Jane the Actuary General Interest

Forbes post, “What Are The Long-Term Consequences Of Our Aging Population? It’s All Guesswork”

Originally published at Forbes.com on May 26, 2021.

 

Last Friday, the New York Times made a splash with its report, “Long Slide Looms for World Population, With Sweeping Ramifications,” laying out the consequences of persistently-low fertility rates all across the globe.

“The strain of longer lives and low fertility, leading to fewer workers and more retirees, threatens to upend how societies are organized — around the notion that a surplus of young people will drive economies and help pay for the old. It may also require a reconceptualization of family and nation. Imagine entire regions where everyone is 70 or older. Imagine governments laying out huge bonuses for immigrants and mothers with lots of children. Imagine a gig economy filled with grandparents and Super Bowl ads promoting procreation.”

This is not just a matter of those countries with historically low birth rates, like Japan or Italy: “Even in countries long associated with rapid growth, such as India and Mexico, birthrates are falling toward, or are already below, the replacement rate of 2.1 children per family.”

And the consequences are not merely a matter of closed maternity wards, kindergartens and schools converted to nursing homes, or universities competing for students instead of vice-versa. Instead, scholars and researchers are asking questions such as these:

  • How will the need to provide financial support as well as medical and personal care to an increasing proportion of the population affect a country’s economy?
  • How will these shifting needs, and the shrinking proportion of the population in the labor force, affect the country’s ability to function, purely from a labor market perspective?
  • What less quantifiable impacts will a greying population have on a country’s vitality and prosperity?

Some of this is a simple matter of math. The World Bank provides old-age dependency ratio projections through the year 2050, based on consensus assumptions regarding future fertility and mortality rates. In 2010, the ratio for the US stood at about 20 oldsters (age 65 and above) per 100 working-age people (ages 15 to 64); in fact, this ratio had been more or less level throughout the 90s and aughts as well, but then it began to climb. In 2020, the ratio stood at 26. In 2038, it’s forecast to hit 35, at which point it more-or-less levels off again.

(To be sure, the standard population forecasts at the United Nations from which this data appears to be derived, are based on assumptions around fertility rates which may not, or may no longer, be reasonable, in particular for the United States, where the calculations, as of 2019, are based on a fertility rate of 1.78 children per women, projected to increase gradually, to 1.80 in 2030 and 1.82 beginning in 2065. The most recent actual data is a fertility rate of 1.64 for the year 2020 (that is, with only a small impact of Covid 19 and generally reflecting longer-term declines); while these low rates have been explained as only temporary and artificial due to a calculation method that uses old and no-longer-valid expectations of childbearing ages, recent calculations at Brookings project a longer-term TFR only recovering up to 1.77 children per woman, using “moderate” assumptions, but potentially declining to as low as 1.44 if using more conservative assumptions. For comparison, the UN forecasts that fertility rates for Germany will recover from 1.61 now to 1.71 in 2050, for Italy from 1.30 to 1.51, for Japan from 1.37 to 1.57, and for Korea from 1.08 to 1.44.)

Worry 1: finances

This math is daunting, to be sure. But in the year 2020, the old-age dependency ratio for Germany already stood at 33, almost as great as our projected “doom” scenario. And in Japan, that ratio already stood at 48. Both of these countries remain economic powerhouses, with reports on worries about the impact of needing to provide for the elderly in those countries always framed as a concern for the future. The balance of workers to the elderly in Germany has not affected the country’s debt-to-GDP ratio, which stands at 57%, And while Japan has a ratio of 238%, this has been a matter of deliberate fiscal policy rather than a crushing burden of caring for the elderly.

To what extent is Japan, right now, experiencing the ill effects of a population imbalance, in terms of its finances and its government’s ability to meet the needs of its people without destructively-high levels of government spending? Readers, each time I’ve tried to find the answer to this question, I’ve come up empty.

Worry 2: labor shortages

Germany, in 2015, publicly welcomed a mass migration of asylum-claimants with hopes that they would fill in forecast holes in the labor force, though optimistic reports at the time of highly-educated Syrians faded and Germany struggled to integrate its new residents with a forecast that even after five years in the country, migrants still had only a 1 in 2 chance of being employed.

Japan has had similar ongoing worries of labor shortages, with government attempts to find solutions in immigration, an increase in women’s labor force participation, and a change in its work culture. But, more crucially, Japan is playing a leading role in increasing automation/robotics to solve this problem, for example in the construction industry, as well as in eldercare.

And, indeed, however much immigration advocates use forecasts of future labor shortages as grounds for increasing legal immigration normalizing illegal immigration (e.g., Vox, in 2019: “The US economy needs more low-skilled immigrants”), at the same time, there is no shortage of predictions of worker displacement due to automation, such as this 2019 Brookings forecast that a quarter of U.S. workers could be displaced by automation. Some even believe that worker displacement will be so dramatic that it will warrant a Universal Basic Income to accommodate a significant portion of the population exiting the labor force without suffering in poverty.

What future we’re actually headed towards is unknown, but adds up to, at least, less cause to worry about shifts in the proportion of workers.

Worry 3: less-quantifiable changes in vitality and prosperity

What happens when a country shifts from young to old, and when its population declines in absolute terms?

This question is the hardest to answer.

One set of concerns is with absolute population decline. A columnist at The Japan Times, Hisakazu Kato, posed some hypotheses:

“First, the larger the population, the higher the chance that great innovators will emerge. This is called the ‘genius hypothesis,’ and since the innovation is the source of technological progress, a simple inference shows that economic growth will stagnate as the population declines.

“Second, a larger population increases the opportunity for intellectual interchange with diverse human resources, which in turn promotes technological progress . . . .

[Because of t]he aging of the population . . . society gradually loses the creativity and aggressiveness associated with younger people.”

But how can you quantify the number of people, or of young people specifically, needed to maximize innovation and creativity? Certainly at some point there are diminishing returns here.

The other half of that question, issues around the effect of a age shift in the population on the culture itself, is just as difficult to address, in part because those cultures which have had low birthrates for long enough to be far along this path are distinctive in other ways. Is it possible to identify elements of Japan’s cultural distinctiveness which are a result of its aging society, rather than being the cause of the low birth rate, or unrelated to it?

One piece to the puzzle is what’s called the “low-fertility trap hypothesis,” an idea put forth that suggests that countries which reach a particularly low level of fertility will be unable to return to “replacement fertility.” The key paper here, from 2007, asks the same question I’ve been asking: how can researchers justify assuming that every country will regain a higher fertility rate? The authors propose several reasons why fertility rates will continue to decline once a decline has begun. In the first place, generally speaking, people tend to have fewer children than they consider “ideal” but that ideal family size is driven by what they see around them, so that as each generation shrinks their expectations and their actual family size will continue to shrink. In addition, each generation boosts its material asperations, seeing a prior generation’s luxuries now as necessities and perceiving themselves as less well off and more reluctant to have children. What’s more, as fertility rates decline, generational inequity (e.g., government spending shifting to the elderly) increases and reduces fertility rates further.

To be clear, this is a hypothesis, and has neither been proven nor refuted. The cases of countries with “recovered fertility” are few and the “recovery” may be only temporary (e.g., Sweden) or due to migration from high-fertility countries (Germany).

But beyond that, think for a moment about what values a society holds and how it lives out those values. Countries like China and Japan were historically based on a Confucian values system emphasizing respect for elders; how this may change (or has already changed) when to be old is not rare or unusual, is unknown.

In the United States, even without the social welfare policies of European “social democracies,” we have a self-image as “child-friendly.” If it remains the case that most American adults are parents, though of fewer children each, this may still be a part of our identity. On the other hand, if the age at which Americans have children continues to climb, and the share of Americans who do not have any children at all does likewise, then fewer of us, generally speaking, will identify as “parents,” with all the consequences that entails.

 

December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.

Jane the Actuary Uncategorized

Have Illinois Politicians Reformed? New District Map Says “No”

Chicago Tribune columnist Eric Zorn made a pitch in favor of gerrymandered legislative districts in a recent column, asserting that to reform Illinois’ district-drawing process while “red” states with Republican legislative control did not, amounted to “unilateral disarmament,” and would therefore be a mistake.  And Zorn’s concerns are reasonable but place the wrong entities at the center of the districting process.  A political party has no “right to maximize its seats” or even a “right to be treated fairly.”

It is the voter who have the right to representation, and to representatives who truly represent the interests of voters and their communities rather than pursuing the agenda of a given political party.

That should be obvious, shouldn’t it?  We do not live in a country with a proportional representation method of allocating its legislative seats.  Representatives represent voters directly, not through political parties. If we wished to have proportional representation, then, heck, the Democrats completely control the legislature and the governorship both; nothing would stop them from amending the Illinois constitution to implement this.

And, yes, voters are also represented by their specific legislators rather than by a caucus of legislators of their particular race/ethnicity.  Again, if those in power believed that black voters and Hispanic voters’ interests were wholly defined by their black-ness and Hispanic-ness, respectively, well, then proportional representation would be the way to go for that, too.  (Yes, I know there are federal and state voting rights laws at play here as well, but it remains troubling that the very notion of representative districts is so wholly demolished in the way this plays out.)

I say this because the Illinois Democrats have revealed their legislative districts for the Illinois House (official map here; link source here; existing map for comparison here). This is not the final map but potentially just the first part of a long process; if the Illinois legislature cannot finalize a map by June 30 of a post-census year, an eight-member bipartisan panel is selected, and if they cannot agree by July 10, a tie-breaking name is drawn from a hat.  This procedure was intended to compel compromise, with each side being unwilling to leave the outcome to chance and settling on half a loaf, but, as the Trib reports, the tie-breaking procedure was used in 1971, 1981, and 1991.  In 2001, “the legislature left the process to the state’s congressional delegation to draw a compromise map, which state lawmakers then approved,” and in 2011, the Democrats already controlled the legislature and the governor’s office, so they solidified that control with their remap.  This year, the Republicans have staked their hopes on a legal challenge around the type of data being used, that would run out the clock on the legislative process that the Democrats would otherwise use to steamroll them, thus forcing the name-drawing.  (Sorry, no link; I can’t find my source for this analysis any longer.)

There’s no analysis yet of what sort of partisan split this map will produce, that is, how lopsidedly in favor of Democrats this map would be but let’s look at it visually anyway:

Now, some of these districts don’t look thaaat bad:  the ones in the southern half of the state I suppose they figure are mostly going to go to Republicans no matter what, so you might as well make them reasonably contiguous.  At any rate, the 115th from the prior map looks like the sort that was drawn to exclude a particular established legislator:

In addition, in the towns to the east of St. Louis, there’s clearly some funny business going on, with a C-shaped district in purple and a green district within:

For what it’s worth, these districts mirror ones now existing (though they’re more extreme), and the carve out actually seems to be racial:  the purple district aggregating the black voters for a black (Dem) representative in the 114th (plus enough leftover Republicans once this majority is ensured), with the green district collecting the leftover (white) Democratic voters. The current officeholder, Rep. LaToya Greenwood, won her race with a margin of 57% vs. 43%.

But moving northward:  Springfield and Decatur are combined into a single, narrow district.  Maybe that’s reasonable enough as Springfieldians and Decaturians might have more in common with their nearby hinterlands.  But this district is even narrower now than before:

 

This district’s rep, Rep. Sue Scherer, won her 2020 race 51.5% to 44.4%.  Was this too narrow a margin for comfort, motivating the Dems to shift more Dem voters into the district and shift Republicans out?

But that brings us to the greater Chicago area.

This J-shaped district?  Dunno what the rhyme or reason is here.  My best guess is that even though DeKalb and LaSalle/Peru are small towns, they are larger than their neighbors, and the algorithms said that another seat would be gained by combining them.

And finally, these creations on the south side of Chicago and the south suburbs:

though, to be fair, there were many similarly bad long-and-narrow creations in the prior map, each of them creating districts of Democrats, and many seemingly designed to create districts “reserved” for black Democrats while tucking in white suburban voters who become a perpetual minority vote in their district as a result.  And these narrow finger-districts are the most egregious of all, in so far as individual voters cannot reasonably have a connection to their legislator when there is no community being represented, no neighborhoods, when their neighbors, the folks with whom residents are connected with community organizations, churches, have no common legislator.

Finally, a group called CHANGE Illinois has been pushing for a “fair maps” reform and had previously pushed for a constitutional amendment.

But the Illinois constitution already says these districts must be “compact,” as well as contiguous and substantially equal in population (Article IV, Section 3).  Yes, perhaps in the meantime courts have determined that “compact” is a meaningless word legally.  But that still doesn’t make it right.

So, yes, there is nothing new under the sun.  But Illinois politicians want Illinoisans to believe that they are reformed, that they are now ethically devoted to the common good, rather than in it for themselves.  A map such as this, in which the people of Illinois simply, to such an astounding degree, do not have elected officials who represent them and their communities, means that no such claim is to be believed.

 

*Incidental footnote:  How do the demographics of Illinois’ legislators compare to its population in general, in terms of racial/ethnic makeup?  The most recent estimates are that Illinois is 61% non-Hispanic white, 15% black, 18% Hispanic, and 6% Asian.  Among legislators, 71% are white, 18% are black, 8% are Hispanic, and 1% are Asian.

Are Hispanics unfairly underrepresented?  A separate metric is the Citizen Voting-Age Population:  here, 69% are white,  11% Hispanic, 15% black, and 4% Asian, and these percentages are much closer to the actual statistics.  In any case, there have long been neighborhoods and towns which have a high enough black percentage that gerrymandering strategies can produce the desired result through their combining together of parts-of-town and the creation of multiple districts with “just-enough” desired voters to ensure the end result.  But if new immigrants are coming to suburban apartment complexes spread throughout the area, there’s much less that can be achieved through these traditional gerrymandering methods.  As the CVAP percentage of Hispanics grows, will Illinois look to other methods of determining who represents Illinoisans in the General Assembly, such as, in fact, a proportional representation system, or will they simply gerrymander ever more determinedly?

Jane the Actuary Uncategorized

Forbes post, “How Did Arizona Succeed With Pension Reform? With One Weird Trick . . .”

Originally published at Forbes.com on May 13, 2021.

 

It’s a tired story by now in Illinois: the graduated income tax state constitutional amendment on the ballot this past November failed because of a fundamental lack of trust by the people of Illinois in their elected officials. That’s not just my own claim; new House Speaker Chris Welch said as much, according to the Chicago Tribune, in making a pitch for another try at an amendment in which they would pinky-swear to use new tax money only for good purposes:

“In evidence by the failure of the progressive tax, folks don’t trust us . . . If we can rebuild that trust, it’ll be amazing what voters will help us do.”

And this same lack of trust is at least part of the reason why an amendment to the state constitution to eliminate the “pension protection clause” is a nonstarter. Yes, some Illinoisans believe that under no circumstances should benefits be altered for anyone, even the fat cats taking home more in pension benefits than they ever earned in public office, as was the subject of a WGN report on Tuesday. But others have been persuaded that any changes to pensions will impoverish the elderly, and are understandably worried — in other words, the electorate has as little trust in Illinois’ Republican legislators as in Democrats.

That’s why I had suggested in my Tuesday article a constitutional amendment that builds in protections for low- or even middle-income state workers, for example:

“Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired, for any plan participant whose salary or retirement benefit is less than the median salary or retirement benefit, respectively, in the state of Illinois” (addition in italics).

Does this sound off, too narrow and detailed? Should constitutions provide general principles and leave the specifics for legislation? Sure, yes, in principle, it would be nice to simply remove this clause from the Illinois constitution, but that’s not a realistic option.

And, in fact, the experience of Arizona five years ago suggests that the most pragmatic path, with the best chances of success, is exactly this very narrow, clunky, amendment.

Alexander Volokh chronicled the path Arizona took to its constitutional amendment, a change to its pension clause which, prior to the amendment, was essentially identical to that of Illinois: “Public retirement systems shall not be diminished or impaired.”

In 2016, Arizona’s Public Safety Personnel Retirement System (PSPRS) was almost as unfunded as Illinois’ pensions, at 48% funded. Key stakeholders from both parties, and including the public safety unions themselves, recognized that change was needed, and the Pension Integrity Project team at Reason Foundation worked together with them to create a set of changes, primarily focused on reforming its out-of-control cost-of-living adjustment system, as well as instituting a risk-sharing system for new hires (with a proper actuarial analysis conducted at the time!), and new governance reforms, all of which together comprised S.B. 1428.

But how did Arizona ensure that this bill, which did, after all, cut (future) benefits for existing employees, would not be overturned by the Arizona Supreme Court? Through a constitutional amendment, Proposition 124. The text of this amendment? The italicized portion of the following:

“Public retirement systems shall not be diminished or impaired, except that certain adjustments to the public safety personnel retirement system may be made as provided in Senate Bill 1428, as enacted by the fifty-second legislature, second regular session.”

Honestly, I find this a bit mind-blowing.

This is nothing at all like what we expect from a constitutional amendment. It’s clunky, awkward. It feels like defeat, to acknowledge that this is the best we can do rather than the “pure” change of removing the trouble-making clause entirely.

But it worked. It passed by a 70-30% margin.

Would Illinois voters (or the Democrats who currently fully control the state) be willing to approve an amendment narrowly-tailored enough to ensure pension cuts only apply to the highest earners in the state?

Could Pritkzer have passed his graduated tax amendment if there had been guarantees built into the amendment itself, rather than having voters write a blank check to the legislature? The proposed amendment, after all, merely struck the requirement that any income tax be non-graduated; it was neat, clean, but should it have been more detailed to offer voters assurances that it would neither attempt to boost taxes one bracket at a time, divide-and-conquer style, nor attempt to fund government through such high rates on higher earners that they leave the state?

I don’t know. But I continue to mull over the question of whether this sort of amendment, which fully acknowledges voter mistrust and constrains the legislature as a result, is what Illinois, and states similarly trapped, need to be able to move forward.

 

December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.

Jane the Actuary Retirement

Forbes post, “Chicago Firefighters Pension Update: Why Did Pritzker Boost Benefits?”

Originally published at Forbes.com on May 10, 2021.

 

About a month ago, Illinois governor JB Pritzker signed legislation that boosted pension benefits for a group of Chicago firefighters, despite the urging of Chicago mayor Lori Lightfoot not to do so, because of the cost to the already-woefully-underfunded plan. As I wrote back in January, this change could drop the funded status from 18% funded down to an even-worse 16%. Each dollar that is spent on this benefit improvement is a dollar that must be extracted from taxpayers or found by cutting other needs.

As the Chicago Sun-Times reported,

“A Wall Street rating agency that alone gave Chicago a junk bond rating on Friday branded as ‘credit negative’ a bill Gov. J.B. Pritzker signed over Mayor Lori Lightfoot’s objections boosting pensions for thousands of Chicago firefighters.

“’The legislation is credit negative for the city of Chicago,’ said the advisory from Moody’s Investors Service, ‘because it will cause the city’s reported unfunded pension liabilities, and thus its annual contribution requirements, to rise.’

“With pension contributions consuming 17% of the city’s operating revenue and total liabilities pegged at $46.6 billion in 2019, pensions are the ‘largest credit challenge facing Chicago,’ Moody’s said.”

Why, then, did Pritzker sign this bill?

In his press release, Pritzker claimed that “HB 2451 creates a system that gives all firefighters certainty and fair treatment.”

And the promoters of this bill, most notably State Senator Robert Martwick, had claimed that, despite all appearances, the bill was actually prudent and responsible, because it removed a “birth date restriction” that, as the Sun-Times reported, “Martwick has . . . already has been moved five times as a way of masking the true cost to the pension fund.”

And Martwick’s own statement at the time?

“If we ever hope to right our financial ship, we must finally put an end to the irresponsible behavior that put us here in the first place . . . . This law simply ensures that the city confronts the true costs of its pension obligations and makes the difficult decisions it needs to make today.”

But, again, as I explained back in January, this is misleading, to put it nicely. This restriction was imposed in 1982 and changed in 1995 and 2004 — then the benefit boosts stopped as the city and the state both finally recognized that pension funding mattered, with Tier 2 benefits implemented in 2011 and an attempted reform in 2013. Only in 2017, in a bill sponsored by Martwick himself, as a state representative, was the benefit boosted again by a further moving of the birthdate restriction, and after he succeeded in getting this bill passed, he set about getting the birthdate restriction eliminated, with a bill in 2018 which died in 2019, before re-introducing it for its final passage now. For Martwick to point to this past history to claim that the moving of the birthdate restriction is somehow inevitable and out of anyone’s control is, well, chutzpah at its finest.

But why, then, would Pritzker have signed into law a bill when the central claim of its advocate — that the state had an unalterable practice of benefit boosts that needed to be recognized honestly — was demonstrably not true, with the barest amount of research required to understand this?

Plainly, there are three possibilities.

First, that Pritzker truly believed Martwick’s claim that the legislature would always boost benefits, so the only option was to recognize this fact.

Second, that Pritzker was unwilling to stand up to legislators who, themselves, did not hesitate to support this bill, because, after all, no one is going to blame an individual legislator for going along with the rest of the party, with the safety in numbers it affords. “Fiscal responsibility” offers a plausible cover for what is, in the end, the action of a coward.

Or, third, that he knows full well that Martwick’s claim is absurd, but simply doesn’t care, because he himself, however much he claims otherwise, doesn’t particularly care about pension funding, and will take any opportunity available to boost benefits in an environment in which this is otherwise out-of-the-question. A statement becomes a purposely misleading, even if others think it’s the truth, if you have access to information to the contrary.

Does it matter?

Pritzker signed this bill a month ago. In the meantime, immediate fiscal crises in Illinois and Chicago have been lightened by the $7.5 billion in American Rescue Plan funds to the state and $1.8 billion to the city. Pritzker announced that, as a result, the state’s contribution to public schools would increase by $350 million and state Comptroller Susana Mendoza announced that the state’s bill backlog had shrunk down to $3.5 billion. Lawmakers are working on budget negotiations, with a May 31 deadline. The redistricting battle is also underway, with its own June 30 deadline, and with the Illinois GOP accusing Pritzker of breaking a campaign promise to support an independent redistricting commission. And Pritzker, as well as new House Speaker Chris Welch, want Illinoisans to believe that, regardless of the state’s past history of corruption that gave it its second-most-corrupt ranking, the state is “under new management” and is now being ethically and responsibly governed.

Can Pritzker be trusted? Can legislators and their leadership be trusted? Not only is the Democratic party in full control of the state, but there are no factions within the party arguing for different directions; bill after bill is passed wholly on a party-line basis, because legislators are expected to simply vote as they’re told to.

Actions like Pritzker’s decision in the firefighters’ bill seem small, but they add up, one signature after the next. And each decision matters, each one is a decision in favor of good governance and fiscal responsibility, or against it. This decision, and countless others like it, matter, even if Pritzker may choose to believe otherwise.

 

December 2024 Author’s note: the terms of my affiliation with Forbes enable me to republish materials on other sites, so I am updating my personal website by duplicating a selected portion of my Forbes writing here.