Borsch-SupanIn February 2016, Dr. Axel Börsch-Supan was a visiting scholar at the Stanford Center on Longevity. Dr. Börsch-Supan is the Director of the Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy (MPISOC). His research focuses on the micro and macroeconomic effects of aging, individual saving behavior, pension system reform, and issues relating to labor and capital markets. He received his PhD from M.I.T. in 1984 and was an Assistant Professor of Public Policy at the JFK School of Government at Harvard University. He has served as a consultant to many governments, the Organisation for Economic Co-operation and Development (OECD), and the World Bank. He is the coordinator of the Survey of Health, Aging and Retirement in Europe (SHARE), the European analogue of the US Health and Retirement Study.

SCL Postdoctoral Research Scholar Marti DeLiema sat down with Dr. Börsch-Supan to discuss his visit to the Stanford Center on Longevity and his perspectives on how aging in the United States compares to aging in Europe. This interview has been edited and condensed.

Describe the path that led you to a career researching the economics of aging.

That was early in my career. I was really young and I had no idea about aging. At that time NIA pushed what is now called Behavioral and Social Science Research and established a program on the Economics of Aging, which went to the National Bureau of Economic Research. David Wise started a program and from day zero to day one he needed 20 people working on the economics of aging. Nobody even thought about it before. He recruited me when I was a young assistant professor at Harvard.

Do you believe that aging is a problem for society?

It’s both a challenge and an opportunity. Of course it’s a challenge because there are so many more older people, particularly in Europe, relative to younger people. You have to feed more elderly and take care of them both in the literal sense and financially. But it’s also an opportunity because we live longer. And we live longer healthier. There’s a big difference between Europe and the United States. Life expectancy is better in Europe than in the United States. Health is considerably better in Europe. So while Europe has, quantitatively speaking, a larger aging problem, it also experiences more of the positive sides of aging.

What are some of the biggest myths about aging workers?

Well, first that their ill health gets in the way of doing things. Second that they are unproductive. Third that they are uninventive. If you look at the evidence in our surveys, none of this is true in general. The time when diseases actually limit your functionality has shifted massively into older ages. So older workers are much healthier than they used to be. You even see this by looking at photographs of people, say, of age 65, from fifty years ago. My grandparents looked much older than we do at this age. If you think about old people, many think about their own grandparents. That is wrong since they lived 50 years earlier than we do and times have changed. We are in some sense biologically different than our parents due to healthier lifestyles. It’s not primarily medical progress. It’s rather that we have better and safer workplaces; we have less manual work; we eat better – well, at least some in the United States, not everybody – and we have more comfortable homes. So there are many social achievements that have led to better health.

The second prejudice is about productivity. There’s no evidence whatsoever that productivity for normal workers declines with age. Exceptions from this are the top guys, obviously people doing professional sports but also many of the Nobel Laureates. They frequently receive their Nobel prizes for something they did fairly early. But these are exceptional people. If you look at the average person, than productivity is flat with age.

The third issue is innovation. You may think that all new ideas come from younger people. There’s some truth to that, but if you look at little things, like improving production processes, than we don’t have any evidence that innovation declines. More important than age is heterogeneity. There are people who always have ideas. They had ideas when they were young and still have ideas when they are old. Then there are people who never have ideas, and unfortunately, that shows already at younger ages.

When we talk about financing retirement, to what extent are the challenges in Germany similar to those in the US?

They are qualitatively similar because there are more older people who have to be financed by substantially fewer younger people. The quantity is different, however. The dependency ratio is twice as large in Germany as it is in the US, so it’s a much, much larger problem in Germany. On the other hand, Germany had a series of pension reforms between 1992 and 2007. They have put Germany’s social security system on a path that is actually sustainable, whereas in the United States it’s hard to believe, but the last pension reform was in 1983, more than a generation ago, with the consequence that the social security system in the US is less sustainable than in Germany. There have been many attempts for a US social security reform but the political process in the United States has not really produced a meaningful result so far.

What can the US learn from Germany in terms of modifying its workforce and labor policies or its Social Security system?

Well, that’s actually a very difficult question for a German who doesn’t really want to teach the United States. The political process in the United States has changed and has become a problem, and you see this in many domains of public policy. There is much more cooperation between the different parties in Germany than in the United States, which has become so much more partisan than it used to be. The reasons for this go very deep into the political system of the two countries.

In terms of modifying its workforce, the difference is the other way around. The economic systems actually work better in the US. For instance, labor markets are much more flexible. There is no mandatory retirement age in the US, which is a stupid institution that we still have in Germany. And there is an abundance of other rules in Germany which reduce economic growth and the ability to change vis-à-vis the US.

How will the recent influx of refugees into Europe affect labor markets and the financial security for older people?

In theory it of course helps because we get a huge influx of young people. Per capita, migration to Germany is four times as high as in the US. And a remarkable 55% of the recent migrants during the last year are age 25 and younger. On the other hand, they have to be educated. They come without a formal education, or a different education that’s not that useful in Europe. So the recent migration wave is both a huge opportunity but also a challenge. And whether at the very end it’s or a plus or minus depends on how successful we are in Europe to integrate the migrants.

How can we motivate people to save more for retirement?

Well, that’s a very difficult question and there have been lots of attempts to motivate people better and they all have limited success. People like to procrastinate and the capital market right now, due to monetary policies, is not really an incentive to save because the interest rate is so low. So I’m afraid that if you rely on private savings as a means to provide old age income you have to force people into saving. Maybe not with brute force, like a mandatory savings program, but with subtle force. But there are also problems with that because if you nudge people into saving, for example, through ‘opting out’ plans where by default someone else makes a decision if you don’t exercise your right to choose, then that somebody else may not actually handle it in your interest. The financial industry is not particularly known for doing the best for its clients. There are serious governance issues in these nudging approaches. So there is no easy answer on what to do. One should not underestimate the advantages of our time-honored social security systems. When I was younger I was much more fervent in the direction that the bulk of old age income should be from personal savings, and now I am more skeptical after having seen all of these failures in the capital market. We need a mix with a substantial role for Social Security.

What are your goals for your visit to the Stanford Center on Longevity?

To understand the world better. The fascination to come here to the Center on Longevity is to combine psychological insights with economic research. Economics is very structured research. We do a lot of math and a lot of our behavioral assumptions are cast into equations, like in physics. That is very different in psychology. These mathematical equations may constrain your thinking into very simplistic models of human behavior, which are not credible. To crosswalk here between psychology and economics is my main goal for the visit.

And do want the talk a little bit about the healthcare system and compare and contrast Germany with the United States?

An obvious insight is that the older you get the more important health is. And there is some time when health just dominates everything else, so it is really important for society to get the healthcare system in order. And that is a difficult problem both in the United States and in Germany. Both countries actually have a lot of similarities. They have a very decentralized, semi-private healthcare system. Semi-private means doctors and hospitals are private, but a large part of financing is public. In the United States, public financing is only for the elderly and for the poor. In Germany it’s for everybody. Health outcomes, however, are different between the US and Germany. Germans are significantly healthier than Americans. And that value of health is huge. Not only for the individual person and her happiness, but also for society as a whole because a healthy society is more productive.

The United States was very different from Europe until recently by not having a mandatory healthcare system that covers everybody. And one can see the results in the data. It’s actually shocking how much worse American health is relative to Europe. This holds of course particularly for lower income classes, but you also see it far into the middle class.

And you think that is a consequence of the lack of coverage for those groups?

It’s a consequence of two things. First, it is the lack of coverage just mentioned. There is less access to the healthcare system among the lower half of the income distribution. So treatments are postponed and that has far-reaching consequences. You can actually see that in the data if you compare the US Health and Retirement Study with similar data sets, for instance SHARE, the Survey of Health, Aging and Retirement in Europe, which we are running in my center in Munich.

The second is behavior—different health behaviors. I am always struck to see drive-in drug stores where you get your medication to treat diseases related to obesity sitting in a car. It would be much better to prevent obesity by simply walking more than driving. Going to a health club is not the point, but just regular movement rather than sitting in a car all the time. Also how much and what people eat is quite different in the United States versus Europe. More cornstarch in processed food, less fresh fruits and vegetables. In Europe our food is old-fashioned but healthy.

If you could solve one problem facing aging societies, what would it be? What will be your legacy as a scholar?

I started my career doing a lot of savings and pension research and developed experience and insights both in science and public policy. So that’s probably what I want to stick with. It’s really about getting our social security systems in order. That’s what I’m most interested in.


Marti DeLiema is a postdoctoral fellow in the Financial Security Division of the Stanford Center on Longevity.