An aging planet, an old Europe, new problems

The earth: a rapidly aging population with an average age of slightly over 29 years of age; an unevenly aging planet with Japan as the oldest society with an average age of 45 and 80% of the older people living in developed countries.; a planet with 7% of its population being over 65 years of age; a tripling of that population over the last 50 years and another tripling in the coming 50 years to reach 21%, or 2 billion persons.

The earth: a planet with a larger share of over 60s than of children.

Europe has the highest proportion of older people, with 22% of the population older than 60 and scheduled to reach 34% by 2050, with Southern Europe even reaching 38%. This means that that the segment of the population over 65 is larger than the segment under 15.

The over-80-years-old segment is also growing at a steadily fast pace. By 2100 Europe will have a larger percentage of its population over 80 than the share of the population under 20. Those over 80 years old – expected to grow from 14% of the world’s population today to 19% (392 million persons) in 2050. That segment of the population is essentially feminine.

The economy of aging

If a large proportion – 31% – of the over-60 segment works, only 8% have a paid occupation in the developed countries, and those are essentially men. Coupled with a low birth rate, a number of economic challenges are raised.

The increase in life expectancy coupled with the decrease in fertility leads to a rise in old age dependency ratios with a resulting negative effect on per capita income growth. The global dependency ratio is expected to rise sharply after 2020, leading to increased poverty for the retired segment as well as a reduction in fiscal income.

There are two basic assumptions behind this reasoning:

          As the population declines, there is a decrease in demand for goods and services and therefore a reduction in economic growth and employment

          Governments will be unable to pay pensions and health care for an increasingly large share of the population and improve infrastructure.

Projections to 2030 for the old-age dependency ratio in at least two countries – Italy and Sweden – are as high as two persons of working supporting one person over 65.

An aging society puts pressure on public spending due to increases in the payment of pensions, in health spending and in social care costs.

Health in an aging society

Health costs of people over 65 are three times those of people between 20 and 64 and continue to grow over the lifetime of a person. The UN estimates that the worldwide cost of dementia is over 600 billion dollars a year.

The four main diseases affecting older populations are depression, fractures and concussions due to falls, memory loss and urinary incontinence. In general, women suffer more from these disabilities than men.

Only a small minority of older people obtain professional end-of-life care. Society relies mostly on unpaid relatives, generally women, and the period lasts an average of 5 years. Those requiring care are over 80 years of age and this segment of the population is expected to grow significantly over the coming years. Thus more caregivers will be required, whether professional or family members.

The average care giver is a 49-year-old woman who works outside the home and spends about 20 hours a week providing unpaid care for her mother. This reduces the need and therefore the cost, of nursing homes and prevents an increase in immigration.

Several European countries have made the choice of allowing older people to be maintained at home. It implies that several million persons need an adaptation of their housing, an extremely expensive exercise. Nevertheless, in Denmark, 12% of the housing has already been adapted to the needs of the aging population.


With the aging of the population there is a proportional rise in pension payments and of their share of GDP. There is a very large gap between the income people expect at retirement and their savings – the figure in Europe for this gap stands at nearly 2 trillion euros per year. This means that 40% of the people that are to retire may have to work longer.

The baby boomers were able to generate considerable savings towards the latter part of their career. However, as that generation retires, savings will diminish substantially and that will affect the pensions in the coming years. Spending from that age group will therefore diminish and it cannot be counted on to generate an economy rebound.

Today, the market catering to baby boomers is a major growth market.

As pensions are reduced, retirees will have to live on their savings, erasing any hope of an inheritance for their children. To avoid a repeat of this situation, the succeeding generations may decrease their spending and increase their savings.

The urban environment

The urban environment needs to be adapted to an aging society – more frequent bus stops, more benches, a larger number of stores. This will result in a higher infrastructure cost per capita as the population shrinks.

Possible solutions

With the reduction in the offer of labor, economic growth will stall.

Possible solutions to the problems faced by aging societies include postponing the retirement age, increasing productivity through investments in training and increasing immigration flows.

Working beyond retirement age has positive effects on health, particularly if the job is a low-stress one. This is particularly true if continuing to work is a deliberate choice. Some, if not all, the seniors, would have to be retrained to use new technologies to maintain productivity and increase employability.

Studies have shown that allowing seniors to engage in a productive activity increases the GDP by 10%.

Alternative solutions include higher contributions during the working life, a reduction in health care expenditures and services or a more substantial immigration. Germany and Sweden have implemented a system whereby each person chooses the age at which he or she retires, and the pensions are adjusted accordingly.

The voting power of the seniors, who will represent an increased share of the electorate, will force governments to take difficult decisions in resource allocation – should the weighing be towards taking care of the elderly or of the shrinking younger population to increase their productivity through training.

Driven by the electorate, governments might allow easier immigration for younger people, particularly with health care qualifications to take care of the aging population. To maintain the European population steady at present levels, the immigration flow would have to be of the order of 1.5 million per year. The flow of immigrants probably coming from the Muslim world, cultural conflicts would be important.

Alternatively, entrepreneurs might draw pensioners to developing countries where pensions go a longer way than in their home countries.

An aging society is less likely to see innovative entrepreneurship and therefore will have a reduced economic growth. Attracting investments from countries that have large amounts of funds to invest abroad, such as China, could be a solution.

Major decisions lie ahead for governments that face problems that they have not faced before.

Michael Akerib
Michael Akerib
Michael Akerib, Vice-Rector, SWISS UMEF UNIVERSITY