Challenges and levers of an aging economy | Business

Spain is witnessing, like other industrialized countries, a rapid aging process as a result of improvements in longevity and reductions in the birth rate. The increase in longevity is manifested in an expansion of life expectancy at birth, which has grown by more than 8 years since 1975, and is explained by technological and social advances. This is genuinely positive news because we are not only living longer, but also healthier. In fact, Spain is one of the European countries with the highest number of healthy years from the age of 65 —around 12 years from this age—. At the same time, Spain has experienced a particularly significant decline in fertility since the baby boom occurred between the fifties and seventies. Between 1975 and 2020, the fertility rate has plummeted to 1.36 children per woman, placing the country as one of the European societies with the lowest fertility, only surpassed by Italy and Greece. This decline in fertility has occurred, in turn, for numerous reasons, including the general incorporation of women into employment, the difficulty of reconciling a professional career with the family, or preferences that prioritize individual autonomy .

The Spanish aging process is going to accelerate in the next 30 years, which will significantly alter the age distribution of the population in general and, with it, the relationship between spending needs and our productive capacities. While there are currently around 3.3 people aged 15-64 for every person over 65, this number is expected to decrease to 1.7 in 2050. Although a consequence of positive developments, this increase in the proportion of older people implies certain economic challenges due to its link with more consumers per worker, more pensioners per taxpayer and more dependents per young person.

Due to the fact that a large part of the demographic structure is established decades in advance, the truth is that these aging processes cannot be reversed in the medium term. However, how we adapt cultural patterns and what the incentive frameworks are will determine whether the economic and social consequences are one or the other. For this reason, the definitive implications of aging on the well-being of citizens will depend on how public policies and the labor market adapt to the new demographic reality.

From the economic point of view, aging is associated with a possible reduction in economic growth, since an older population is associated with less participation in the production process and less productivity and innovation. However, possible improvements in technology, education and health, as well as increases in the labor participation of different groups, can reverse part of these negative consequences. From a distributional point of view, aging causes a change in the structure of public spending, since the growing proportion of older people generates a growing demand for pensions and other public services, such as health and care, which must be financed through taxes and contributions. Depending on how the costs of this growing expense are distributed, imbalances will be generated both of an intergenerational nature (between young and old people) and between groups of different income levels.

However, the existence of imbalances should not lead to fatalism, since there are many spaces to mitigate the severity of the consequences of the demographic challenge and distribute the associated costs in a balanced manner. To do this, the institutions have to combine two agendas simultaneously: that of growth and that of equity. On the one hand, initiatives must be promoted —both in the field of technological, industrial or training policy— that favor innovation and, with it, the productivity necessary to face the decrease in the generation of wealth and the growing need for spending . On the other hand, the reforms must honestly assess their distributive implications, in such a way as to avoid an excessive concentration of costs in the most vulnerable groups, among which are young people who face precarious conditions.

From the labor point of view, there are a series of levers and trends that make it possible to alleviate the shortage of workers due to ageing. To these, other alternative spaces should be added that allow the dissemination of good jobs to a greater number of productive segments of the economy.

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The first of the levers consists of a greater participation in the employment of the group of older people, both in the age range of 55-64 years and later at 65 years. There is room for optimism in this area, as future earnings prospects are good. On the one hand, the recent trend points towards a greater participation of these groups, due to improvements in educational levels as well as in health. On the other hand, Spain has margins to generate incentives that reinforce this participation through a lower number of voluntary early retirements and a flexible extension of working life in occupations that allow it. The second lever of change is to encourage greater intensity in female participation. Women are more prone to inactivity and unwanted bias in employment. Family conciliation and co-responsibility policies between men and women in which public institutions, companies and society itself are involved can strengthen women’s labor participation and intensity and thereby achieve significant increases in the number of workers that alleviate the scarcity that we face. we face.

Finally, immigration policies, whether by means of improving integration or attracting talent, are an additional useful instrument to alleviate the shortage of people and rejuvenate our societies, since immigrants are comparatively younger and have higher fertility rates.

Sara de la Rica and David Martinez de Lafuente, of the ISEAK Foundation.