This week, we saw large scale rioting on television that is happening in France. The President is trying to increase the official retirement age from 62 to 64. People are protesting in the streets and trying to put pressure on the government to stop this change. They feel that the rules are changing in the middle of the game.
France is facing a problem that the United States, Japan and many other industrialize countries are facing. Populations are aging. Policymakers must deal with decline in working age population, increased health care, unsustainable pension commitments and changing needs from younger citizens. In 17 of the biggest of these countries over 20% of the population is 65 or older.
Changing characteristics in population is not a new problem. In the US and many of our allies, there was a baby boom after the soldiers came home from World War II. As the babies aged, cities had to build new schools, the suburbs grew in population and many new products such as disposable diapers were created. Stores stocked sports shoes, clothing, furniture and things to supply growing young families. The station wagon became a popular car. Later, colleges and universities expanded to meet increased demand. The demand for some of these products lessens as the population ages.
Now, every day, 10,000 Baby Boomers turn 65 in our country. Since seniors often use more health care, this puts more pressure on Medicare and the health care system. Because of better medicine, life expectancy has increased which increases demand even more.
The aging Boomers are also putting pressure on the Social Security System. It was always a program were currently working people paid the benefits for those retired. Now the ratio of these two groups in rapidly swing negative.
When people retire, they stress public social systems because they often transition from tax payers to government consumers. Since we have a progressive tax system, they pay lower tax rates than they did while working. Also, their full time exit from the work forces can cause employee shortness as we are now experience and lead to increasing wages. This is one of the contributors to inflation. That can lead to a drop in gross domestic product and a slowing of the economy. So many parts of the financial world are inter-connected and there are not simple solutions to these problems.
Change will not stop anytime soon as the financial world revolves. We are now seeing many more “gig workers” such as UBER drivers and home delivery private contractors in the work force. How will fund retirement for these people who are self-employed. We need to have an immigration system that allows younger workers with needed skill sets become part of society.
We need to train current workers with the right skills and equipment to provide needed goods and services. The industrial revolution changed the way things were manufactured from small specialty shops to larges factories. We need to discover what will be the changes for the wave of the future. We will get there, but there may be many bumps in the road just like in France.