Key Issues of Aging and Social Security in China

In China the problem of aging is only now emerging, however, when the population does start to age, it will do so faster than any population in history. In this largely descriptive paper, we look at the challenges faced in the areas of old-age pensions, health care and disability services. First, we identify the main institutions involved. Then we present ad hoc projections of pensions and health spending and the number of disabled persons. Our conclusion is that, unchecked, rising demand in these sectors has the potential to give China the social insurance spending profile of a developed country while it is still at the level of development of a poor one. Demography makes some increases in spending inevitable. However, the most important variables such as coverage of the pension system and the "underlying" rate of medical spending growth are responsive to policy. The paper concludes with an appeal to policy makers to adopt forward looking strategies now, while there is still time to develop appropriate policies and institutions

The IIASA Social Security Reform Project Multiregional Economic-Demographic Growth Model: Policy Background and Algebraic Structure

The model presented here is a neoclassical two-factor multiregional economic-demographic growth model. It is designed to assess the impacts of different demographic futures, labor-market scenarios, combinations of accumulation-based and transfer-based pension systems, and international portfolio allocations decisions on a range variables which play an important role in the population aging and social security reform debates. Among these are: the overall rate of economic growth; the relative incomes of retirees and workers; financial inflows into and out of the public and private pension systems and their implication for capital formation; and international capital flows. The model tracks income and outlay of households by single-year age groups, as well as intergenerational transfers of resources via bequests. Households accumulate assets during working years and then dissave in retirement, in addition to which, intergenerational transfers between the working and the retired populations are mediated through the PAYG public pension system. Capital may be installed either at home or abroad. In this paper, the policy background is briefly summarized and the algebraic structure of the model is elaborated. Other Interim Reports in this series describe the simulation and robustness characteristics of the model and present the results of model applications

Demographic Trends and Household Saving in China

A key source of economic growth in China has been the abundance of household savings, especially in rural regions. In this paper, we estimate saving functions for urban and rural areas in China, paying particular attention to the role of demographic structure. Our results confirm other researchers' finding that saving rates vary inversely with both the elderly and youth dependency ratios, but that the former effect is more significant. This suggests that prospective demographic trends in China will put downward pressure on household savings. Combining our estimation results with reasonable assumptions about economic growth and U.N. population projections, we predict that household savings in China will begin to decline about 2025. A significant shortage of "ex ante" savings could develop as a result. These results confirm the results and reinforce the concerns expressed by Heller and Szymansky (1997) about the long-run prospect for savings in the East Asian region and possible implications for the global economy

Social Security Issues in Reforming and Transition Economies

This paper describes a stages-of-development model according to which, as living standards rise, the responsibility for insuring against risks associated with retirement is laid upon Government in the form of emerging social security systems. Later, political support for the continued expansion of social security systems weakens, and containment becomes the order of the day. Clear signs of such containment were evident in the OECD economies during the 1980s. However, this model appears not to describe the development of social security in reforming (essentially, Latin American) and transition (essentially, Eastern and Central European) economies, where social security systems have become sources of distortion and imbalance at levels of development much lower than those that prevailed in OECD economies when policy makers first expressed concern and began to implement measures to correct those imbalances. A social security reform agenda is discussed which would shift more risk to the individual, taking reforming and transition economies into relatively unexplored territory. The social costs of economic reform and of transition from command to market economy have been greater than many analysts anticipated, and how reforms will be implemented in the currently difficult atmosphere remains to be seen, as does the long-term viability of reformed social security systems

International Diversification of Pension Assets Is No Panacea for Population Aging

Six years ago,The Economist wrote that investing retirement savings in developed countries in the emerging markets of still-youthful developing countries promised to "beat demography." As labor force growth slows in the North, runs this argument, capital becomes abundant relative to labor and the rate of return to this capital declines. By investing in the South, not only do OECD investors earn a higher rate of return on their savings, but the rate of return to that capital which remains in the North is boosted as well, because there is less of it. Working with a two-region neoclassical economic-demographic model, the authors show that reallocating capital from North to South can, at most, only slightly attenuate the negative macroeconomic impacts of population aging. Moreover, the reallocaion gives rise to significant, and thus politically challenging, shifts in the distribution of income between working- and retirement-age populations in both regions

Population Concentration in Less Developed Countries (LDCs): New Evidence

Economic theory associates the increase in population concentration, i.e. the proportion of national population residing in the core economic region, with scale and agglomeration economies, which Wheaton and Shishido (1981) estimated to persist until realper capita national income reaches 5,000 1985 U.S. dollars (USD). After this point in a country's economic development, they predicted, population re-distribution towards the core region will cease and the proportion of national population residing in the core region will commence to decline. The experience of developed countries (DCs) in the 1970s and 1980s broadly conformed to this pattern, albeit with exceptions. Evidence from less developed countries (LDCs) through the 1980 round of censuses led Vining (1986) to propose a weakened version of the USD 5,000 rule in which this point is characterized only by a slowing of rate of population re-distribution towards the core, not by an outright reversal. This paper updates previously-reported trends in population re-distribution in LDCs and reports on many new countries. Taken as a whole, post-war data reinforce the need for caution of the sort expressed by Vining. While there is a weak negative correlation between the rate of net migration into the core region and per capita income, the share of population residing in the core region may continue to rise when per capita income has grown to well beyond USD 5,000

Priorities in Global Assistance for Health, AIDS, and Population

This article makes three points regarding international assistance in health, AIDS, and population. First, despite growing attention in the development policy dialogue, the share of health (broadly considered) in total assistance is actually declining, not increasing, if assistance for the HIV/AIDS crisis is taken out of the picture. Second, interventions financed by international health assistance do not closely correspond to the burden of disease as conventionally calculated. HIV/AIDS receives a share of assistance in excess of its contribution to the global burden of disease, and reasons for this are adduced. Third, despite the emphasis on aligning international assistance to country priorities, a comparison of how health is treated in poverty-reduction strategies and the nature of health assistance reveals no clear relationship between the two. This suggests that there may be room for improvement in the process of preparing such strategies, the allocation of health assistance, or both

Policy Pathways to Health in the Russian Federation

"Policy Pathways to Health in the Russian Federation" was the name given to a project implemented in 2002-04 by IIASA in collaboration with the institute for Socio-economic Studies of Population of the Russian Academy of Sciences. The core activity of the project was organizing a workshop, held at IIASA in September 2003, at which national and international researchers and policy makers shared information and insights. Through workshop papers and discussions, sources of the poor health situation in Russia ranging from bad health behaviors to inadequate health care financing were discussed and analyzed. The focus throughout was on possible policy responses. This IIASA Interim REport presents the Proceedings of the Workshop, followed by the workshop program and list of participants given as Annexes 1 and 2. The presentations published are condensed versions of project papers available at the workshop web site www.iiasa.ac.at/Research/RMS/TACIS03/?sb=19