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• W56869229 abstract "How might our business schools better prepare our current students for leadership in a world where a youth culture will no longer be dominant. As the 75 million “baby boomers” begin to retire the biases of gerontophobia will likely give way to the power of gerontocracy. This paper explores how an age-informed curriculum will help our students to live and thrive in an older world where more and more of their customers and organizational colleagues will be older baby boomers. The magnitude of the challenge is no less than that which business schools faced in preparing a previous generation of students for an unprecedented wave of globalization.1 1 An earlier version of this paper was presented at the 2004 Annual Meetings of the Association of Pennsylvania University Business and Economics Faculty The Wave is Upon Us Our population, we as individuals, our families and our generations are all clearly in the process of unprecedented aging. What might not be so obvious is that already in 2001 consumers over the age of 45 accounted for 52% of total consumer spending in the United States (AARP, 2002). Dychtwald reports in 1998 that people over age 50 controlled more than $7 trillion in wealth -70% of the total. They comprised 66% of all stockholders, owned 40% of mutual funds, and almost half the credit cards in America. They purchased 41% of all new cars and 48% of all luxury cars (Dychtwald, 1999). Population Aging The retirement baby boom wave is about to make landfall. Hard to believe but those 78 million people who were born between 1946 and 1964 are now beginning to retire. By 2011 the oldest of the boomers will have reached the “traditional” retirement age of 65. As can be seen in Figure I, what was once a pyramidal age and gender distribution profile in 1900 will look much more like a rectangular box or a pillar by the year 2030, when the youngest of the boomers reach 65. One other important aspect of our population aging is that women, given their longer life-expectancy, represent a growing percentage of the total. The female, or right side of the “box,” is larger than the male or “left side.” This “box-like” profile means that the median age for Americans will increase to 38 in 2030, and that the percentage of people over age 65 will increase from 12.4% to 19.4%. As an aside, in the year 2000 Pennsylvania was one of three of the “oldest” states (Florida and West Virginia are the other two). Twenty-seven percent of Pennsylvania households had at least one individual over age 65 (US Census Bureau, 2000). This major change in our age distribution profile reflects great increases in longevity (the life expectancy of an American at birth in 1900 was 47 and now is 76) and the unpredicted decrease in birthrates in the recent decades. During the baby boom years the total fertility rate, or lifetime births per woman, reached a high of 3.68 in 1957. We are now close to the stable population replacement rate of 2.1 per woman. The average marriage age continues to increase and women’s labor force participation rate has grown from 37.7% in 1960 to 60.2% in 2000 while that for men declined from 83.3% to 74.7% (Szafran, 2003). The old-age dependency ratio of people over the age of 65 to the traditional working age population of 20 to 64, often used as one measure of the impact of aging on the economy, is predicted to increase from 0.21 in 2000 to 0.29 in 2020 (Cutler, 2002). Viewed differently, the number of working age people for each older adult will decrease from 4.7 to 3.4. . (Cutler, 2002) This widely used ratio is a somewhat misleading indicator of the economic challenge future aging might cause. First of all not everyone over 65 is financially dependent on working –age people. A second concern is that the underlying assumption that everyone 65 years or older is retired, and everyone younger is not, makes little sense. The concept of retirement as a point in time is increasingly being challenged (Cutler, 2002). Simple dependency ratios do not measure the output of the working-age population. For a given size workingage population, changes in the labor force participation rate and the rate of labor productivity growth can significantly affect what can be produced. The sensitivity of the age-dependency ratio to underlying assumptions is illustrated in FIGURE II. An increase in the full-benefit social security retirement age from 65 to 67 was enacted by congress. It is in the process of being phased in with the minimum age of 67 being reached for those who were born in 1960 and later. This simple change in the assumed retirement age from 65 to 67 makes a considerable difference in the elderly dependency ratio (Fair, 2000). In any case there is no doubt that, age and demographic related changes will have a major impact upon future public policy. There has been, and will continue to be, a growing number of popular and scholarly books and articles warning that public policy must change now if we are to avoid an aging “train wreck.” Most developed countries are faced with the harsh reality that, with populations aging even faster than that in the United States, their retirement programs are currently financed by non-sustainable intergenerational income transfers rather than through actuarially-sound funded annuities. The growing dependency ratio, even if an imprecise measure, presents major challenges for many countries. It would seem apparent that any solution of the looming retirement funding crises is likely to combine some increase in retirement age for benefit eligibility and tax increases. Although little of substance was said by either candidate during the most recent presidential campaign, it is clear that the sooner we act to address the “baby boom” problem the less draconian the solution. The Kansas City Federal Reserve Bank, August, 2004 symposium addressed the topic “Global Demographic Change: Economic Impacts and Policy Challenges.” In his opening remarks Allen Greenspan (Greenspan, 2004) provided sage policy advice when he said: A doubling of the over-65 population by 2035 will substantially augment unified budget deficits and, accordingly, reduce federal saving unless actions are taken. But how these deficit trends are addressed can have profound economic effects. For example, aside from suppressing economic growth and the tax base, financing expected future shortfalls in entitlement trust funds solely through increased payroll taxes would likely exacerbate the problem of reductions in labor supply by diminishing the returns to work. By contrast, policies promoting longer working life could ameliorate some of the potential demographic stresses. Changes to the age for receiving full retirement benefits or initiatives to slow the growth of Medicare spending could affect retirement decisions, the size of the labor force, and saving behavior. In choosing among the various tax and spending options, policymakers will need to pay careful attention to the likely economic effects. It is highly unlikely that the solution to the pending Social Security/Medicare “train wreck” can be addressed simply by increasing payroll taxes. The train has been gathering momentum for some time. When Social Security was first established in 1935 there were 40 productive workers per benefit recipient, average life expectancy was 63 vs. the current 76, and the maximum contribution was 2% of $3,000 or $60. The maximum contribution is now 12.4% of $87,900 or $10,900. This does not include the Medicare rate of 2.90% with no income limit. Effectively the old age security payroll tax is now 15.3%. The number of productive workers per recipient is currently 3.3 and is predicted to fall to as few as 1.6 as retired boomers live longer lives. (Dychtwald, 1999) Kotlikof estimates that a payroll tax only solution would take an immediate and permanent hike in the payroll tax rate to 16.9% (Kotlikoff & Burns, 2004). Following Greenspan’s advice, an increase in payroll tax rates of almost 30% would likely reduce the labor force participation rate and thereby the productivity of the working-age population. It is not likely to help create new jobs or win political favor with working America. On the other hand encouraging longer working years will require a significant change in corporate and individual attitudes towards what is both productive and fair. As an aside, it is somewhat disingenuous that current political discourse tends to focus on the level of income taxes paid by different income groups and ignores the growing burden of payroll taxes on all but the highest income households. The Congressional Budget Office reported in 1998: Most families pay more in payroll taxes than in income taxes. In 1995, the employee portion of payroll taxes (including the Medicare portion of payroll taxes) exceeds income taxes for about 40 percent of families and individuals who had earnings. The combined employee and employer taxes exceeded income taxes for 80 percent of those families and individuals (Kasten, May, 1998). In 1995 the actual social insurance rate paid by all households below the highest quintile income group exceeded the actual individual income tax rate they paid. The lowest four quintiles accounted for 59% of federal government’s total social insurance tax revenue and only 29% of the federal government’s individual income tax receipts (Kasten, May, 1998). It should be noted that there is some evidence to support the claim that when progressive retirement benefits and life-time taxes are considered together, our social programs for the elderly might be considered progressive. However it should also be noted that in a 1998 survey of baby boomers, “just over one third (36%) feel personally confident that Social Security will be around when they retire” and “Only about four in ten (39%) feel confident Medicare will be available to them during retirement” (AARP, 1998)." @default.
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• W56869229 title "Managing Transitions in an Aging Society: What Should Business Students Know?" @default.
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