Greater Life Expectancy Correlates with Greater Economic Productivity

The International Longevity Center in the UK turns out interesting white papers every so often. Note that the organization is funded by a number of pensions and insurance companies, sizable business concerns whose long term success depends on (a) correctly predicting the future of human aging, and, (b) preventing the short term incentives of politicians and executives from steering them over a cliff. The first point requires research, and the second point requires presenting that research publicly and loudly. This is a time of great uncertainty for the pensions and life insurance industry, an era in which accelerated technological innovation in the medical life sciences makes prediction difficult in comparison to the state of affairs a few decades past. It is clear that life spans will leap upwards at some point, but when?

The latest white paper from the International Longevity Center runs the numbers to show that increasing life expectancy correlates with increased productivity in developed countries. The authors suggest that this results from a greater return on investment in education, in that educated people have more time in which to be productive following their education, and this tends to encourage greater investment in education as a path to productivity. This is an effect that can be suppressed by laws that force retirement at a set age, an iniquity that is thankfully fading away but nonetheless still exists in some professions and parts of the world.

One important underlying point in all this is that increased longevity is not a matter of adding years of disability to the end of life; it can only be achieved robustly by extending the span of productive healthy life. Aging is caused by accumulated molecular damage, and to the degree that this damage accumulation can be slowed, both healthy and overall life span is increased. That slowing of damage has progressed steadily and incrementally over the past few generations, an incidental side-effect of improved medicine and increased wealth. The goal of present rejuvenation research and development programs is to step beyond mere slowing to be able to repair the damage, and thus reverse aging. That will lead to the expected great leap upwards in life expectancy for people already in later life. The first of these technologies are already in commercial development, but until they are tested no-one can say for sure how effective they will be. Nor is it possible to make firm predictions on the timing of the following therapies, still early in development.

Towards a longevity dividend: Life expectancy and productivity across developed countries

The positive relationship between income and life expectancy has been demonstrated across many different time periods but the causes of the relationship are much debated. In particular, there is a pertinent question about the direction of the relationship - does higher income lead to higher life expectancy or does higher life expectancy lead to higher income? This report is devoted to exploring the latter relationship. More specifically, based on previous theory and evidence, we develop a statistical method for assessing the extent to which differences in life expectancy explain cross country variation in productivity - measured in terms of GDP per hour worked, per worker, and per capita. We also explore two of the potential channels through which life expectancy might influence productivity - increased educational attainment and greater participation in the labour market.

While our previous research focussed on possible reasons why different age dynamics might affect productivity differently, this report is focussed more exclusively on the role of life expectancy. According to the wider economic literature, there are many reasons why increased life expectancy might boost economic output. Healthier workers are likely to be more productive, while longer lives may result in greater incentives to invest in schooling. The latter point is worth emphasising - if parents only expect their child to live to 40, the expected lifelong returns to investing in their education is likely to be far lower than if they are expected to live to 80.

We explore the relationship between life expectancy and various measures of productivity across OECD countries between the years 1970-2015. We use all three measures of GDP (per hour worked, per worker, and per capita) because population dynamics may impact the productivity of the workforce differently to the productivity of the population as a whole. For instance, an increased share of older retired people is likely to act as a drag on GDP per capita but its effects on the productivity of the workforce itself remain contentious.

We found life expectancy to be positively associated with productivity and that this relationship was robust to different productivity measures, the inclusion of a range of explanatory and control variables and different instruments. Moreover, we found life expectancy to be a more powerful determinant of productivity than either the young or old age dependency ratios. When investigating the channels through which life expectancy boosts productivity, we found education to be more important than employment. Regarding the latter, due to changes to public policy, such as the abolition of default retirement ages and raising pensionable age, the link between life expectancy and employment at older ages has been recoupled so there is increased capacity for life expectancy improvements to translate into higher employment rates at older ages.

Overall, this analysis suggests that there may well be a longevity dividend, whereby improvements to health result in wider economic and productivity improvements. Improving health and raising life expectancy must therefore remain a key goal not only for a nation's health and wellbeing but also for the wider economy. This is important, since in many debates about long run government spending, health spending is simply seen as a drain on fiscal resources, yet if by raising life expectancy it results in productivity improvements, this could support increased tax revenue for the exchequer. Public policy and economic forecasters should consider how best to take into account the potential fiscal benefit of better health and not neglect it in discussions of our long run sustainability.

Comments

This is an essential finding in support of SENS. I spent some time at the web site for the Committee for a Responsible Federal Budget. There, the have a "game" where you are asked to choose from a menu of policy options to reduce the debt to 70% of GDP in 10 years ( http://www.crfb.org/debtfixer/ ). One of the policy areas you get to choose from is Health Care. Nowhere in the list of policies is investment in SENS.

I think it should be a high priority for the Methuselah Foundation or others in the community to do the demographic and financial modeling to show that the measures of GDP (per hour worked, per worker, and per capita) over a lifetime, under various SENS scenarios and assumptions about Social Security / Medicaid retirement age, reduces the Federal deficits/debt, justifying far greater Federal research investment and FDA policy changes in support of SENS.

With baby boomers retiring, and other demographic changes, there should be some urgency. We can't afford aging and death any longer.

Posted by: Tom Schaefer at September 4th, 2018 8:10 AM

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