The senior economy, an emerging reality
Author: Juan Fernández Palacios
Director of the Ageingnomics Research Center of Fundación MAPFRE
Pioneering neural network and deep learning researcher Geoffrey Hinton, considered (on a journalistic scale) the godfather of AI at Google, told the BBC on his departure from the company that “AI-based chatbots do not currently surpass us in intelligence, but they may soon do so”… “we expect things to get better quite quickly. So, we need to be concerned about that.”
At age 75, GH has decided to retire. This is yet another example of a member of the senior generation excelling in tasks that, until now, have been considered the province of young minds.
THE GREAT CHALLENGES OF THE 21ST CENTURY
As we near the end of the first quarter of the 21st century, we can already consider the three main challenges currently threatening our way of life to be consolidated: population aging, the digital revolution and climate change. These are three society-wide phenomena that, to a greater or lesser extent, originate in human action and that, on a single planet, are unlikely to evolve independently of each other.
The interaction between the digital revolution and climate generates positive outcomes: technological advances enable the implementation of more efficient processes, for example, in the production and use of renewable energies or in the reduction of industrial and urban pollution.
In turn, digital media contribute to increased life expectancy, which is one of the foundations on which population aging is based, especially due to advances in the health field involving new means of diagnosis, curative therapies or surgical treatments; not to mention digital platforms or even the application of artificial intelligence, which help to combat unwanted loneliness.
Finally, the most direct path from global warming to aging and vice versa is also through health, mainly due to the impact of temperature increases on the most vulnerable population groups. The extent to which the climate crisis can break the trend of increasing life expectancy could be explored.
But the interconnection between these three vectors of change does not prevent us from adopting a different attitude towards each of them: the urgent adoption of measures to contain the climate emergency, the adaptation and channeling of the digital revolution for the benefit of all, and the promotion and exploitation of opportunities associated with increased life expectancy, particularly health-related life expectancy.
Because, focusing on this last vector, the truth is that until recently the focus has only been on the threats inherent to population aging. For example, in the field of pensions, where the imbalance in public systems based on the pay-as-you-go system which compromises their sustainability, has been emphasized, coupled with the inadequacy of private savings in supplementary systems. Or in health systems, where the main concern is the increase in age-related illnesses (Alzheimer’s, Parkinson’s, bone fractures, etc.) and the costs associated with the introduction of new technologies. Related to the foregoing, there is an important challenge posed by the growing need for long-term care services, in a context of a shortage of professionals and the relative failure of the nursing home model and centers for dependent seniors. And all this in a scenario of scarcity of labor resources in an increasing number of productive sectors; in fact, in the last decade, year after year the active population in the European Union has been shrinking.
POPULATION AGING: A POSITIVE OUTLOOK
These negative effects are real and we must pay attention to them. However, a positive outlook is also possible.
Thus, in the area of pensions, a wide range of solutions have been proposed by various bodies, some of which are supported by the practice of some countries: formulas based on a better combination of public and private systems, generally pay-as-you-go in the former (first pillar) and funded in the latter (second and third pillars); alternatives such as the Swedish notional accounts system, or automatic enrollment in a company plan (autoenrollment) in the United Kingdom and other countries; additional resources could also be expected to reach the public systems, beyond incremental measures of the cost of the labor factor, through improvements in productivity associated with technological development and progress in workers’ education and health levels; or, as a last resort, delaying the retirement age, something that various governments are already applying or trying to apply as a measure to contain the growth of the dependency ratio (retired persons/population between 20 and 64 years of age) which, according to Eurostat, in the EU and in 2040 will only remain at the 2020 level if working life is extended to 70 years of age, with variations by country (1).
On the other hand, when projecting future public spending on health and long-term care for dependent persons, it is advisable not to simply extrapolate present trends linearly; firstly, because the development and expansion of the use of new technologies normally entail economies of scale and cost reductions; secondly, although the European Commission assumes a progressive increase in the number of people in need of long-term care within the Union (from 19.5 million in 2016 to 23.6 million in 2030 and 30.5 million in 2050), it is undeniable that the increase in life expectancy is accompanied by an improvement in the physical and mental conditions of citizens because, among other reasons, the guidelines for healthy aging are being widely adopted by our societies. In fact, some experts argue, not without reason, that the negative economic impact on health and care is linked not so much to old age as to the end of life, so that a delay in the latter would also lead to postponing such additional costs (2).
Finally, the lever of immigration may permit the immediate arrival of resources to compensate for the decrease in the active population; it would be a matter of favoring legal and recurrent entry of foreign workers and professionals, without ruling out agreements with the immigrants’ countries of origin. Of course, policies to promote the birth rate should not be neglected as a solution with long-term effects for those regions or countries that are highly aged; on a global scale, an eventual reactivation of demographic expansion will have to adhere to the limits already imposed by the depletion of the planet’s basic resources.
These measures are not easy to adopt or do not guarantee a complete solution to the problems. But beyond these, a tangible reality must be considered in this positive approach: the potential of the senior generation and the growing weight of the senior economy in the global economy.
THE SENIOR GENERATION AND ITS IMPACT ON THE ECONOMY
If we think about the possible strengths of this generation, the first thing that comes to mind is its relative weight in the population as a whole, which is naturally increasing as life expectancy increases and the influx of younger generations decreases due to the reduction in fertility rates. Both elements are taking shape on a global scale; life expectancy will continue to increase in most countries, even without disruptive medical changes or advances, with a fairly homogeneous life expectancy to 65 years of age by country, between 20 and 25 years; and the number of children per woman, which has been reduced by half in the last 70 years, would now stand at 2.5, 1.64 in the more developed regions and 2.60 in the less developed ones (3).
In Spain, this strength is measured in the 16 million people who today are already over 55 years of age, a third of the population, which will rise to 42.5% in 2050 according to the central scenario of the INE’s projections. However, according to the latest available estimate from the same organization, life expectancy in good health (free of functional limitations or disability) would already be 66 years, that is, with the capacity to maintain varied levels of activity.
We can therefore speak of a reserve army of labor that will generate a demographic dividend that emulates that produced by the demographic explosion of the mid-20th century; a population group in good physical and mental condition, experienced, well-trained and with a proven capacity to adapt, as well as a willingness to continue contributing to society and the economy, given the right conditions.
In this respect, Spain has some unresolved issues, among which the most important is to make progress in the compatibility between the status of worker and retiree. Our legislation is based on the principle of incompatibility (Article 213 of the General Social Security Law), which incorporates certain exceptions (active retirement, partial retirement, flexible retirement, etc.), although the regulations are excessively restrictive and provide little incentive. According to leading experts, full compatibility is a win-win situation for all parties involved: working people, who with flexibility and on a voluntary basis will be able to compensate for an eventual decrease in income associated with retirement; companies, by expanding their opportunities for filling vacancies with experience and talent; Social Security, which improves its income through solidarity contributions, without any sacrifice because workers will still receive their pensions if they are unable to work; the State, by increasing tax revenues and reducing health and dependency costs due to the benefits of active aging; and, ultimately, the Economy, since the generalization of compatibility will result in an increase in GDP (4).
As a result, Spain has one of the lowest work-pension combination ratios in the OECD in the 65-69 age segment: 0.5% for men and 1.8% for women. The conclusion is similar if we look at the labor market participation rate of the over-65s, which is 15% globally and which, at the level of each country, logically, is inversely proportional to the “generosity” of the public pension systems; in Europe the ratio is 9%, more than double that of Spain (4%). A final figure that illustrates the lower flexibility of the transition between activity and retirement in the Spanish system is the percentage of part-time work between 55 and 74 years of age, which reaches 12% in Spain, compared to, for example, 55% in Germany or 32% in Sweden (5).
Therefore, our country has an opportunity here, which will be realized if we are able to increase the senior generation’s participation in the economy. It has been estimated that Spanish GDP could increase by approximately 10% if the level of employment of people over 65 reached that of Sweden, an increase that would exceed 15% if we take New Zealand as a reference; both countries have leading positions in the employment rate of people over 55 years of age in the OECD (6).
Spain must join the European trend in the development of the Senior Economy. Europe has huge potential there too; the employment level in the 55-64 age segment stood at 59.1% in 2019 in the EU, compared to 73.1% in the 20-64 age group. The European Commission estimates that this sector of the economy will have grown by approximately 5% per year in the decade 2015-2025 (7). We are talking not only about the health and care sector, where we envision the possibility of creating 8 million jobs in the EU over a period of 10 years, but also about a broader concept that looks more to the idea of healthy aging and includes tourism and leisure, housing, cosmetics and fashion, security, culture, mobility, banking and insurance.
A basic requirement for the growth of the Senior Economy and, therefore, of the economy in general, is maintaining the demand or spending capacity of the senior generation, which can be achieved by appealing to the various sources of income: those that constitute public pensions, those that come from personal property or real estate savings, from private pension systems, or those that are the result of the work or entrepreneurship of the members of that generation. This is not only a potential for future growth, but our country is already starting from a very consistent base: 60% of total spending in the Spanish economy in 2019 corresponded to the 50 and over population, with a total impact (direct and induced) equivalent to 26% of GDP that year (8).
AN HOLISTIC VIEW OF THE SENIOR ECONOMY
Faced with these prospects, public administrations must configure the framework that facilitates the best use of senior talent, whether at the national, regional or European level, in all those with regulatory capacity. Legislators must foster conditions that favor keeping those people in the labor market who are willing and able to do so, facilitating entrepreneurship as an alternative for those workers who end an employment relationship; and, of course, they must ensure the sustainability and sufficiency of a pension system that combines the strengths of the public and private sectors and makes it viable for citizens to flexibly choose the time and pace of their exit from the active phase of their lives.
Companies, meanwhile, must improve the management of senior talent within their organizations, and it would be in their interest to activate specific plans for older workers, without ruling out special employment conditions or designing suitable positions for them, and trying to increase their participation in training programs (an aspect in which Spain is among the lowest in the OECD).
In other words, the impetus for change cannot come only from the public sector; in fact, initiatives with a similar objective are emerging from the private sector. This is the case of Fundación Mapfre, which in 2020 decided to launch the Ageingnomics Research Center (ARC)(9) to contribute to the development of the silver economy.
The purpose of the ARC is to analyze, measure and monitor the evolution of the Senior Economy, which is considered the set of activities and resources originated by and/or for the senior generation; flexibly, senior citizens are understood to be those who have reached the age of 55, the age at which, according to the EU statistical office and on average, the transition between work and retirement usually begins (10). Its approach is comprehensive and, therefore, the Center regularly analyzes, first, what the citizens of this generation demand and consume, as well as what companies offer them, and second, the level of senior citizens’ participation in productive activity.
For the first of these areas, demand, the ARC publishes the annual Senior Consumer Barometer, which analyzes the consumption patterns and spending priorities of the over-55s, as well as their evolution. The second, supply, is reflected in the Senior Economy Companies Monitor, which seeks an approach to the strategies and policies of the main companies in our country with respect to the aforementioned segment of the population, either through a specific range of products or the establishment of exclusive channels, prices or other special conditions.
Undoubtedly, the center of the Senior Economy’s target is the labor market integration of the 55- to 70-year-old segment or even older; their level of participation in productive activity is the key factor in assessing their current situation and opportunities. The successive editions (I and II) of the Senior Talent Map published by the ARC confirm that our country has a long way to go towards achieving international best practices in this area, which first requires avoiding the feeling among mature workers that being over 55 means having no future in the labor market; in short, putting an end to the age discrimination that is deeply rooted in our system.
In a highly decentralized country such as ours, the appeal to best practices should also be made in the different geographical areas within our borders. The ARC pays attention to this with the annual publication of the Ranking of Territories for the Senior Economy, which compares the situation of this area of the economy in the 17 Autonomous Communities and, soon, in the largest cities of our country, based on a series of indicators; specifically 6 dimensions (demographics, employment, social participation, pensions, public space and infrastructure and social and health services) and four vectors for each one, with information obtained in all cases from publicly available, reliable and verifiable sources.
The ARC’s commitment to research seeks to generate synergies with university institutions and other specialized centers, which are materialized in the annual call for an Academic Seminar in which researchers and experts present their proposals and projects on the topic chosen each year related to the senior generation and its economic and social impact.
Along with the research activity, the ARC promotes a series of informative activities that help citizens become aware of the new reality and the opportunities it offers; the publication of thematic guides is one of them: on entrepreneurship, healthy aging, style or solutions for generating income from real estate savings, etc. The events of the Ageingnomics Cycle, on the other hand, allow experts to discuss how the Senior Economy is impacting the different sectors.
And no less important is the Center’s support for social entrepreneurship, through the Social Innovation Awards organized annually by Fundación Mapfre, in which the Senior Economy is one of the three verticals (together with Mobility and Digital Health); or, also, through the Tales for Senior Entrepreneurship Program, which is completely non-profit and in collaboration with a growing number of public universities, offers training and guidance to entrepreneurs over 55 years of age.
In short, despite demographic inertia, which will make the Senior Economy grow naturally, there is no reason to sit back and let things move forward on their own. We must activate the levers necessary for the optimal use of the potential of the senior generation. The displacement of people’s life cycle requires an institutional positioning in favor of the so-called “Silver Economy”, but it also requires a change of attitude in companies and in the citizens themselves. In short, a cultural change is required in the way middle age is considered.
(1) Eurostat projections, included in the Green Paper on Aging, European Commission, January 2021.
(2) Zweifel P, Felder S, Meiers M. Ageing of population and health care expenditure: a red herring? Health Econ 1999. Cited by Andrew Scott (The Lancet Healthy Longevity; December 2021).
(3) Mapfre Economics: a global perspective on pension systems, 04.2021.
(4) FEDEA, 1.2023, “Flexible and compatible retirement”- J.I. Conde Ruiz/Jesús Lahera.
(5) II Senior Talent Map of the Ageingnomics Research Center, Fundación Mapfre. Source: EU — Eurostat
(6) Golden Age Index, June 2018, PWC
(7) Green Book on Aging, European Commission, January 2021.
(8) Oxford Economics. Study of the Economy of Longevity in Spain (report for CENIE). September 2021.
(9) ageingnomics.fundacionmapfre.org
(10) Ageing Europe Report 2020, Eurostat.
