Visiting Harvard Professor Bloom urges NZ to raise retirement age
New Zealand needs to lift its retirement age and take advantage of an adaptable workforce before it gets too late, according to a visiting Harvard University professor.
Speaking in Wellington at a joint Motu Economics and Public Policy and Waikato University evening lecture yesterday, Professor David Bloom, Harvard's Clarence James Gamble Professor of Economics and Demography, said an ageing population can prove to be both a blessing and curse to economic stability.
Changes in a country's population were inevitable and society had proven to be highly adaptive to date, Bloom said, but "healthier means wealthier" and policy makers needed to act sooner rather than later to use an ageing workforce to the economy's advantage.
"People don't like thinking that they could have retired at age 65, and just when they were ready to retire you change it 68 or 70, you'll have a difficult time politically," Bloom said.
"The political economy is definitely a challenge, but the best solution is to anticipate what is coming. The one thing about demographics is the crystal ball is pretty good, we see what is coming.
"Act early, I wouldn't wait until the last minute," Bloom said.
A rising pension bill has been an ongoing bugbear for the Treasury, which has been warning about the rising cost of the universal scheme for years. Still, the current government has no plans to change the fundamental settings, with Prime Minister John Key pledging to keep all current entitlements while he is in office.
The Harvard professor's warning comes as Andrew Little, a candidate for the Labour Party leadership role, flags a review of a proposed policy to lift the pension age after the party suffered its biggest loss in 92 years at the Sept. 20 general election.
New Zealand's demographic trajectory is following a global trend of an ageing population, with the 65-years and older group, expected to make up 21 percent of the population by 2031, from about 13 percent in 2009, as the last of the baby boomer generation enter their golden years.
In recent times there had been a shift in macro-economic thinking, which has long recognised that the growing wealth of a country inevitably leads to a more healthy population. Now a population's health is seen as a greater contributor to economic grow than previously thought.
Bloom said an additional 10 years to life expectancy boosts a country's annual economic growth between 0.5 percent and 1 percent per capita. Over the last six decades, the world has added 23 years to average life expectancy, and with that the world has seen the benefits of what Bloom calls, the "demographic dividend".
"Health is a form of human capital akin to education," Bloom said. "A healthier workforce in naturally a more productive workforce. Healthy populations are like a powerful magnet when it comes to attracting foreign direct investment."
It also leads to better educated children and a higher savings rate as people save for a longer retirement. If health and wealth work in a virtuous spiral, fuelling each other, the converse is also true, said Bloom.
Outbreaks like Ebola in West Africa and Polio in Syria deplete developing countries' labour forces, while the rise of non-communicable diseases, such as cancer, cardiovascular problems, obesity and diabetes, in developed nations weigh on health services.
"The main asset people have is their labour, and the value of that asset is their health," Bloom said.
He was in New Zealand as Waikato University's Golden Jubilee distinguished professor, and remarked on the intellectual atmosphere he found during his month in Hamilton.