The ageing process begins in childhood and by passing through all different phases of life, and accumulating life experiences along the way, we end up living in old age. The focus of the research work reported here is this old age phase of life. The emphasis on older people is motivated by some well-known stylised facts of contemporary societies.
• Firstly, the fact that an increasingly longer time of our life is spent in older age makes it more important to gain a holistic understanding of the adequacy of the economic and social resources available and of the dynamics of resources during this phase of later life.
• Secondly, individual entitlements in old age are, in general, linked to experiences during earlier phases of life, such as the work history, marital association, care responsibilities and residence in the country. An evaluation of personal welfare in old age offers insights into how differential experiences of earlier phases of life and their treatment by the welfare system impact upon resources in old age.
• Finally, during the latter part of the past century, the trend in longevity gains has been accompanied by a drop in fertility rates. Together, these trends shift the distribution of the population in most developed countries in such a way that the ratio of elderly to non-elderly people, and therefore the average age of the population, is rising. Nor are these trends likely to abate in the near future, so that societies experiencing this demographic shift — commonly referred to as ageing societies — now face new challenges, new policy directions. In this environment, a research focus on older people’s resources is required to design and reform social and economic policies to guard against the unprecedented rise in social expenditures and avoid the moral hazard of poverty in old age.
With these broad motivations in mind, one can identify three specific research issues that are of crucial significance.
1. Multidimensional perspective on older people’s well-being: how is the information base on older people’s personal resources enriched when economic and health well-being are combined by adopting a multidimensional perspective?
2. Income experience in old age: what is the income experience during old age, and what factors are associated with income dynamics during the ageing process in the old age phase of life?
3. Comparative perspective on income dynamics in old age: what is the relative importance of various individual attributes and life events in determining the income experience of older people who live in different regimes of social insurance systems and social assistance provisions?
Research on these three themes is undertaken in Zaidi (2008), and this paper summarises the work carried out under Theme I. Within the context of this research on the well-being of older people in ageing societies, a wide range of definitional, conceptual and methodological issues must be resolved. This involves, among other things, how to define old age, what do we mean by ageing societies, what concepts or theoretical approaches will define the well-being of older people, what empirical methods need to be adopted in measuring well-being of older people, what datasets to use and how best to summarise results and draw conclusions for policymakers. In the rest of this introductory section, the most essential base definitions are discussed, i.e. the definition of older people used and an explanation of what do we mean by ‘ageing societies’.
1.1 Older People
When is someone old? the question seems simple, yet there is no universally accepted age above which a person can be considered ‘old’. The choice most researchers make depends on the nature of the research issue in question rather than on some abstract conception of old age.
For reasons discussed below, this paper makes use of the definition whereby an entry into the old age phase of life is approximated by the chronological age at which people become entitled to the old-age pension. Any such chronological demarcation of old age has a clear implication: old age starts at a fixed age for all people of the same gender, irrespective of their labour market status (e.g. retirement status), state of health (e.g. physical frailty) and family status (e.g. widowed). Thus, tremendous heterogeneity exists from one individual to the other in such a definition of older people.
One vital advantage of the chronological age definition is that age is by definition an exogenous attribute of individuals, whereas other indicators of ageing are endogenously determined. Adoption of this definition allows us to capture diversity within older populations, in terms of labour market activity, health status and income (i.e. the endogenous variables). This choice also enables us to provide important policy-relevant information for the statistical group identified as ‘pensioners’. Moreover, this choice is free from negative biases that arise from common myths and misconceptions about ageing and older people, such as the perception that older people are likely to be frail, ill or disabled, and may thus be a burden on communities and societies.
1.2 Ageing Societies
As mentioned above, during the past two decades, the average age of population is rising in most developed countries. There are two factors behind these trends.
The first factor for an ageing population is increasing life expectancy. The second factor for an ageing population is declining fertility rates. Together, these two trends are shifting the demographic structure of the population so that a greater fraction of the population will be formed by an older population. Between 2000 and 2020, the relative size of the population aged 65 or older in the United Kingdom is projected to increase from 16% to 19.8%, whereas Germany and Japan will observe a much sharper increase (from 16.4% to 21.6%, and from 17.1% to 26.2%, respectively). In 2020, about one-fifth of the population in most of the developed countries will be aged 65 or older. The societies that are experiencing these trends are referred to as ageing societies in the research work reported here.1
1.3 Datasets in Use
For all empirical results reported here, the ninth wave of the British Household Panel Survey (BHPS), carried out in 1999, is used. This is because the 1999 wave contains the most relevant information for health as well as income data required for the intended empirical analysis. The net income data used are made available by Bardasi, Jenkins and Rigg (2003). Next, the essential choices concerning the conceptualisation and measurement of the personal well-being of older people are discussed.
2. Conceptualising and Measuring Older People Well-being
The concept of well-being has different meanings for different people, as each will have its own interpretation of what constitutes different domains of well-being, what are the important determinants of well-being in each domain and the relative weight that should be assigned to each of these dimensions. Moreover, different disciplines (most notably, economics, psychology, philosophy, and sociology) provide different notions of what constitutes and determines personal well-being. The coverage here is selective in reviewing approaches to conceptualising economic well-being only, and in extending it to well-being with respect to health.
In the strictest utilitarian tradition of welfare economics, well-being is argued to be the utility derived from consumption. In understanding consumption, one needs to review the salient features of the life-cycle hypothesis. The conclusion that can be drawn from such a review is that the consumption of older people will be determined not solely by their current pension income but by their past and expected streams of income. Assets and wealth that are accumulated during the higher income periods of working age will serve as possible means to finance consumption in old age. The phenomenon of consumption smoothing is very relevant in the study of personal welfare, and for that reason, consumption can be considered a preferable measure of older people’s well-being.
Sticking to the sphere of economic well-being, standard of living is the other often used concept. Standard of living can be seen in terms of command over economic resources, along with the rate at which individuals can convert these resources into a standard of living. Given its emphasis on the outcome measure, the standard-of-living approach is in line with the first approach in which the utility drawn from the actual consumption has been emphasised. The parallels between the two approaches discussed above are apparent from the fact that consumption is also a measure of the standard of living attained.
Income also serves as a measure of the standard-of-living attained, and it is preferred principally on the account that it assigns importance to capturing the economic distress that may be caused by short-term fluctuations in resources, irrespective of whether those variations are smoothed by consumption or not. Thus, the economic disutility caused by income shocks will be fully accounted for, irrespective of the experience of consumption smoothing during periods of income volatility. Based on these arguments, and because of constraints on the availability of data on personal total consumption, income is used as a measure of personal well-being of older people in the empirical research reported here.
Health is also identified as an important dimension of the personal well-being of older people. This is mainly because health affects individuals directly as well as through its impact on other dimensions of well-being. Thus, well-being with respect to health should be assessed in its own right and on how it affects economic well-being. In measuring health, the analysis of physical and mental dimensions of health should be supplemented with the analysis of social health that includes wider considerations of independent living and social interactions.
The conceptual advantages offered by the capability approach of Sen have also been reviewed in detail in the book. The approach provides additional, and compelling, arguments to identify variations in individual attributes and circumstances, and how these differences explain varying degrees of utilization of means to the specific end of well-being in terms of living standards attained. It also brings to the fore the element of freedom that people may exercise in choosing a life they have reasons to value, thus it is the opportunity or freedom aspect that determines well-being, and not what is revealed in a person’s actual preferences.
The review of the capability approach, for its emphasis on attributes that affects one’s capability in converting economic resources to the end of standard of living, has shown that health attributes are important factors in attaining, or have the opportunity to attain, the goal of a decent standard of living. It can be concluded that the multidimensional measure, in which well-being with respect to health is combined with the economic well-being, will provide a useful approximation of the capability-based measure of older people well-being.
Asghar Zaidi is a Senior Economist at the Social Policy Division, OECD, Paris and he is also Director Research at the European Centre Vienna. He is currently the Vice-President of the International Microsimulation Association, and also the co-editor of the forthcoming book “New Frontiers in Microsimulation Modelling”. He has also recently co-edited the book “Mainstreaming Ageing. Indicators to Monitor Sustainable Policies”. He is a Research Affiliate at DIW Berlin and at the Centre for the Analysis of Social Exclusion, LSE, London.
The views expressed in the book are those of the author, and neither the OECD nor the other organisations with which the author is affiliated take any responsibility with regard to data used and/or interpretations made. The author takes full responsibility for any remaining errors and/or omissions.
1 For a discussion on features and challenges of population ageing using the European perspective, see Zaidi and Sidorenko (2008).
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