Governments need to prepare for an aging population to prevent the demographic dividend from becoming a tax, according to the Asian Development Bank (ADB).
In an Asian Development Blog, ADB Economic Research and Regional Cooperation Department Consultant Kevin Donahue, Statistician Arturo Martinez and Consultant Raymond Adofina said countries in the Asia and the Pacific should learn from the experience of countries that have seen more advanced aging.
While the Philippines still has a relatively young population, this will eventually change. The median age in the country increased to 23.4 years old in 2010, from 21.3 years old in 2000.
“Over time, though, the age structure in an economy gradually becomes uniform as the average number of births per women falls to two, and will resemble an inverse pyramid if fertility levels fall even further,” the authors said.
“The decline in the working-age population as a share of the total population has an adverse effect on the labor supply. This could negatively impact potential growth, as relatively fewer workers must support an increasing number of retirees,” they added.
The authors urged countries to create or support adult day-care services and give tax relief for multigenerational families, which will allow adult children to take care of their aging parents.
They also urged countries to implement migration-friendly policies, such as guest worker programs that can prevent a steep decline in labor force participation.
The authors also said the role of personal savings are crucial in countries where people rely for financing consumption after retirement.
Other policies that could be imposed include the change in the mandatory retirement age in countries to allow older workers to continue working and support themselves.
“Reforming labor laws to encourage firms to retain older workers by making employment conditions more flexible—for instance by allowing part-time working hours or wage scales that are not automatically based on seniority—can create more job opportunities for the elderly and delay retirement,” the authors said.
The ADB experts also said there is a need to reform pension systems because they usually have collection issues and saddled by inefficient management.
These pension reforms may require countries to either cut benefits or raise payroll taxes, particularly if they follow the pay-as-you-go system.
They added governments must also brace for higher health expenditures, which are needed to assist the elderly in their medical needs.
“Countries at a more advanced stage of population aging need to immediately address the challenges of transitioning from a demographic dividend to a demographic tax,” the authors said.
“The remaining countries should learn the lessons of how other economies benefited from their demographic dynamism—and how they are preparing for the future,” they added.
The authors said the status of population aging across Asian countries. For instance, the population of East Asia is aging faster than that of South Asia or the Pacific, where the average population over 65 is only 5.8 percent and 4 percent, respectively.
The populations of Central and West Asia and Southeast Asia are also relatively young, with a few notable exceptions. In 2016 only 14.7 percent of Georgians and 11.1 percent of Armenians were over 65, as were 12.3 percent of Singaporeans and 11 percent of Thais.