Measuring the value of unpaid household, caring and voluntary work of older Australians

Research Paper No. 34 – December 2003

The 'challenge' of population ageing

Like most countries throughout the world, Australia is experiencing the demographic transition of population ageing. Just a few statistics illustrate the magnitude of this transition. In 1976, 9 per cent of the Australian population were aged over 65 years. By 2001 this had risen to 12 per cent and is projected to reach 19 per cent by 2021 and 27 per cent by 2051 (ABS 2003b). The proportion of the very old population (aged 85 and over) is projected to treble from 1.5 per cent to more than 4 per cent between now and 2042 (Commonwealth of Australia 2002).

Population ageing is the result of two parallel demographic patterns: increased longevity and declining fertility. As people live longer, and there are fewer young people being born, older people inevitably become a larger proportion of the population. Australian life expectancies are among the highest of OECD countries, and this is expected to continue. In the past 40 years, Australian life expectancies have increased by more than 8.3 years for men and 7.6 years for women. Based on recent trends, men born in 2052 are projected to live to 84.2 years, an average of 7.2 years longer than those born in 2001. Women born in 2052 are projected to live to 87.7 years, 5.3 years longer on average (ABS 2003b). The fertility rate in Australia has declined from a high of 3.55 in 1961 to an alltime low of 1.73 in 2001 - well below replacement levels.

Population ageing is usually portrayed as a problem or, more politely, as a 'challenge'. In 1994, the World Bank (1994) brought out its recipe for 'averting the old age crisis'. It has since become almost commonplace to refer to pension schemes as being 'in crisis', and to assert that they will not survive the impact of demographic ageing. Frequently, discussions are framed in terms of the 'burden' of older people and an ageing population. The OECD has outlined a number of principles for action for Maintaining Prosperity in an Ageing Society. These principles focus upon encouraging later retirement and increased employment for older workers, fiscal consolidation, the development of advance-funded pension systems, and improving the cost-effectiveness of health and long-term care (OECD 1998). Others see the long-term strategy on ageing in terms of ensuring that people everywhere are able to age with security and dignity and to continue to participate in their societies as citizens with full rights.

There are two main reasons population ageing is seen to be a problem. One reason is economic and the other is social.

Economic concerns

The economic consequences are the most widely canvassed 'problem' of an ageing population. The main reason for the anticipated economic costs of population ageing stems from greater financial dependency of older people and the consequent costs to government (and in turn the taxpayer). This dependency is normally expressed in terms of the aged dependency ratio - the ratio of the population aged 65 and over to those aged 15-64 years. The population aged over 65 years is deemed to be dependent since they typically are not available for paid work and frequently require income support and draw on other forms of government expenditure (for example, health).1 It is interesting that the Treasury Intergenerational Report refers to the 'aged to working age ratio' rather than the aged dependency ratio.

Between 1971 and 2002 the aged dependency ratio has risen from 14 per cent to 19 per cent. The Australian Retirement Income Modelling taskforce projects this ratio to increase to 30 per cent by 2031 and 41 per cent by 2042 (Commonwealth of Australia 2002) with most of the increase occurring between 2010 and 2030 as the baby boomers reach retirement age (Walker 1997).

Increasing aged dependency ratios are widely considered by governments to impose an increased financial burden on governments, and thus taxpayers, for health and income support. Treasury projects that between 2001 and 2041, health and aged care expenditure will increase from 4.7 per cent to 9.9 per cent of GDP and age and service pensions will increase from 2.9 per cent to 4.6 per cent of GDP (Commonwealth of Australia 2002).

These increased outlays must be met by taxation that will be levied on a relatively smaller workforce. It is projected that while there are currently more than five people of working age for every person aged over 65, this will halve by the middle of the century to just 2.5 people of working age for each person aged over 65 (Access Economics 1999).

While this increase in the aged dependency ratio will be partly compensated for by a decline in the child dependency ratio due to declining fertility, there will nevertheless be a net increase in the overall dependency ratio (that is, child and aged dependency ratios). More importantly, it has been estimated that the outlays associated with people aged over 65 are about four times greater than those associated with dependent children (Department of Community Services and Health 1990).

Alongside population ageing and increases in the aged dependency ratio, two other important developments have occurred in Australia that potentially exacerbate the 'burden' of an ageing population.

The first of these is the declining labour market participation of older people, especially among men. The average retirement age for men in Australia is 58 years. Partly as a result of economic restructuring in the 1980s and 1990s older men are withdrawing from the labour market earlier and at increasing rates.

Participation rates for men aged 55-59 years have declined from 91 per cent in 1970 to 75 per cent in 2003 (ABS 2003a) and are projected to decline to 70.7 per cent by 2011 (ABS 1999). Even though the declining rates for men have been compensated somewhat by the increasing rates of workforce participation of women in this age group, the labour market participation of men and women aged 55 years and over are low by comparison with similar OECD countries (Bishop 1999).

The second trend is the pressure on governments to maintain balanced budgets without overtly increasing taxation (Commonwealth of Australia 2002). This pressure to maintain a balanced budget is often couched in terms of generational equity (Rawls 1971). This has led governments to try to contain expenditures, especially in areas of escalating or projected expenditure growth such as health and income support.

The recent Intergenerational Report prepared by the Australian Treasury argues that: 'The projections in this report suggest that, if policies are not adjusted, the current generation of taxpayers is likely to impose a higher tax burden on the next generation. The required adjustment in taxes and spending is about 5 per cent of GDP by 2041-2042, or $87 billion in today's dollars. Governments will need to exercise sound policy management to minimise the tax burden transferred to the next generation, particularly if Australia is to keep its position as a lower taxing and spending country.' (Commonwealth of Australia 2002: 1)

Social concerns

In the context of the financial implications of an ageing population, some ageing theorists (Preston 1984a; Thomson 1989; Laslett and Fishkin 1992; Saint- Etienne 1993; Sgritta 1997) have argued that population ageing will have profound social implications.

In particular, these theorists argue that the financial strains that are predicted to flow from population ageing have profound implications for generational equity and intergenerational solidarity. They paint a picture of an emerging intergenerational competition and conflict replacing a former intergenerational solidarity. They see the situation developing in which the generations compete for limited resources with this competition replacing the 'generational contract' whereby there was an implicit understanding that the younger and middle-aged generations would provide for the needs of the elderly. More specifically, these theorists argue that population ageing means that the competition for limited resources will see the ending of the 'generational contract' - that is, the general acceptance by the younger generation that the young and active will provide for the needs of the elderly (Bengston and Achenbaum 1993). The result of this is expected to be increasing age polarisation and age group consciousness, which may in turn lead to conflict between the generations and thus undermine social cohesion.

In the politics of arguments about generational equity, the older generation (the 'greedy geezers') is frequently seen to be the guilty party that has managed to obtain an unfair share of government expenditure at the expense of younger generations. Thomson (1992) asks: 'Why should the young adults of the 1990s and beyond feel bound to pay for the welfare state of their predecessors? Why should they not argue that there is now no contract between generations, because it has been voided by the behaviour of their elders?' (Thomson 1992: 231).

The elderly have been painted as the winners and younger people as the losers. Pressure groups such as Americans for Generational Equity complain that the retired are taking more of government funds than is their due. Preston (1984b) has pointed to the sharp increases in child poverty and the rapid decline in poverty among older people in recent decades and attributes this partly to the lobbying power and self-interest of older people: 'Let's be clear that the transfers from the working-age population to the elderly are also transfers away from children' (Preston 1984a).

The conservative writer Peter Peterson has argued that: 'From a society that once felt obliged to endow future generations, we have become a society that feels entitled to support from our children. Unless this mind set changes, Americans may one day find that all they really are 'entitled to' is a piece of the national debt' (Peterson 1999:11).

In summary, the demographic transition of population ageing has largely been framed in negative terms - terms in which older generations are largely regarded as a cost or a burden. Population ageing in the context of limited government resources has also been seen as undermining generational equity, and the competition between generations for government resources has been accused of leading to generational conflict, the outcome of which has been unfair and harmful for younger generations.

This portrayal of older people as a cost, and as takers, represents an unbalanced view of the contributions of older people. While the direct cost to government of providing services to older people can be calculated, this approach neglects the contributions of older people earlier in the life course (Marshall and Mueller 2002), and the ongoing contributions of older people in later life.

This paper seeks to provide more balance to the debate about the cost of older people in an ageing society and to estimate the financial value of some of the ongoing contributions of older people that are not measured in national accounts.

Others have, of course, noted the ongoing contributions of older people. In framing the National Strategy for an Ageing Australia the then Minister for Aged Care, the Honourable Bronwyn Bishop, acknowledged that: 'People continue to make significant contributions as they age through a range of activities including volunteering and care giving - both of which substantially reduce the demand on Government outlays.' (Healthy Ageing Taskforce 2000: 13)

Previous surveys have found that 37 per cent of volunteer work is contributed by people aged 55 years and over (ABS 2001) and that 21 per cent of principal carers of people with disabilities are aged over 65 years (ABS 1998b). In fact, older people are more likely to be givers of care than receivers of care (Healthy Ageing Taskforce 2000). Furthermore, 21 per cent of children aged less than 11 years receive some child care from grandparents, and 41 per cent of children who receive some sort of child care obtain at least some of this care from grandparents (ABS 2000a). In addition to these contributions are financial transfers from older to younger family members in the form of gifts, loans and inheritances.

However, much of the debate about ageing is still framed almost exclusively in terms of the financial cost of older people. In this context the National Strategy for an Ageing Australia recommended that researchers undertake research on the costs and benefits of an ageing population, and extend research into the volunteer/community contribution of older people.

Encouraging a balanced view

In an attempt to provide some preliminary data so that the debate about the 'cost' of older people can be properly framed, this paper provides estimates of the financial value of the unpaid contributions of older people - both to their family and to the wider community. In so doing, it brings data to bear on the image of older people as takers and 'greedy geezers'. The paper thus encourages a more balanced view of the net costs and benefits of older people in an ageing population.

Data from the 1997 Australian Time Use Survey are used in the paper to estimate the amount and value of unpaid work of different age groups. The Australian time use data provide detailed information regarding for whom a task or activity is undertaken. This allows us to distinguish between unpaid work which is undertaken for family members in a person's own household, for family members not living in a person's own household, and for friends, neighbours and others in the community. The ability to determine accurately for whom unpaid work is undertaken is not available in most time use surveys.

The rest of this paper is structured as follows. The next section discusses the measurement and definition of unpaid work and the data used. The third section discusses the valuation method used, and the fourth section presents estimates of the value of unpaid work. The penultimate section presents information on the incidence of unpaid work, and the final section makes some concluding comments.

1. However, it has frequently been pointed out that this ratio has many problems and can unfairly perpetuate negative stereotypes of older people. The simple ratio does not take account of the contribution of older people who remain in the labour market, or that of younger people not in the labour market. Nor does it recognise the degree of financial independence of many older people.