Top Heavy Load:Trouble Ahead for

Social Security Systems

Peter Diamond

0

5

10

15

20

25

30

35

40

45

50

1901 1911 1921 1931 1941 1951 1961 1971 1981 1991

Birt

hs p

er 1

000

Popu

latio

n

FranceItalyUnited KingdomUSA

Source: Mitchell, Brian R. 1998. International Historical Statistics: The Americas, 1750-1993, 4th ed. New York: Stockton Press. Mitchell, Brian R. 1998. International Historical Statistics: Europe, 1750-1993. New York: Stockton Press.

Crude Birth Rates

Survival Curves

A= Stone AgeB&C = Greece and RomeD =1800 EnglandE =1900 USF =1941 USG =1961 USH =1998 US

Source: Foundation for Infinite Survival, Inc. Berkeley CA, historical slide no. 6.

20

25

30

35

40

45

50

55

60

65

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

YearsFrance

Italy

Sweden

US

Source: For the US, Berkeley Mortality Database. For other countries, Human Mortality Database.

Remaining Life Expectancy at 21 (Men and Women)

0

2

4

6

8

10

12

14

16

18

20

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

YearsFrance

Italy

Sweden

US

Source: For the US, Berkeley Mortality Database. For other countries, Human Mortality Database.

Remaining Life Expectancy at 65 (Men and Women)

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

1900 1920 1940 1960 1980 2000 2020 2040

Pe

rce

nt

(ag

es

>6

5/ a

ge

s 2

0-6

4)

France

Italy

Sweden

US

Projections (2010-2050)

Source: Historical data obtained from United States Census. 2002. Demographic Trends in the 20th Century. Census 2000 Special Reports for the US and the Human Mortality Database for all other countries. Projections obtained from United Nations Population Information Network (Intermediate Variant).

Old-Age Dependency Ratio

Labor Force Participation Rates of Men (aged 65 and over)for the United States, Britain, France, and Germany

from 1850 to 1990

Source: The Evolution of Retirement: An American Economic History, 1880 to 1990,Dora L. Costa, University of Chicago Press, 1998, pg 9.

Increasing Life Expectancyand

Benefit Adjustment

• Initial benefits– Adjust benefits– Adjust benefits and taxes– Indexed or legislated

• Increase in benefits for a delayed start– Indexed or legislated

• Early entitlement age

Benefit adjustments

• Sweden– Quasi-actuarial indexed adjustment of benefits– Notional interest rate adjusted for financial balance

• Germany– Point value adjusted for system dependency ratio

• US– Legislated increase in “age for full benefits” in

response to 75-year measure of “actuarial balance”

Average Unemployment Rate for Males (1991 to 2000) vs. Log of Tax Force

Ave

rag

e o

f U

nem

plo

ymen

t R

ate

for

Mal

es (

1991

to

200

0)

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

0.00 0.50 1.00 1.50 2.00 2.50

R2= 0.000011

Log of Tax Force (ER to 69)

Funding Pensions

Sources of Medicare Cost Growth Since 1970

1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 20040.0

0.5

1.0

1.5

2.0

2.5

3.0

Per Capita Growth inExcess of GDP Growth

Effects of Aging Population

0

Percent of Gross Domestic Product

0

0.5

1

1.5

2

2.5

3

3.5

4

Belgiu

m

Denm

ark

Ger

man

y

Gre

eceSpa

in

Franc

e

Irelan

dIta

ly

Nethe

rland

s

Austri

a

Portu

gal

Finlan

d

Sweden

Unite

d Kin

gdom

EU25

Pe

rce

nt

Health Costs Only

Demographics Only

Projected Change in Health Expenditure as a Percent of GDP

(Change from 2004 to 2030)

Source: Economic Policy Committee and the European Commission. 2006. "The Impact of Ageing on Public Expenditure: Projections for the EU25 Member States on Pensions, Health Care, Long-Term Care, Education and Unemployment Transfers (2004-2050)." Tables 7-1 and 7-10.

Source: Mitchell, Brian R. 1998. International Historical Statistics: Europe, 1750-1993, 4 th ed. New York: Stockton Press (for 1901 and 1951). International Database, US Census Bureau (for others).

Age Pyramids, Italy (1950-2050)Male Female

0-9

20-29

40-49

60-69

80+

5000 4000 3000 2000 1000 0 1000 2000 3000 4000 5000

0-9

20-29

40-49

60-69

80+

Population (in 000's)

0-9

20-29

40-49

60-69

80+

2050

2000

1950

Lif

e E

xpec

tan

cy a

t B

irth

(ye

ars)

Source: World Development Indicators, World Bank, 2004

Changes in Life Expectancy in Select African Countriesfrom 1960 to 2002