Preventing Ageing Unequally
Recently I found one International Monetary Fund blog titled Aging is the Real Population Bomb which explains the consequences of the ageing population to the nation.
An ageing population is a positive indicator of the increase in quality of life in one nation or region. More aged population reflect a better environment that suits for elderly, better healthcare, affordable rest homes, and a safe and supportive environment.
However, the ageing indicator also brings a more challenging condition because people with longer life expectancy mean a longer non-productive period (period in which they receive no income) whereas they still need money for living costs.
If the ageing population is unmanaged carefully, it brings an additional burden for younger generations in form of higher taxes to support older generations.
From the labour market perspective, more older people shrinking the number of productive workers that are not easily anticipated through birth or migration.
Overlapping Generations
Overlapping generations occur when two generations live in the same period. Individuals are called young when they have an old generation who live in the same period. On the other hand, they are called old if they have the young generation in the same period.
New-borns are assumed ex-ante identical, i.e. they do not yield additional costs for their parent and do not undertake any decisions until they exit their parental household.
Once they enter period t, they exit their parental household and start their life to work, form a new household, have children (younger generation), and have parents to support (older generation).
That human lifecycle can represent the trend of their income: people tend to have low incomes when they are young, more when they are middle-aged, and less again when they are old and in retirement.
However, some have argued that consumption-based measures are superior in conceptuality to represent an individual's standard of living. It is because people's utility depends on consumption rather than income.
Hence, income and consumption need not move together.
In years when income is temporarily low, for example, families can maintain their consumption level by dipping into their savings. Further, particularly at the low end of the distribution, income may come from sources, such as transfers from friends and family.
Intergenerational Transfers and Bequests
The intergenerational transfer usually occurs in an overlapping generation, from young to old, and vice versa. When the transfers occur from the young generation to the old generation, it is an upward intergenerational transfer. While transfers from the old to the young generation are downward intergenerational transfers.
One important element that distinguishes intergenerational transfers and bequests is in intergenerational transfers, both parties are alive.
Although bequests are usually big enough to significantly increase the recipient's financial level, the recipients are in high financial status when they receive the inheritance.
Considering the ageing population receive low income but needs to maintain their consumption level, it is important to make a supporting condition that supports them.
Unequal Conditions
Unequal conditions of financial position in the pension age can be caused by their productive age, the pattern of intergenerational transfers and bequests, and conditions during their pension age.
Taking a life-course perspective inequalities to exist in education, health, employment and income interact, resulting in large lifetime differences across different groups
This may result in few intergenerational transfers and bequest occur that prevent them from making a big leap in the financial aspect.
Sadly, inequality is continued when pensioners live in a non-supportive environment, such as high costs associated with healthcare services, medicine, housing, and transportation preventing them to have a low or affordable cost for all.
Putting the burden on younger generations is not the ideal way as they also need families to be fed and the need to create savings and investments to support them during pension age.
A more complicated condition occurs when younger generations have consumption that is higher than their income, for example, households have low income but have high expenditures due to large household size.
From this point, it is necessary to create small household sizes but financially strong families.
Not only have the high financial capacity, but human quality should also be increased as younger generations will face a more competitive labour market due to many vacant positions that cannot easily be filled by the citizen, hence encouraging migrants to come.
While those steps are beneficial for the longer term, the government should take necessary actions in the short and medium periods.
Government should increase public goods expenditure to support old generations in order to ensure their high consumption level even though they have low income.
The public expenditure can be in form of cash transfers (e.g., pension payment) or in-kind transfers (e.g., supplementary food, medical supplies and equipment). Or in form of free or affordable healthcare service, rest home facilities, public transportation, and public service.
By implementing those actions, we are on the correct path to a condition of a manageable ageing population.
