EUROPEAN PAPERS ON THE NEW WELFARE

Technological Changes, the Reversal of Age Pyramids and the Future of Retirement Systems

Employment, too, has gone through major changes. One can no longer expect to be engaged in the same occupation throughout one’s lifetime. Most people will have to change their occupation and profession several times during their career, and will change workplaces quite frequently throughout their lives. Industries will rise and fall, get merged, acquired, go through major reorganisation, and sometimes collapse within fairly short periods, if they are not capable of continuously changing and adapting to the new markets, new competitors, new products and new methods. Where are so many of the world’s leading firms of the 1970s, 1980s and 1990s?
Organisations today believe in the manager as a leader of change, promoter, coordinator and facilitator, rather than the sole decision maker, the god, the commander. People no longer believe that a single individual can provide the wisdom and authority to guide a large enterprise. In the post-industrial organisations good ideas are expected to come from anywhere and anyone. The employees are not supposed to be treated like dummies. The typical modern organisation is seldom stable. There are constant changes in ownership, people, products, employment patterns, forms and processes. Moreover, competition is fierce and the firms have to remain competitive, and to be alert to the extremely dynamic markets, to new competing products, etc. A firm can build a new plant and very soon find out that it is already obsolete! Such an environment creates new opportunities for many employees, but it also creates a very fragile and unstable employment environment. The changing employment patterns must lead to new concepts of retirement financing, to be discussed later.
Education systems also have to get adjusted to the third wave, a painful process with a relatively slow adjustment rate. The post-industrial economy needs people who are equipped with other qualities besides a high IQ rating: imagination, motivation, courage, energy, entrepreneurship, emotional intelligence, communication skills, ability to improvise and to adjust to changing conditions, street wisdom.
In the agrarian and industrial eras it was taken for granted that most people had to work in order to be able to generate the food or income they and their families consumed. It was implicitly assumed that anybody willing to work was entitled to get work. However, whereas in an agrarian economy the majority of the population is employed in agriculture, and they typically find it difficult to supply enough food to feed the entire population, in the post-industrial era a small number of people, something like 2% of the population, can produce and manufacture all the products needed to feed the entire population. The theories of Malthus (1798) about the inability to feed the fast growing population did not come true (Neurath, 1994), but the need to fight the machines may soon be regarded as somewhat more relevant.
It is not that clear that in the post-industrial era all people will be employed. We will probably have to get used to continuously high unemployment rates, and may therefore need to structure a new system which enables unemployed people to obtain what they require for decent survival during the period that they are in the working age group. In other words, there is a need to take care of people not only throughout their childhood and old age, and the social security systems will have to take care of more complicated problems, beyond the traditional retirement and old age needs. These points will be discussed below in greater detail.
Though the impact of the post-industrial revolution on retirement planning is still blurred, certain things can be said for sure: it is clear that the changing family and patterns of employment need a new framework.

3. Demographic Changes — Life Expectancy and the Reversal of Population Pyramids

The industrial revolution triggered drastic changes in birth and mortality patterns, which, in turn, resulted in dramatic changes in life expectancy, the age structure of the population, and the dependency ratios. These effects have been augmented during the post-industrial revolution through additional changes in family structures.
A country passing the industrial revolution faces significant declines in both mortality and birth rates. The improved sanitation and health, improved nutrition, the increased use of hospitals, the better accessibility to doctors and many other developments cause an almost immediate drop of mortality rates. Mortality rates in pre-industrial countries tend to be high. A significant number of children die around birth and during their first years. In the least developed countries 15-25% of the children die before they reach the age of five. In industrial and post-industrial countries, on the other hand, infant mortality is low (the probability of dying before the age of five is often lower than 1%). Also the probability of dying for adults, say between the age 15-60, declines drastically, from a level above 50%, and even close to 100% in extreme cases, in the least developed countries, to levels around 10% and lower in post-industrial countries (13% or lower for males, and below 8% for females).
Birth rates and fertility rates, on the other hand, decline as well, but at a much slower pace. It often takes a few decades for birth pattern (the number of births per mother) to reach a significantly lower level. Birth is not just a technical matter, it is not just a faster spread and wider use of contraceptives, but it is rather a deeper cultural (and religious) matter. The World Health Organisation (WHO) statistics show that in many less developed countries the use of contraceptives is limited to just 5-15% of the population, compared to about three quarters of the population in the developed countries. The interaction with the declining mortality means that the number of births declines slowly, but the number of surviving children per mother grows rapidly. The average number of births per woman can be around five to six in the least developed agrarian countries, and this fertility rate slowly declines to around two births per woman in an industrialised country. At fertility rates around two the natural growth of population stops (or even turns into a slow decline). The fertility ratio continues to drop to around 1.5 and less in post-industrial countries — which means that these populations start shrinking, unless there is a significant inflow of immigrants.
The immediate result of these trends of mortality and birth patterns is that a country passing the industrialisation process experiences a ‘baby boom’ in the first phase of the industrialisation. This is expressed by an almost immediate growth of the number of surviving children. In the absence of major migration the population structure is quite predictable for several decades and almost a century. During the first few years there is a remarkable growth in the number of school children and two decades later a substantial increase in the figures for university students, then another four decades of large work force, followed by a few decades with a large number of retired people. The baby boom turns into a geriatric boom! Together with the decreasing mortality of adults, about 60 years after the beginning of the industrialisation, there is a drastic growth in the number of people needing some old age services. Concurrently, by the time the baby boomers get old, the gradually declining birth rates reach their low levels, where the proportion (and often also the absolute number) of young children is at its lowest point.

3.1 Population Pyramids

The demographic processes are best perceived through a ‘population pyramid’, a graphical presentation of the age structure of the population (in percentages or in absolute numbers). Since the age structure of the population is typically quite similar for males and females, the graph is almost symmetrical, and looks like a pyramid.
The population pyramid is essential for the understanding of dependency ratios and retirement policy problems. We will discuss these issues after describing at some length the changing patterns of population pyramids in countries that are experiencing the technological waves.
An examination of almost any agrarian economy typically shows a pyramid with a very large base (many young children) and a very pointed top (a very small number of old people). In such populations the older people (over 60) are typically less than 5% of the population, whereas children below 15 can constitute around 40%. The high birth rate creates wide bars for the 0-5 group. This bar is significantly longer than the bar for the 5-10 years group, which started five years earlier at roughly the same size, but declined dramatically due to the high infant mortality. The high mortality rates are also the main reason for the fast shortening of the bars at the higher age groups. These patterns characterise the pyramids of some of the countries that are expected to be among the top 20 largest countries by population within the first half of the twenty first century. The pyramids for Ethiopia serve just as examples of this general pattern and are presented below. Those for Congo (Kinshasa), Nigeria, Pakistan and The Philippines are quite similar.

Figure 4: Ethiopia Age pyramid 2000. Note the very wide base
kahane-fig-4.gif
Source: U.S. Census Bureau, International database.

Observing the development of the population pyramid of a country undergoing the industrial revolution immediately reveals the changing pattern. During the first years, the youngest age group (the base of the pyramid) gets wider due to the sudden reduction in mortality rates, which is not accompanied by an immediate decline in birth rates. The baby boom that follows is responsible for the notable growth of the population. Some of the African states like Ethiopia, Nigeria and Congo are still at this stage. The US Bureau of Census forecasts for Ethiopia in 2025 are presented below, and comparison to the previous diagram can demonstrate these differences. Note the widening of the base of the pyramids due to the increased number of surviving children. The next age groups do not decline as fast as before, due to the drastic reduction of infant mortality, so that the length of the bars does not decline as time passes. Note also the widening of the bars at the old ages (the top of the pyramid) due to the generally declining mortality.

Figure 5: Ethiopia Age pyramid 2025. Note the reduced base
kahane-fig-5.gif
Source: U.S. Census Bureau, International database.

But a few decades later, as birth rates start to decline, the baby boom comes to its end, and the base of the pyramid gets narrower. Some of the developing countries are already showing this pattern, as a comparison of the above diagrams for Ethiopia’s population in 2000 and 2025 demonstrates. The diagrams below, describing the current and future population structures of India, show what has happened in the three to four decades since the beginning of the industrialisation process, and what is expected to happen later, when birth rates drastically declines. The same pattern exists in countries like Mexico, the Philippines and Indonesia (not shown here for article length considerations). The case of Indonesia being particularly notable: the previously very wide base of the pyramid has been truncated.
For technical reasons, the top age groups are often grouped together, so we get an abnormal widening of the 80+ bar. This is a reflection of the growing life expectancy that follows industrial development.


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