Workshop objectives 1. To understand differences in DD models and outputs 2. To assess contribution of women to harnessing the DD 3. To understand issues with implementing DDrelated development strategies at the country level 4. To gain knowledge on strategies for communicating research on the DD to nontechnical audiences
Field guide to available DD models J.M. Ian Salas Jan. 25, 216
Preface In ICFP program, there is a session on Modeling the DD 1. NTA labor-consumption age profiles 2. DemDiv simulation tool 3. CKW macro-simulation model This presentation aims to situate the approaches against each other
Different DD-related approaches 1. NTA labor-consumption age profiles 2. DemDiv simulation tool 3. CKW macro-simulation model * Nigeria example
Economic Lifecycle The economic lifecycle refers to the variation over our lifetime of our needs and our abilities Expresses itself in age variation in what we consume and what we produce In all contemporary societies we have extended periods at the beginning and the end of our lives, when we are consuming far more than we are producing.
Economic Lifecycle Labor income Wages & salaries Self-employment income Profiles based on household surveys of wages and income Adjusted to match National Income and Product Accounts Reflects age variation in productivity, hours worked, unemployment, and labor force participation. Consumption Public and private Education, health, and other Profiles based on surveys and administrative records Adjusted to match National Income and Product Accounts Reflects age variation in expenditures
Important features of the economic lifecycle In all contemporary societies there are large per capita lifecycle deficits at both the young and old ages. The per capita child deficit is rising as fertility declines, more is invested in human capital, and entry into the labor force is delayed. The per capita old age deficit is rising as age at retirement has declined and spending on health care has increased. The aggregate economic lifecycle is dominated by changes in age structure.
Philippine NTA Pesos 7, Per capita age profiles Consumption & Labor income, 1999 6, Labor income 5, 4, Consumption 3, 2, 1, 1 2 3 4 5 6 7 8 9+
Philippine NTA Aggregate age profiles Consumption & Labor income, 1999 Billion Pesos 7 Total consumption 6 5 Total labor income 4 3 2 1 1 2 3 4 5 6 7 8 9+
Philippine NTA Billion Pesos 6 Aggregate age profiles Lifecycle deficit, 1999 5 4 3 2 Deficit 1-1 -2 1 2 3 4 5 6 7 8 9+ Surplus Deficit -3
2 1 1 11 21 31 41 51 61 71 81 91 USA, 23 Austria, 2 Sweden, 23 Germany, 23.9.9.9.9.6.6.6.6.3.3.3.3 1 2 3 4 5 6 7 8 9+ 1 2 3 4 5 6 7 8 9+ 1 2 3 4 5 6 7 8 9+ 1 2 3 4 5 6 7 8 9+ Japan, 24 Finland, 24 Spain, 2 Slovenia, 24.9.9.9.9.6.6.6.6.3.3.3.3 1 2 3 4 5 6 7 8 9+ 1 2 3 4 5 6 7 8 9+ 1 2 3 4 5 6 7 8 9+ 1 2 3 4 5 6 7 8 9+ Taiwan, 1998 Korea, 2 Hungary, 25 Mexico, 24.9.9.9.9.6.6.6.6.3.3.3.3 1 2 3 4 5 6 7 8 9+ 1 2 3 4 5 6 7 8 9+ 1 2 3 4 5 6 7 8 9+ 1 2 3 4 5 6 7 8 9+ Chile, 1997 Costa Rica, 24 Uruguay, 1994 Brazil, 1996.9.9.9.9.6.6.6.6.3.3.3.3 1 2 3 4 5 6 7 8 9+ 1 2 3 4 5 6 7 8 9+ 1 2 3 4 5 6 7 8 9+ 1 2 3 4 5 6 7 8 9+ Thailand, 24 Indonesia, 25 China, 22 Philippines, 1999.9.9.9.9.6.6.6.6.3.3.3.3 1 2 3 4 5 6 7 8 9+ 1 2 3 4 5 6 7 8 9+ 1 2 3 4 5 6 7 8 9+ 1 2 3 4 5 6 7 8 9+ India, 24 Nigeria, 24 Kenya, 1994.9.9.9.6.6.6.3.3.3 1 2 3 4 5 6 7 8 9+ 1 2 3 4 5 6 7 8 9+ 1 2 3 4 5 6 7 8 9+ YL C CF CG Source: Tung (211)
Age Reallocation System Age reallocation system is the counterpart of the economic lifecycle Economic system that shifts resources from one age group to another. Accounting: Fills the gap between consumption and labor income (flow constraint). All reallocations fall in two broad classes Transfers Public transfers (cash and in-kind) Private transfers (familial including intra-household) Asset-based reallocations Asset income Saving
The NTA Flow Account Identity Inflows Outflows Labor Income Consumption Asset Income Saving Transfer Inflows Transfer Outflows l a Y ( x) Y ( x) ( x) C( x) S( x) ( x) Inflows Outflows l a C( x) Y ( x) ( x) ( x) Y ( x) S( x) Lifecycle Deficit Net Transfers Asset-based Reallocations Age Reallocations where x is age.
Funding the Child Deficit Components of Lifecycle Deficit, US 23 7 6 Net public transfers public schools, value of public 5 goods allocated to children. 4 3 Public Asset-Based Reallocations Private Asset-Based Reallocations Public Transfers Private Transfers Asset-based flows none for children, small for young adults (mostly credit). US $ 2 1-1 Net private -2 transfers intrahousehold transfers to children; -3largest in all 3 6 9 12 15 18 21 24 27 3 33 36 39 42 45 48 51 54 57 6 63 66 69 72 75 78 81 84 87 9 countries studied. Age Source: NTA
Funding the Old-age Deficit Components of Lifecycle Deficit, US 23 7 6 5 4 Public Asset-Based Reallocations Private Asset-Based Reallocations Public Transfers Private Transfers Asset-based reallocations asset income and dis-saving from owner-occupied housing, private pension funds, personal saving, etc. US $ 3 2 1 Net public transfers social programs (public pensions, health care, etc.), benefits from general programs, less taxes paid. -1-2 -3 Net private transfers interand intra-household transfers. 3 6 9 12 15 18 21 24 27 3 33 36 39 42 45 48 51 54 57 6 63 66 69 72 75 78 81 84 87 9 Age Source: NTA
Nigeria age profiles, 24 and 29 Source: NTA
Support ratio Support ratio = Working-age population (15-64) Dependent population (<15 + 65+) Economic support ratio = No. of effective producers No. of effective consumers
Comparing the two for Nigeria 2.4 Support Ratio.65 Economic Support Ratio 2.6.55 1.6.5.45.4.35.8 195 2 25 21.3 195 2 25 21
Mechanical and behavioral sources of potential growth Source: NTA manual
First and second dividend in Nigeria Source: Mason, Lee, Jiang (215)
DemDiv: Demographic sub-model Source: DemDiv technical guide
DemDiv: Economic sub-model Source: DemDiv technical guide
Source: DemDiv
DemDiv: Kenya example Source: DemDiv
DemDiv: Kenya example Source: DemDiv
DemDiv: Kenya example Source: DemDiv
DemDiv: Kenya and Uganda output Kenya Uganda Vision 24 Source: DemDiv briefs
DemDiv: Nigeria reaches 7% mcpr in 25 6. Total Fertility Rate 5. 4. 3. 2. 1.. 21 215 22 225 23 235 24 245 25 Base Econ Only Econ + Educ Econ + Ed + FP
DemDiv: Nigeria reaches 7% mcpr in 25 $1,3 Gross Domestic Product per capita $1,25 $1,2 $1,15 $1,1 $1,5 $1, 21 25 Base Case 25 Econ Only 25 Econ+Ed 25 Econ+Ed+FP
DemDiv intended for practical use with concrete policy levers and connections relationships stylized from cross-country regressions policy variables for econ, education, and FP distinct and separate, so no dynamic feedback loops incorporated
CKW: Full model of production Source: CKW (215)
CKW: Micro-founded relationships Source: CKW (215)
CKW: Nigeria TFR under alternative scenarios Source: CKW (215)
CKW: Nigeria population projected under alternative scenarios Source: CKW (215)
CKW: Simulated income per capita Source: CKW (215)
CKW: Female employment Source: CKW (215)
CKW: Which feature contributed the most? Source: CKW (215)
Summary NTA: support ratio a refinement of dependency ratio DemDiv: macro-based simulation model, policyoriented CKW: micro-founded simulation model Schultz's take micro experiments along the lines of Matlab DD benefits course through changes in time allocation/economic activity of women also health and productivity gains of women and their children
Summary (2) Complicated endeavor because of complexity involved Approaches highlight different features NTA: economic lifecycle, support system; a bit static CKW: structural model showing channels and mechanisms; with dynamic feedback loops DemDiv: ease of use and relevance to policymakers
Questions/issues to be raised Need for system-level understanding of the economic and demographic forces that are at play Things change slowly, but compounding magnifies any initial change How does this modeling relate to the oftenmentioned assertion that context-specific policies are needed to realize the DD?