The latest U.S. figures on unemployment reveal a stunning gap between the official rate at about 6% and the more accurate if unofficial rate closer to double at about 12%. The two generally accepted explanations tend to be a profound and disturbing structural shift characterized boldly and accurately by the AEI Scholar, Nick Eberstadt that “simply put, work in America has collapsed.” On the one side, there is the youth unemployment phenomenon, which seems to be about more than the Great Recession. But then there is also the equally disturbing fact that we persist in assuming a 20th century work/retirement model where the over 55 demographic is not really considered part of the workforce. Even if many of us do!
As America’s population ages, the parallel shift in allocation of resources, capital and talent are barely in sight. Moreover, from the retirement age to how we save (or not) for retirement seem still to be stuck in a 20th century demographic frame. A brief examination of three different locations — UK, Germany and then right here in America’s NYC — reflect the stunning disconnect.
Britain’s biggest pension reform in a century
Britain is currently at the cusp of what the Financial Times has called the biggestreform to its pension system since it began a century ago. George Osborne, Chancellor of the Exchequer, has ended a rule that effectively forces pensioners to buy annuities in retirement. It may sound like a wonky sort of rule that only financiers understand, but the FT is right to claim the unprecedented significance.
But Osborne’s ruling probably won’t go far enough. Like most of the developed world, Britain’s feeling a nasty pinch as the 65+ population segment grows and the services they demand (medical, financial, social) increase in cost. Osborne’s reform is right in that it’s designed to spur market innovation for new financial products that fit 21st century health-spans and life-spans, but more needs to be done. Innovation in the financial sector is key to creating a sustainable economic model for an aging population.
The British should push further in this direction. How can new instruments be created to encourage longer workforce participation? How can tax structures or investment vehicles incentive more saving and longer working lives? What products and services can be created to spur savings models that account for lives that stretch regularly into the 90s and 100s? As Sarah Harper, Director of the Oxford Institute on Ageing, has noted, one in three British girls born today will live to see 100. It’ll take more than annuity reform to keep them financially sound for a century of life.
Germany’s turn for the worse
In the wake of the Euro-austerity headache that lasted for years, the Germans earned the reputation as heartless spendthrifts. Whether Angela Merkel earned this reputation or whether it was irrational finger-pointing is beside the point.
But recent developments in Germany regarding the lowering of the retirement age for certain demographic segments is puzzling – and fully incongruous with their prevailing reputation. Over the past few months, Germany – the fastest aging European nation – has lowered the retirement age from 65 to 63 for qualifying Germans. From an economic point of view, the move makes no sense. It’s exactly the opposite of what Germany needs to do to maintain its economic strength as its population ages.
German businesses have been wiser. The automaker BMW has built programs to keep older workers productive, and they’ve succeeded fabulously. Merkel should pay attention. Again, market innovation will be the key to 21st century success.
The U.S. and Old New York
The New York City Department of Aging has recently gotten an 8% increase in its budget under the new mayor. This is one of the largest percentage increases of any city agency, and the boost has been justified by the ballooning percentage of silver New Yorkers. By 2030, the “elderly” population will rise by 35%. Mayor de Blasio is right to recognize that investment is needed to get the right policies and programs in place for the aging Boomers, but New York’s framework is still all wrong.
The budget boost will be used to provide services of care, and it is framed almost entirely around models of aging that accept dependence and disability as the norm. To be sure, there are plenty of New Yorkers who need this kind of help, but the only way to prepare for the ballooning in aging is to create programs that incentivize work, entrepreneurship, independence, etc.
New York will only be able to care for those who really need it if it stops caring for those who don’t. A new 21st century understanding of aging must frame the mission of the Department of Aging, and it should ask itself: How can we build a “silver economy” that drives economic growth rather than simply manage care?
Even more, for all of us across global economies, to stop thinking about aging as an aging issue, but as a core driver of 21st century economic growth and social value.