Some observers fear that this rapid demographic shift will cause attendant economic upheaval: while consuming more healthcare, older adults do not earn or save as much as younger adults. These patterns could slow economic growth, reduce tax revenue, and raise pension spending.
It’s high time we stopped undervaluing older adults
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However, the direst economic outcomes forecast for population aging have yet to materialize. Policy reforms, behavioral changes, and technological innovations (such as automation) may be playing a role in alleviating the anticipated fiscal stress. Our recent article, Valuing Productive Non‑market Activities of Older Adults in Europe and the US, documents one additional factor that could be contributing to this discrepancy: the contributions of older adults have been substantially undervalued.
Those contributions take two forms: market activities (earned income from employment) and productive non-market activities (PNMA), such as caring for grandchildren, providing support to others, and volunteering. The market activity value derives from data on earnings drawn from multiple waves of household surveys. To assess the value of PNMA, these activities are gleaned from the survey data and assigned a monetary value based on wages for occupations that perform similar functions. These two streams—market activities and PNMA—are combined to represent each adult’s economic contribution, which are aggregated to the national level to estimate the total contributions that older adults make in each country. Those numbers are then projected to the year 2050, taking population dynamics into consideration.
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The surveys show that older adults are less likely to work than those aged 50–59, and if they do, they are likely to work for fewer hours but higher hourly wages (except in the US, where wages between the two groups are similar). While the PNMA we examined are similar between older adults and those aged 50–59 (varying somewhat by income level, health, national policies, cultural norms, and demography), older adults are much more likely to help take care of grandchildren. A significant share of older adults (10–15%) provide care or support to others on an “almost weekly” or “almost daily” basis, likely impeding their capacity to participate in the labor market.
A snapshot of median ages around the world
Image: Our World in Data
While both market and non-market contributions tend to decrease as people age regardless of health status, we also analyzed these contributions before and after an acute health shock. Such shocks adversely affect the market and non-market contributions of both men and women, though a greater reduction in employment occurred for men across all three surveys. However, the PNMA reduction was greater for women than for men. This may reflect baseline differences in how older men and women tend to engage in productive activities. Indeed, older women were 4% more likely to participate in the measured PNMA (and contributed more time to these efforts when they did participate), while older men were 7% more likely to be employed (and earned substantially more when employed). This relationship may suggest a trade-off between employment and PNMA.
Similarly, while higher retirement ages were associated with a greater likelihood of employment, they were also associated with a lower probability of PNMA participation. This challenges the traditional assumption that raising retirement ages equals increased productivity; while higher retirement ages may boost tax revenue, these gains may be offset by losses in PNMA.
This approach has inherent challenges and uncertainties, such as the assumption that current cohort characteristics, such as the average health of older adults, will persist. Will improvements in medical technology lead to healthier older adults, or will increased life expectancy and diminishing social safety nets lead to a less healthy populace? And how will those changes correspond to older adults’ market and non-market behavior? How does educational attainment influence these numbers? The symbiotic nature of health and wealth complicates these concerns, though the methodological approach employed attempts to address these issues.
The results show that older adults make significant economic contributions: € 9,700 ($11,565) per person in the European sample and the equivalent of € 17,200 ($20,511) in the US sample. In the European countries sampled, total 2015 contributions were estimated at €1.1 trillion, equivalent to 8% of gross domestic product (GDP), while for the US those contributions were equivalent to 7% of GDP.
While the US average of older adults’ PNMA is 50% of the value of their market contributions, the average for Europe is 84%. Clearly, non-market activities constitute a significant portion of older adults’ economic contributions, which is an important dynamic for policymakers to consider as they reckon with population aging. In particular, the effect of acute health shocks highlights the importance of health to older adult economic contributions, and policies that bolster health may reap large dividends.
This analysis likely understates the total value PNMA for several reasons: it excludes activities like household labor (e.g., cooking and cleaning), it uses retrospective surveys wherein respondents often underreport time spent on non-market activities, and each hour spent on PNMA may be more valuable than assessed here. Indeed, this article’s central conclusion is that the productive contributions of older adults are routinely undervalued.
Capturing these varied and vital contributions in economic terms could bolster support for the policies and programs that help older adults lead active and fulfilling lives. In doing so, it may head off some of economists’ gloomiest predictions about population aging.
