Thursday, January 19, 2012

Population ageing, intergenerational transfers and social protection in Latin America and the Caribbean

Countries in Latin America and the Caribbean are in the midst of a period of profound demographic change which will lead to a dramatic shift in the age structure of the population, with sharp declines in the proportion of children and increases in the proportion of older persons. Though they are at different stages in this process, the majority of countries in the region are currently in the midst of the period of the demographic dividend, which is characterized by a relative increase in the number of working-age people relative to those who are dependent upon them. However, sooner or later this favourable situation will end due to the rising demand for resources on the part of a progressively older population. The transition to economically-aged societies in Latin America and the Caribbean —in contrast to that of the more developed countries— will take place in a context of high and persistent levels of inequality and of lower per capita income and less developed political and financial institutions.

This new situation will pose unprecedented challenges to Latin American and Caribbean society and will require adjustments in diverse areas, especially in health and pensions. Ideally public policies should anticipate demographic changes, redesigning the financing mechanisms for social protection systems so that the increased pressure on public and private spending can be sustained financially without reducing the coverage and quality of benefits.

The social and economic impacts of changes in the age structure of the region’s population are the subject of ongoing reflection in the Population Division of the CELADE - ECLAC. In particular, the Division has been participating over the past two years in an international effort to measure national economic activity by age, in the context of the international project on National Transfer Accounts (NTA) led by professors Ronald Lee of the University of California, Berkeley, and Andrew Mason of the East-West Center in Honolulu.National Transfer Accounts (NTA) estimate the flows of economic resources between different age groups in a way that is consistent with national income and product accounts. These flows mainly arise due to the fact that children and the elderly tend to consume more than they produce from their work and therefore tend to depend on resources that mainly come from the working-age population to satisfy their consumption needs.

In addition to distinguishing between the different types of flows (capital accumulation, transfers and credit transactions), the accounts also distinguish between the institutions that mediate these operations, be they governments, markets or families. This information allows one to study, among other things, the consequences of ageing on transfer systems, both familial as well as public; the interaction between these two systems, and the economic effects on different generations of changes in support systems. In addition, intergenerational transfers represent a substantial proportion of GDP and for that reason their composition, order of magnitude and direction can influence economic growth as well as the income distribution.

Over 30 countries from five continents are currently participating in the global NTA project. These countries differ in terms of their demography, their levels of development, their systems for supporting people in old age, their capacity to invest in human capital, and their populations’ capacity to save. A comparative analysis of these countries’ accounts not only sheds light on these differences, but it also helps to clarify the economic implications that population ageing has under different institutional arrangements.

ECLAC, through CELADE, is coordinating the regional National Transfer Accounts project for Latin America and the Caribbean, with financial support from the Canadian International Development Research Centre (IDRC)2 and the University of California, Berkeley. The first stage of the project recently concluded with participation by five countries (Brazil, Costa Rica, Mexico and Uruguay). The second stage has also begun, for which 4 new countries were included: Argentina, Colombia, Jamaica, and Peru.

The overall objective of the project is to improve the fiscal sustainability and equity of social protection systems in Latin America in the face of population ageing. There are four specific aims: (i) To strengthen the capacities of participant national centers to develop, implement, and use NTA method; (ii) To better inform social protection policy decisions by an analysis of the impact of population ageing on economic growth, fiscal sustainability, and equity; (iii) To better inform policymakers on the importance of long-run transformations brought about by population ageing; and (iv) To foster cross country comparison, collaborations, and regional perspectives. Based on these goals, CELADE has made ample use of new information on the generational economy in Latin America. Diverse studies have been undertaken in this area, many of them in collaboration with other organizations like the United Nations Population Fund, the Pan-American Health Organization and the World Bank.

A significant proportion of these studies were focused on the cases of Brazil, Costa Rica, Chile, Mexico and Uruguay, the countries participating in the first stage of the project. The case of Brazil has been an interesting one, not just because of it represents a large share of the Latin American economy and population, but also because of the rapid ageing process its population is undergoing and the presence of a fairly significant public transfer system. In fact, toward the end of the 1980s a reform was introduced in the country to expand the coverage of the pension system to poor and rural sectors, in addition to informal workers, and it currently covers a large proportion of the population. In Chile the analysis of NTA has allowed the fiscal and macroeconomic implications of social reforms to be examined, especially in the areas of pensions and health, sectors that have undergone structural reforms over recent decades.

The case of Costa Rica has been an interesting one because of its citizens’ high life expectancy, the relative stagnation of social investment in education and the importance of its public health programs. For its part, Mexico is characterised by an intense migratory movement that, in addition to Mexicans, includes a significant number of people from other countries in the region, essentially Central Americans, who seek to reach the United States. This makes the analysis of private transfers (remittance movements) and other types of intergenerational reallocations particularly interesting. With regard to Uruguay, it bears the distinctive characteristics of being the oldest country in the region and having a long-standing social protection system with significant levels of coverage, which like Chile’s has undergone various reforms over recent decades.

In October 2009 CELADE, together with the Population Division of the United Nations Department of Economic and Social Affairs and in the context of the National Transfer Accounts project, organised a meeting of experts in which certain government representatives, in particular from the five countries participating in the project, as well as those from different regional and international organisations, analyzed the consequences of population ageing on economic growth and the sustainability of Latin American transfer systems using information produced in the first phase of the project. This volume presents a report on this expert meeting accompanied by a selection of articles that were presented there, including work by professors Ronald Lee and Andrew Mason, as well as and the national teams in each of the countries participating in the project.

The production of the document was coordinated by Tim Miller, Population Affairs Officer, and Paulo Saad, Chief of the Population and Development Area at CELADE; the editing by Colin Mullins; layout by Fernanda Stang, and translation of Chapters VI, VII and VIII from Spanish by Lila Castillo.LC/W.439. November 2011


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