Like many other nations, Taiwan is facing the many problems of “an aging society.” At one level the problems arise as a response to the awareness that population cannot increase forever, and not even for prolonged periods at the rates we have observed in the recent past: between 1950 and 1990, world population was doubling about every 40 years.
Had that rate continued, the population would have increased from 2.5 billion in 1950 to 5.3 billion in 1990 and 7.6 billion in 2010. By the year 2100 the population would have been almost 40 billion, about five times as many people as we have in the world today.
This year, world population is about 7.6 billion and it has been declining slowly because the number of births each year is a little lower than the number of deaths. If this trend continues, then the population will “age” in the sense that the ratio of young people to old people will increase.
There is another factor that makes the situation worse: As social hygiene and medical care improve, the age at which people die will increase.
The aging of the population from these causes has the undesirable effect of placing an increasing burden on young people. They have to devote more of their time to the care of the elderly and more of their money to provide pensions. One consequence is that they will be left with fewer resources, both in time and money, to have children of their own.
There might be other factors that are important. Data from the US show that couples with higher levels of education tend to start their families later than couples with only a high-school degree. We have no good data on how education interacts with socioeconomic status, the level of ambition or with the drive to improve one’s standard of living, so we cannot reasonably impute the difference to education, but there are other factors that might be important.
In Taiwan the situation is more complicated. In the past 100 years, the nation has experienced two waves of migration: from 1914 to about 1940 there was a large influx of Japanese. In the early 1940s there must have been an outflow of Japanese. In the late 1940s and early 1950s there was a large influx of people from China.
These waves resulted both in surges in the population and changes in the propensity to have children, so we have these complicating factors to deal with in considering the demography.
The financial aspects of aging are probably the most immediate. Nations that fund their pension plans from the contributions of people still working find themselves in a bad situation: There are more people receiving the pensions than was planned and there are fewer people contributing.
The simplest approaches to the problem are to reduce the level of pensions or to attempt to increase the birthrate so that the number of future contributors will be higher. Better approaches that have been implemented are to relax laws and practices that make early retirement attractive or to postpone the age at which retirement annuities can be received. In the long run, all of these lead to additional problems.
Other approaches might be more fruitful. Some nations have encountered the problem more than once, and in a few cases, we have analyses of why the pension funds came so close to bankrupting the system to require large changes.
The US is not unique, but their analyses point out that the major source of the problem is that people lived longer than the projections of the actuaries indicated. If that is the major problem, then maybe we should be tackling that issue rather than try to dream up ways to induce young people to have more children who, in the long run, will need somebody else to fund their pension needs.
Once we start thinking along those lines, we can see reasons that might be so. We might start by thinking about how life actuaries get that designation. That is by passing a set of exams set by established life actuaries who are members of the local society, so the lore is passed within the profession over generations.
Most life actuaries are employed either directly or as consultants, by life insurance companies. Not surprisingly, what is good for insurance companies is good for actuaries. Their major role is to set rates at which life insurance policies are to sold.
The major tool that actuaries use in this endeavor is the life table. The first life tables were developed 200 to 300 years ago, when someone gathered data about the age of people who died in a given year. From that data and estimates of the age of people living during the year, one can get an estimate of the probability that people die at a given age in that year. If you make some bold assumptions, you can perform the calculations with some expectation that they will portray reality.
Actuaries are trained to perform those calculations and traditionally they have learned to make the assumptions that more senior actuaries have taught them and to defend those assumptions. Life tables developed this way are known as “period life tables.” What you get are estimates of the probability that a person who was say 65 years old at the beginning of a particular year, say 2000, died during that year. Typically they use the most recent period life table that is available.
People who work in demography or public health have a different point of view. They try to use data about people born in a given year and develop “cohort life tables.” They too have to make assumptions and what they get are tables that tell you what the probability of a person born in say 1950 and was still alive at the age of 30 died before reaching age 31.
The people who are taught to use period tables justify their habit by saying that if you work that way, by the year 2015 there have been no data on the probability of death of people older than 65, simply because the 1950 cohort has not reached age 66, so there is no data about them.
The people who have been taught to use cohort tables point out that if sanitation and healthcare have improved, their tables give unbiased results, whereas period tables will always give higher estimates of mortality and therefore low estimates of the funds needed for pensions.
As mortalities have declined steadily for the past 200 years, if we exclude periods of major wars and epidemics, they have a valid point, and it might well be that the way in which mortality changes with age is sufficiently stable that the pattern can be used to produce better forecasts for pension requirements.
Most nations require that the accounting for reserves for life insurance and pension funds be certified by life actuaries, we are never going to find out whether users of the period life table or the users of the cohort life table methods get better estimates of future mortality. Few nations have even the simplest vital statistics necessary to construct complete cohort tables.
The situation in Taiwan is worse. Statistics were not gathered before 1914 and big shifts in population have occurred since then.
The government might be wise to devote some effort to finding methods of estimation that come closer to the truth given the limited data available and to consider more carefully the vital statistics needed for the calculations.
Emilio Venezian is a former visiting professor at Feng Chia University.
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