NEW AGE THINKING
November 20, 2007
The current practice of measuring age as years-since-birth, both in common practice and in the law, rather than alternative measures reflecting a person's stage in the lifecycle distorts important behavior such as retirement and saving, says John B. Shoven, professor of economics at Stanford University and Director of the Stanford Institute for Economic Policy Research.
One alternative is to look at is mortality risk (risk which is measured in the percentage chance of dying within a year). With this measure, the huge wave of elderly forecast for the first half of this century doesn't look like a huge wave at all, says Shoven:
- By conventional 65+ standards, the fraction of the population that is elderly will grow by about 66 percent.
- However, the fraction of the population that is above a mortality rate that corresponds to 65+ today will grow by only 20 percent.
- Needless to say, the aging of the society is a lot less dramatic with the alternative mortality-based age measures.
Further, if labor force participation were to remain as it is today with respect to remaining life expectancy (i.e. if the length of retirement stayed where it is today) rather than labor force participation remaining fixed by conventionally-defined age, the landscape would look quite different. For instance:
- There would be 9.6 percent more total labor supply by 2050 in the United States.
- This additional labor supply could help finance entitlement programs amongst other things.
- Gross domestic product (GDP) would be between 7 and 10 percent higher by 2050 if retirement lengths stabilize.
The allocation of the extra lifetime in the 21st century cannot and will not continue the pattern of the 20th century -- namely all extra adult lifetime is taken as retirement. In order to allow people to choose when to retire without encouraging an early departure from the workforce, many ages in the laws should be indexed for demographic changes.
Source: John B. Shoven, " New Age Thinking: Alternative Ways of Measuring Age, Their Relationship to Labor Force Participation, Government Policies and GDP," NBER Working Paper No. 13476, October 2007.
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