An Age Perspective on Economic Well-Being and Social Protection in Nine OECD Countries

1. For a number of reasons, incomes vary strongly with age. The nature of this variation is of interest for a wide range of policy purposes. Since age structures differ across countries, knowledge about the incomes earned by different age groups is also necessary for understanding and interpreting international comparisons of overall inequality. This paper quantifies the economic well-being of different age groups and the extent to which they rely on incomes from public and private sources. The analysis aims at establishing how social benefits, and the taxes needed to finance them, affect income levels and income disparities across different age groups. Results are compared across nine OECD countries.2. We use tax-benefit microsimulation models in conjunction with detailed household micro-data in order to illustrate the influence of patterns of market incomes, household structures and different types of social protection measures on the income distribution among and between individual age groups during the late 1990s. The aim is to establish a “baseline” using information from a period that represents an early phase of the projected increase in dependency ratios and therefore also pre-dates some of the major reforms that are being introduced to address these demographic developments. Given the strong existing focus on macro-economic and fiscal consequences of demographic changes, we argue that such an explicit distributional perspective is urgently needed. The results for the late 1990s provide a counter-factual for determining the relative importance of demographic trends and policy reforms in driving observed changes in resource distributions and financial well-being.3. Results show that existing social protection systems are to a very large extent “old-age” protection systems, with those aged 65 and over typically receiving almost three times the (net) cash transfers of the average person. In some countries, cash benefits are even more targeted towards elderly individuals, while comparatively little is spent on securing adequate resources for younger generations. Nevertheless, in most countries, the incidence of “low” incomes is higher among old-age individuals than for the population as a whole.4. Even without accounting for health-related spending, which is not considered here, these patterns clearly highlight the challenges associated with ageing populations. The results also underline the importance of carefully designed safety-net measures, however. Existing spending patterns and distributional outcomes suggest that there is considerable scope for re-balancing social protection spending without necessarily compromising distributional objectives.