Despite substantial progress over the last three decades, poverty is still a formidable challenge in the Asia-Pacific region. Looking ahead, poverty reduction is anything but easy given the current macroeconomic environment, rapid technological change and geoeconomic uncertainty.
Ageing population structures are one of the major ongoing transitions concerning policymakers across the region. Some fear that their countries may become “old before they become rich” and that ageing may slow down growth and the long-term trajectory of poverty reduction.
But is a higher share of older persons in the total population automatically associated with less growth and more poverty? New research suggests that such alarmism may miss key levers for policy intervention: ageing societies also have large potential for productivity improvements through a more experienced workforce, among other levers.
Economies with a high share of older population reduced poverty faster
Over the last decade, countries in the Asia-Pacific region that are classified as “aged” or “ageing” reduced poverty faster than those classified as “young” (Figure 1). This is the result of counterfactual poverty accounting, which controls for country’s initial macroeconomic conditions, evaluated at the (moderate) international poverty line of $4.20 per day. Quantitatively, this overperformance effect is strongest in the group of “aged” economies (more than 14% of older persons in 2030) but it is more statistically reliable in the “ageing” group.
Figure 1 Relative poverty reduction performance by demographic transition status
Note: Countries are categorized as “young” if the share of older persons aged 65 and over in total population is projected to be less than 7% of in 2030; “ageing” if the share is projected to reach between 7% and 14%, and “aged” if the share is projected to reach at least 14%. “Young” is the reference group. For more details, see Poverty Dynamics in the Context of Demographic Transitions.
Economic growth was the main driver of this poverty reduction
When poverty trends are decomposed to see what drove the changes (i.e. economic growth and/or inequality), most progress in the region can be attributed to economic growth.
Figure 2 displays this result graphically, with ESCAP member States again grouped by their ageing status. Across all three groups, economic growth was the main driver of poverty reduction, accounting for 65% to 85% of the achieved progress. Reductions in income inequality also contributed to poverty reduction, but no more than a third in any group.
Figure 2 Poverty decomposition by ageing structure in Asia and the Pacific
Note: For more details, see Poverty Dynamics in the Context of Demographic Transitions.
The association between ageing and economic growth is often positive
On average, growth was higher in economies that had a higher share of old-age population. There are some nuances to this relationship. For example, the association with growth can turn negative if the share of old-age population gets over 30%. But such a threshold was not surpassed by countries in the Asia-Pacific region.
These findings underscore that an increasing share of old-age population need not ring the alarm bells on economic growth and associated poverty reduction. Rather, it foreshadows the importance of creating opportunities for healthy ageing with an accumulation of skills, experience and knowledge, and for incentivizing older persons to continue working.
Policy implications
In the context of population ageing, policy faces the challenge of navigating two opposing effects. On one hand, older workers may participate less in the labour market which lowers the available labour force and, in turn, economic output. On the other hand, if older workers stay at suitable jobs, they contribute experience, skills and accumulated knowledge to output production. Policy should tilt the balance in favour of this latter “experience dividend”. The results discussed above suggest that so far this has been successful in the Asia-Pacific region.
As the demographic transition advances, so must policy efforts – as detailed in a recent ESCAP report. A precondition for leveraging the experience dividend is that older persons can and choose to work. This is facilitated through gender-responsive, disability-inclusive and integrated policies that support healthy ageing and lifelong learning and active labour market policies that support older persons in accessing suitable jobs in the formal sector. To ensure that the experience dividend is harnessed, older persons need both the incentive and the opportunity to continue working. This can be supported through financial incentives and policies that promote decent work, especially in contexts where old-age pensions are inadequate and increase the risk of old-age poverty.
Structural transformation complements demographic transformation – but context matters. In economies that are more advanced in their demographic transition, services and non-production jobs in the manufacturing sector are most likely to generate experience dividends for an ageing workforce. Knowledge, experience and skills accumulate over time and matter more in those activities than physical strength, which deteriorates over time. Those activities usually add high value and favourable working conditions for older workers.
In many other countries, incomplete structural transformation, including remnants of high informality and low female labour-force participation, provides additional pockets of potential productivity increases, if conducive policies are implemented. Concurrently, policy efforts in demographically younger countries should focus on how the education dividend can best materialise in an environment of rapid and increasingly uncertain technological transformation.