Challenge of Ageing Population

Topics: Demography, Population, Demographic economics Pages: 10 (3227 words) Published: June 29, 2006
Challenge of Ageing Population

Synopsis: The ageing of the population has become on of the major talking points of modern economics and its implications for world growth in the future. This essay examines the causes of the demographic shift by focusing on the changes in mortality and fertility experienced by the developed and developing world. It then attempts to answer some of the questions about the economic implications of ageing populations, including implications for future economic growth, the government's fiscal position and the level of national savings. It concludes by presenting policy options that the government may adopt to offset the negative effects associated with population ageing. ____________________________________________________________ ____________

Around the world most developed and rapidly developing economies are beginning to be confronted with the same problem – the ageing of the population. While it may seem like a recent phenomenon, demographic data indicates that it has been slowly occurring over the past two centuries. What is remarkable is the accelerated pace at which it has been occurring in developing countries, and as such affects virtually all advanced economies throughout the world. We will examine through the rest of this essay the causes and implications of this demographic shift for the World's economies, as well as some suggested remedies.

The ageing of the population implies that the average age of the population is increasing. This is occurring as a direct result of declining mortality, people are living longer, and declining birth rate, there are fewer young people. These two demographic variables seem irrevocably linked to growth in developed countries, with mortality and fertility falling as countries become more prosperous.

Mortality appears to fall first as an economy experiences strong growth. Weil (2005) identifies three forces that account for the mortality transition: i)Improvements in the standard of living.
ii)Improvements in public health measures
iii)Role of medical treatments in curing diseases.
All of the above forces generally can be causally linked to improved economic conditions, and thus the direct link between falling mortality and economic growth.

Now while decreases in mortality have been significant, this is not sufficient to explain the ageing of the population in itself. This is especially the case because much of the reduction in mortality has been in the earlier years of a human's life, particularly infant mortality. Which without the subsequent fall in fertility would result rather in a massive increase in population growth and a decline in the average age of the population as the youth percentage increases.

Rather what we notice is a significant decline in fertility rates. If we examine the trends in developing countries, where both the mortality and fertility transitions have been much more abbreviated and pronounced then the fertility transition occurs soon after the mortality transition. Before we examine the economic explanations it is important to first understand what exactly is meant by fertility.

"Demographers measure fertility by constructing an indicator called the total fertility rate (TFR), the number of children that a woman would have if she lived through all her childbearing years and experience the current age-specific fertility rates at each age." (Weil, 2005). Fertility rates have been falling in developed countries and are also falling in the newly industrialised countries in Asia. In the majority of developed countries, including Australia, the fertility rate has fallen below the replacement level.

This raises the question what is it about economic growth that causes women to have fewer children. First we need to distinguish if the decline in fertility is desired or undesired. The diagram below maps the total fertility rate for various countries against their desired fertility rate.

What is...

References: • Australian Treasury (2002), Intergenerational Report 2002-03, 2002-03 Budget Paper No 5, AGPS, Canberrra
• Bayoumi, T., Hossein, S., Masson, P.R., (1998) "International Evidence on the Determinants of Private Saving", World Bank Economic Review, 12 (3):483-502
• Bloom, D.E. and Williamson, J., (1998), "Demographic Transitions and Economic Miracles in Emerging Asia", World Bank Economic Review, 12 (3):419-455
• Dowrick, S., (1999), "Demographic Change and Australian Economic Growth to 2020", Conference Proceedings, Productivity Commission, Melbourne, 18-19 March AGPS
• Edey, M, (2005), "Challenge of Ageing Populations", Reserve Bank Bulletin, June, pp7-12
• Jones, C. (2002), Introduction to Economic Growth, 2nd edition, W.W. Norton, ch2
• Roseveare, D, Liebfritz, W, Fore, D. and Wurzel, E., (1996), Ageing Populations, Pension Systems and Government Budgets: Simulations for 20 OECD Countries, OECD Economics Department Working Papers, No 168.
• Weil, D.N., (2005), Economic Growth, ch3,4,5.
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