Should Australians work until they’re 70? We look at the recent Productivity Commission report (29 November 2013)

The Productivity Commission’s report An Ageing Australia: Preparing for the Future is an ambitious, detailed and comprehensive exploration the potential fiscal and economic impacts of the demographic changes Australia might experience in the decades ahead. The report will provide enjoyable intellectual nourishment for economic advisers and has graphs and tables enough to satisfy any admirer of statistics and econometrics. However, it paints a dismal future for those men and women who would face, in their latter years, arduous physical laboring, or repetitive process work, or trying to survive in the capricious part-time work market.

As with any report based on forecasting and modelling, one must bear in mind that the validity of the analysis degrades the further out into the future one takes a selected set of assumptions. Indeed, the report acknowledges the uncertainty associated with its projections.  The econometric analysis is linear, and therefore actions based on the report’s findings need to consider the more stochastic nature of future knowledge, and the greater likelihood of emergent external shocks and discontinuities the longer the timeframe of the study.

Although the Commission notes its judgments are “accompanied by considerable uncertainty, given developments in future health treatments, disability rates, the effects of climate change on economic activity, and technological advancements” it fails to deal in any detail or depth with pertinent current developments. Before rushing into the Productivity Commission’s recommended policy interventions, the government must give consideration to the inevitability of unanticipated and unpredictable scientific and technological advances.  In fields like genomics, nanotech, cognitive science, and pharmaceutics, developments might bring down the costs of ageing to both individuals and the government. As could innovations in incipient research areas such as growing organs through tissue engineering, smart prosthetics and bionics, and 3D printing of replacement joints. Such advances could fundamentally alter productivity outcomes and the costs and health profiles associated with ageing.

Additionally, the report does not contemplate the full range of different policy interventions available to governments. For example, the problem of funding a high cost health care system for an ageing population might be better addressed by simply rebalancing research into redesigning preventative public health and investment in primary health delivery.

Perhaps most importantly, governments need to consider the human impact of the Commission’s proposals. All the data, analysis and theory tend to obscure the fact that individuals age – not averages. Generalising about the need for people to work longer masks the likely social outcome.  It will be individuals with waning strength, less contemporary skills, declining competency or poorer health who are forced to struggle in their latter years with uninspiring jobs or finding increasingly scarce work as they wait for their pensions or superannuation.  While higher paid, skilled and more affluent workers will be in a better position to manage the timing of their retirement from the workforce, those with less marketable skills or suffering other social disadvantage will grind out their sixties.

Government policies on ageing population must encompass the social impact as well as the fiscal and economic issues.

The Commission’s report is available here.