers, have used ageing myths to persuade both government and the public that high immigration is necessary”

    Myths? Persuade? Necessary?

    Weak language. No wonder no one knows they exist.

  8. Cue Abul Rizvi taring his hair out and performing all kinds of mental gymnastics with his left handed mouse in P&I next week.

  9. @Jason, just imagine if you can…
    The ABC, The Conversation’ or The Guardian or other open borders migrant intake media or ‘spokespersons’ – now having to eat their words and their fabricated ‘fears’….

    their fears that “without millions of third world migrants, Australia will quickly degrade into aging choleric pensioner welfare state with 1 worker for every 5 on the aged pension”

    Or more topically, the excuse given to raise the pension age raised to 67+ to ‘lesson the burden’ on the few remaining workers also exposed as a falsehood.

    Now like the climate change alarmism – or say the ‘$35 billion foreign student export industry’ farrago of lies by Deloitte Access Economics – this original report (treasury – The Inter-Generational Report) was full of fabrications, omissions and blatant lies.

    It’s was written to a political agenda.

    To reduce government entitlements to our aged (increased super theft & higher pension age).
    And to justify the third world mass migrant intake.

    The first 2003-2004 Inter-Generational report was from treasury and commissioned by Costello.
    Here it is.
    https://treasury.gov.au/sites/default/files/2019-03/2002-IGR-report.pdf

    Page 60 – the case for massively increasing third world migration. Excerpt.

    “The higher migration scenario assumes a net migration rate of 135,000 people per year.
    The effects of increased net migration depend on which components of the migration intake change (skilled, family reunion or humanitarian) and the age-gender profile of migrants. Skilled migrants, for example, would generally find employment more quickly and be less reliant on government services than other migrants. For this scenario migrants are assumed to experience the same fertility, mortality, employment and productivity rates as Australian residents of the same age. (My Note – but not the intake criteria is it)
    Higher migration would tend to increase growth in the labour force and thus in GDP. (Yep third world mass migrant unskilled intake will increase the gdp but it lowers the gdp per capita..)
    The composition of the migrant intake also influences spending.
    As immigrants are younger on average than the resident population, the increased migration scenario results in a decline in the aged to working-age ratio over the next four decades and a 10 per cent increase in GDP by 2041-42 (Chart 32).
    This increase in GDP results in government spending on health, aged care and Age Pensions falling as a percentage of GDP. “The effect is reduced over the longer term as the immigrants themselves begin to age”
    (My note – the migrant age composition is actually much the same as Australians with many aged migrants under various visa guises / and the non working ratio and welfare dependency of the migrant adults children and associated elderly even on initial intake is nearly 2 x Australians..)

    And there you have the essence of it.

    👉🏾Deny Australia aged their pension entitlement
    👉🏾Open the doors to mass immigration.
    👉🏾Yes the migrants also age, but solve that by importing even more migrants.

    This report was then debunked over time by a number of authorities, including the Productivity Commission as far back as 2005.
    They said in polite words it’s alarmist falsehood and the age demographic is manageable.

    And then other experts later completely pulled it apart as lies.

    I have commented on this (in this MB forum) since about 2014 that this entire narrative of requiring mass third world migration intake to solve the ‘aging population issue’ was proven as lies.

    But clearly the left wing socialist & big Australia migrant intake lobbyists still hold sway in trotting out the ageist migrant intake needed lies.

    Comment from before.

    👉🏾How to get mass Australian awareness of this?

    (Inter generational report / Australian aging alarmism & need for mass migrant intake shown to be false)

    And so Australians understand the implications.

    We have had 17 years of unchecked accelerating third world migrant intake, 4.4 million non Australians onshore allowed in and the vast majority third world unskilled & a huge social & economic burden.
    1.9 million non Australian third world PR sucking up Centrelink and Medicare.
    2.5 million TR / SCV – again the majority third world unskilled, most living and working here illegally.

    Over 4.4 million trafficked in on a false premise.

    👉🏾Why isn’t there a Royal Commission of Enquiry?