Population Aging and the Generational Economy: A Global Perspective by Ronald Lee and Andrew Mason (review)

This is an important book, one that provides a novel and comprehensive way of identifying and portraying concerns of particular relevance for economies with aging populations. The approach focuses attention on how four fundamental activities – working, consuming, sharing, and saving – vary over the life course, creating flows across generations. The pattern and evolution of these intergenerational flows raise areas of genuine concern with current arrangements for the transfer of funds and the provision of services. However, the approach followed in the book suggests ways of addressing concerns about population aging. Among its many contributions, this volume effectively dispels various myths related to possible “solutions” (pp. 27–28) and notes that “reform of transfer systems is … an alternative to pronatalist policies” (p. 102).

The framework for analysis, intergenerational transfer accounts, is largely the work of Ronald Lee, and he and Andrew Mason are the lead authors of this volume. Its 32 chapters describe the analytic framework, detail how estimates of the components are derived, and the 57 contributors provide parallel applications in relation to 23 countries at various stages of economic development.

The approach relies on the most recent available estimates of the average level of individual labour income and consumption at each age for each of the 23 countries. The age-income profiles reflect what is produced through participation in the market economy, as indicated by the before-tax return to employment and self-employment, including employer-provided benefits. Consumption is comprehensively defined to include goods and services that are publicly provided (such as health care and educational services) – and the rental value of owner-occupied housing – as well as those goods and services that are privately purchased. The difference between consumption and labour income, summed over all ages, is the life-cycle deficit. Building on the work of Willis (1988), any difference between the mean ages of consumption and production shows the direction of intergenerational flows. If the mean age of consumption exceeds that of production, the intergenerational flows are upwards, towards those who are older. The converse is true as well. A positive difference that is sustained across generations would have to be made up either by drawing down assets held by the current generation or relying on future generations to make up the shortfall.

When summed across all individuals to obtain national aggregates, the measures feed into what the authors define as National Transfer Accounts (NTA¹). The NTA are “broadly consistent with and complementary to” the familiar System of National Accounts (SNA) (p. 59), but a major difference, aside from the measure of consumption, is that the NTA introduce age into the SNA framework. That more comprehensive framework can then be applied to estimate the current life-cycle deficit at the economy-wide level. The authors find that the flows generally favour the young in lessdeveloped economies and the old in more highly developed economies. NTA can also be used to assess how the direction of intergenerational flows would change as the age distribution of the population changes if the current age profiles of income and consumption were maintained.

That future could be based on a realistic projection for, say, 2050 as in Figure 4.8 or on a purely hypothetical situation in which the population is growing at a constant rate (e.g., Japanese age profiles with steadystate annual growth at–1%, as in Figure 2.1). Projection for the future could also be based on a population with any age distribution of analytic or policy interest (for example, to compare how the directions and magnitudes of intergenerational flows across the various countries would differ if they all had populations with the same age distribution, as in Figure 4.4). The conclusion, in the case of most countries, is that the current situation is unsustainable. However, the authors identify many avenues on both the consumption and production sides through which the needed adjustments could occur. Of particular interest, they note the...