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U.S./Japan conference on aging.

U.S./Japan Conference on Aging

The National Bureau of Economic Research and the Japan Center for Economic Research jointly sponsored a conference on "The Economics of Aging" in Tokyo on September 8 and 9. The program was:

Laurence J. Kotlikoff, NBER and Boston University,

"Some Macroeconomic Implications of Aging


Discussant: Yasushi Iwamoto, Osaka University

Yukio Noguchi, Hitotsubashi University,

"Macroeconomic Implications of Population Aging"

Discussant: James H. Stock, NBER and Harvard


Michael D. Hurd, NBER and State University of New

York at Stony Brook, "The Economic Status of the

Elderly in the United States"

Discussant: Toshiaki Tachibanaki, Kyoto University

Noriyuki Takayama, Hitotsubashi University,

"Household Asset and Wealth Holdings in Japan"

Discussant: Michael D. Hurd

Daniel McFadden, NBER and MIT, "Problems of

Housing the Elderly in the United States"

Discussant: Miki Seko, Nihon University

Seiritsu Ogura, Saitama University, "Cost of Aging:

Public Finance Perspective for Japan"

Discussant: Laurence J. Kotlikoff

Alan M. Garber, NBER and Stanford University,

"Financing Health Care for Elderly Americans in the


Discussant: Hiroo Urushi, Sophia University

Shuzo Nishimura, Kyoto University, "Health Care

Demand by the Elderly in the Japanese Growing


Discussant: Martin Feldstein, NBER and Harvard


Robin Lumsdaine, Harvard University, and David A.

Wise, NBER and Harvard University, "Aging and

Labor Force Participation: A Review of Trends and


Discussant: Haruo Shimada, Keio University

Atsushi Seike, Keio University, "The Effect of the

Employee Pension on the Labor Supply of the

Japanese Elderly"

Discussant: Edward P. Lazear, NBER and University

of Chicago

Kotlikoff suggests that declining saving rates over the first half of the next century will be associated with higher real wage rates and more capital per worker. These increased real wages will help to absorb the significant cost of projected increases in Social Security tax rates.

Noguchi predicts that the aging of the Japanese population, which is occurring much more rapidly than the aging of the U.S. population, will lead to reduced saving in Japan. Indeed, he suggests that Japan might become a capital-importing country in the next century. Noguchi argues that over the next two decades the Japanese government should expand investment in housing and urban infrastructure; after that, it will be difficult to allocate sufficient resources for that investment because of the shortage of national saving. He further suggests that an increase in Japanese domestic spending is desirable for international harmony. Both Kotlikoff and Noguchi emphasize that their results are sensitive to model specification. Current estimates of the effect of aging on national saving vary widely, they acknowledge.

Hurd reports that the elderly in the United States are at least as well off, and possibly substantially better off, than the nonelderly. In addition, they are well protected from inflation because much of their income, including Social Security, is indexed. In the relatively near future, the economic status of the elderly who are currently retired seems well assured, according to Hurd. However, in the more distant future, when the baby-boom generation retires and there are many more retirees per employed person, the consumption of the elderly relative to the consumption of employed persons will be lower then than it is today.

Takayama finds that the elderly in Japan are wealthier than the working-age population. Because of the recent rapid rise in Japanese land prices, the difference between the wealth of the old and the wealth of the young has widened. As in the United States, equity in housing is the major asset of most elderly households. Under current circumstances, Takayama emphasizes, a young person who works all his life will be unable to buy a home in a Tokyo suburb if he has to depend on his own earnings. Takayama also points to the need of older Japanese to liquidate home assets by using equity conversion schemes, such as reverse annuity mortgages.

McFadden finds that the share of income spent on shelter rises with age in the United States, primarily because income falls more rapidly than payments for housing, but also because real housing prices increased substantially at the end of the 1970s. This supports the common perception that the elderly are being squeezed by housing costs. On the other hand, the pattern of mobility among the elderly and the housing choices made when the elderly do move suggest no significant "bottled-up" demand for converting housing equity to income. There appear to be no major market barriers that prevent the elderly from choosing between non-liquid and liquid assets. McFadden also suggests that the baby-boom generation will face more difficult economic circumstances in retirement than the previous generation did.

Ogura discusses the implications of Japan's aging population for the cost of health care and public retirement benefits. As in the United States, public health insurance in Japan provides health care to the elderly at little or no cost to the patient. Apparently as a consequence, the per capita cost of health care for the elderly has risen sharply in recent years. Nonetheless, health care in Japan costs only about 6 percent of GNP, approximately half of the cost in the United States. In 1973, benefits under the Japanese public pension plans were increased substantially, and subsequent costs increased very rapidly. According to Ogura's analysis, the cost of both health insurance and pension plans will continue to increase sharply in the next several decades and will peak around the year 2021, when the cost of government medical programs will be about 50 percent higher than it is today and the cost of public pension plans will double. Together, the two plans will absorb about one-quarter of national income, about ten percentage points more than the current cost. Ogura questions whether future generations of workers will be willing to continue to support the elderly at the levels that they have been supported in the recent past.

Garber surveys demographic trends that influence the utilization of health care in the United States and examines the key financial issues surrounding hospital and physicians' services for the elderly. He also discusses the obstacles to improved financing and delivery of long-term care. Garber argues that marketing long-term care insurance to younger persons should help to prevent the adverse selection that mitigates against selling long-term care insurance to elderly persons. Nonetheless, because of the open-ended nature of potential long-term care services, moral hazard will remain an obstacle to the efficient functioning of a long-term care insurance market. As larger numbers of people purchase long-term care insurance, nursing homes are likely to change, providing high-quality housing and related services, Garber emphasizes. Many individuals who would not consider entering a nursing home today would be willing to do so if quality improved in this sense. Garber concludes that the development of private financing mechanisms is likely to be the major response to the need for long-term care.

Nishimura emphasizes the increase in health care expenditure since 1973 in Japan. He suggests that this is caused in large part by the very low cost of health care under government health insurance plans. He shows that since 1973 per capita health care expenditures for the elderly have risen much more rapidly than per capita expenditures for the population as a whole.

Lumsdaine and Wise summarize trends in the labor force participation of older Americans. They show that the labor force participation rates of men 60 and older remained essentially constant from 1870 through 1937, but then began to decline and are still falling. Lumsdaine and Wise attribute that decline to the introduction of Social Security and private pension plans, which provide most of the support for the majority of retirees; most older Americans have very little personal saving. Personal wealth is primarily in the form of housing equity, which tends not to be converted to liquid assets as the elderly age. Both the provisions of Social Security and firm pension plans and the income from them tend to encourage early retirement. Although persons are living longer and longer, they are leaving the labor force at younger and younger ages. The trend is unrelated to personal saving but rather is associated with government promises of Social Security benefits after retirement and the saving by employers for their employees through firm pension plans.

Seike studies the effect of government pensions on the labor supply of older Japanese. Labor force participation of both older Japanese and older Americans is declining. Still, Japanese labor force participation rates are about twice as high as comparable U.S. rates. For men over 65, for example, the participation rate is 37 percent in Japan compared with 17 percent in the United States. Seike shows that the government pension plan for employees contributes significantly to withdrawal of older employees from the labor force. The lump-sum tax imposed by the earnings test in Japan, similar to the U.S. Social Security earnings test, substantially reduces the labor supply of those who are receiving retirement benefits.

In summary, the Japanese and the American papers revealed striking similarities between the two countries. The populations in both countries are aging rapidly, although the rate is faster in Japan than in the United States. Workers are leaving the labor force at younger ages in both countries, although the trend is much more pronounced in the United States than in Japan. In both countries, earlier retirement may be attributed in large part to public and private pension benefits. Public health insurance that provides health care at little or no cost to patients contributed to rapid increases in costs of health care in both countries, although the per capita cost in Japan is still only half of the U.S. per capita health care cost. Housing equity is the primary asset of both elderly Americans and elderly Japanese. In both countries, the elderly are at least as well off as younger members of the population. Although Japan's national saving rate is much higher than the U.S. rate, both Japanese and American authors predict that population aging will reduce future saving rates in both countries. The cost of health care and, more generally, the prospect of a smaller proportion of employed persons supporting an expanding proportion of retired persons are important concerns in both countries.
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Title Annotation:"The Economics of Aging"
Publication:NBER Reporter
Date:Sep 22, 1989
Previous Article:European economic integration.
Next Article:Economic growth.

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