Today’s Youth Face a Difficult Future, OECD says

It is hardly news that life expectancy is rising in most countries, fertility rates are falling and that income inequality continues to grow almost everywhere. But put all these together and it is alarming just what problems face the youth and even the middle-aged of today as they move towards 65 and beyond.

The Organization for Economic Cooperation and Development (OECD) has just come up with a detailed study on the inter-relationship of age, education, health, demographics and income. It is mainly drawn from data from its rich-country membership – only Japan, Korea and Turkey are members from Asia. But it also includes warnings for developing countries, not least China, as they face the challenge of ageing populations at an earlier stage of economic development compared with the OECD. By 2050 China will be almost the equal of the OECD in terms of the average age of the population.

China also, notes the report, face much higher levels of income inequality between urban and rural areas compared not just with OECD nations but also with Indonesia. It attributes this in part at least to the still partly-enforced hukou system which deprives many migrants to cities of rights to education and social services.

According to the report, income inequality is not just a problem in itself. It exacerbates other problems all the way through life. Although those in lower-income groups die earlier, they also suffer much higher levels of disability, limiting their working lives and adding to the cost of providing for them in retirement.

The place to begin addressing future problems thus lies very early on. Long-term health outcomes are directly linked to early education and early health care and nutrition. Without a good start, income and health gaps will continue, if not widen. The report notes that in many countries income gaps within age cohorts have been rising much faster than overall inequality. This is clear evidence of the impact of the early years. At age 25 in the OECD, a university graduate can, according to the statistics, expect 7.5 more years of life than non-graduates as income and health issues interact through life.

This cohort inequality can get even worse in old age, particularly in societies where pensions are related to salaries at retirement or over a lifetime. This suggests the benefit of flat-rate pension systems and also the removal of tax subsidies which allow higher savers to accumulate assets, increasing the old-age incomes gaps.

For a society as a whole, the report notes, later retirement or allowing people to work as long as they are willing and able is obviously becoming increasingly necessary. However, it also notes that this can work to the disadvantage of lower-income groups among whom disability and below average life means they have limited time to enjoy their pension entitlements compared with richer groups. There is merit, it suggests, in trying to link retirement age more closely to the state of individuals’ health and their fitness to work.

These are complex issue beyond the administrative capability of most developing countries. However, that in turn emphasises the importance of the early years in limiting inequality.

In many countries, the poorest people are the very old – 75 plus – and living alone. But overall in OECD countries, the older have been doing better than the young with those up to 25 years being especially disadvantaged. Average earnings peak at age 55 and many retirees have the benefit of earnings-related private sector pension schemes as well as state pensions.

However, that too will change very soon. Earnings-related schemes are being phased out and meanwhile the percentage of the population in the workforce is destined to keep falling. Life expectancy, which has risen dramatically over the past 40 years in rich and poor countries alike, may stall, at least in the OECD. It may have already done so in the US as obesity and opioids take over from tobacco as causes of premature death. That remains to be seen.

A related issue which the report hints at but does not address is that of prolonging lives of people regardless of cost. Longer lives are not a problem if people are not dependent on care-givers and hospitals.

Developing countries – China excepted – have better demographics but the challenges for them are formidable too as pensions systems are far from adequate at a time when urbanization and other social changes will soon be leaving far more old people without family support.

This report provides no simple answers to the problems that its wealth of data reveals. Some of the problems are country or region specific. But it is a timely reminder of how decisions now will affect citizens born today throughout their lives.