Many demographers and sociologists are studying about aging population and some of them are worried about the impact of this change to society. Since I am neither a demographer nor a sociologist, I am not in position to make an opinion about this. However, as an economist, I want to point out that there is one unnecessary “concern.” The purpose of this article is to fix out a misunderstanding among some discussions about what this change in structure of influences people.
The misunderstanding is that younger people feel burdensome about the increasing need to support the older people. As an example, a sociologist mentioned in an article, “Look at the structure of population. The period when 12.4 million younger people from ten to twenty-nine years old will have to feed 17.5 million older people above 50 years old will come. The number of children below nine years old decreased a half to 4.5 million. After 20 years later, one younger person has to support four older people, which is literally ‘a hell.’”
However, this opinion is not reasonable from an economic perspective, since production is not generated only by a labor. Labor combines with capital to become production. Then, the production is divided into labor income and capital income. Younger people get paid from their labor, whereas retired older people live with incomes (including a pension) from asset earned by funding indirectly, saving and using other investing techniques. The older people lead their own life by offering capital to production and creating income in return for providing the capital.
In detail, younger people get an labor income by offering a labor when they are young. Some of them consume the money, whereas the others save it. They pay on pension for their life saving or use other financial investment and all of these are economically “saving.” In terms of economics, buying a stock is kind of saving, not an investment because the saved fund flows in the company and ultimately used for its investment. In other word, saving at a young age indirectly offers a capital to production since this money indirectly turns into an investment. Income earned at old age such as pension is called capital income in return for their saving at a young age.
If production is generated only by a labor and incomes only come from labor income, it is reasonable that the elderly whom one younger person “has to feed” increase and the burden of younger people will increase more when the population of younger people decreases. However, production is a result from a combination between labor and capital. The retired elderly get capital income by providing the capital. For example, consider an economic situation of rice farming. The youth are in charge of harvesting, but the farming machine is utilized, too. Even though the number of the youth reduces, the amounts of cultivated crops will increase due to the farming machine. In this situation, the people supplying the machine are capitalists and they include many older people. When they were young, they saved some of their incomes. They use those for an investment to develop the machine, which means that the elderly indirectly offered the machine in farming.
Therefore, they receive capital income in returns for offering the capital and can live with this income. Considering current situation, many of the elderly do not depend on their offsprings but make a living from assets at a young age. The mention of the sociologist above is reasonable when the retired elderly people live off their offsprings, but when many older people live with their assets, the opinion does not make sense.