Stephanie Chung 
Topic: Ageing population

Population ageing, which is defined as an increase in median age of the population, is becoming a global phenomenon in the recent decades due to declining fertility rate and increasing longevity. According to the UN World Population Prospect in 2008, the population aged over 65, percentage wise, is predicted to grow by over one-tenth  in a century (from approximately 5% in 1950 and 16% in 2050). The economic impacts brought by the ageing population are controversial. While some argue that it would reduce education expenses by the government, some say that this issue would increase burden on pensions and healthcare services. 

The economic consequences of the ageing population varies. Firstly, ageing population would lead to an increase in pension and healthcare costs. For instance,the proportion of GDP spent on pensions in the United Kingdom has showed a significant rise from 2% in 1950 to 8% in 2016. With reference to a research done by the Nuffield Trust, it states that "more than two-fifths of national health spending in the UK is devoted to people over 65". Looking into another estimate produced by Nuffield Trust, it claims that people aged 85 or over spent most in healthcare services: £7,274 for women, and £7,917 for men, which is at least £5000 more than the population aged under 65 years old. As the older age group people consume the healthcare services very frequently, the costs of healthcare will be likely to increase in order to maintain and improve the quality of healthcare services by means of introducing costly new drugs and expansions in the hospitals to meet the aggressive demand of the hospital beds. There will be significant difficulties for the government to raise funds for the provision of these welfare systems. The government might have to borrow a lot of money from other nations, which will lead to a huge increase in government debts. High federal debts are likely to weaken people's confidence on the economy as there will be doubts about the government's ability to repay the debts, this will further lead to reduced private investments and weaker performance of the economy. 

Secondly, the dependency ratio of a country will increase, meaning that the pressure on the working population will also increase. For example, Japan, who is facing the biggest demographic crunch in the world, has been estimated that its dependency ratio will rise to 0.784 by 2060, which is the highest among all Asian countries, according to the Population Division, Department of Economic and Social Affairs, United Nations Secretariat. If the legal retirement age remains the same whilst the life expectancies rise, there will be a larger percentage of older people claiming the retiring benefits. But at the same time, the working population will shrink and less income taxes would be paid to the government. In order to maintain government revenue, the working population are likely to be required to pay much higher taxes. These people will have to raise their working hours to earn more income. Not only their living standards might decrease due to reduced resting time, the quality of their work might also reduce as some workers might rush their work to meet production targets. Imposing higher taxes on the current working population might also create disincentive to work and disincentive for firms to invest. This will then be followed by a drastic fall in productivity and growth of the economy. If this problem sustains, long term economic recession or even depression might be resulted. At this point, high unemployment, low living standards, high crime rates, low GDP and output level etc will be resulted, the nation will suffer. 

However, economic benefits would still be present when the population is ageing. Taking Australia as an example, the population ageing 15 years or younger in 1970 is around 31%, by the time of 2001, this figure has dramatically dropped to 22%. On the other hand, the population ageing 65 or older was only 8% initially, but showing a 5% growth at the end of the surveying period. This ageing in population could then reduce government expenditures spent on education (it is the second largest government expenditure) for the fostering of young people. The saved budgets could also be used on other aspects such as the welfare systems or infrastructures to attract foreign investments in order to revitalise the economy. Originally in 2009, about 2.5% of the Australian GDP was spent on education. With the population ageing, collaborating with other Australian education schemes, education expenditures were expected to fall to around 1.9% in 2049. For this case, this extra 0.6% of the GDP could be used to repay national debts or increase capital investments. Current account deficits may also be improved as more international trade opportunities would be introduced due to improved economic situations. 

To evaluate, whether the ageing population is bringing benefits or damages to the economy depends on the extent of economic growth of the country. For example, high economic growth would increase government tax revenues without the need of deliberately requiring the working population to pay more taxes. On the other hand, when there is less economic growth, older people will usually exhibit a habit of saving more and consuming less. In this case, total consumption and investments would be reduced, leading to a fall in aggregate demand yet lower inflation rates. The prices of consumer goods may fall and people might be capable to have a relatively higher purchasing power of money. The government could also introduce tactics to neutralise the economic impacts brought by the ageing population. For instance, the government could introduce young migrants to the country to make contributions to the economy through devoting themselves into the working population.

In conclusion, ageing population is a significant issue that draws the attention of people around the globe. Governments are playing important roles in adjusting their policies in order to enlarge the economic benefits and minimising the damages caused by the ageing population.

References:
http://www.economicshelp.org/blog/27451/economics/uk-pension-spending-of-gdp/
https://www.theguardian.com/society/2016/feb/01/ageing-britain-two-fifths-nhs-budget-spent-over-65s
http://www.pgpf.org/the-fiscal-and-economic-challenge/fiscal-and-economic-impact
https://www.britannica.com/event/Great-Depression/Economic-impact
http://www.theage.com.au/national/education/the-economics-of-an-ageing-population-20150316-1m0g4a.html
http://www.tokyofoundation.org/en/articles/2012/aging-and-social-security-in-japan
https://en.wikipedia.org/wiki/Population_ageing