Israel is aging too fast

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The age pyramid in Israel is collapsing, with a growing number of old retired people and not enough young working people to support them.

You may have been unaware of it, but in 2010, you [Israeli citizens] crossed the watershed. Since that year, the percentage of people in Israel who are of working age — that is, aged 25 to 64 — has been on the decline. From that time on, Israel has been aging rapidly. And this trend is not expected to change in the foreseeable future.

What’s more, the number of the elderly (over 65) is expected to double in the next two decades. After two decades of demographic stability, when the percentage of the elderly in the population has not changed, their percentage is expected to rise over the next two decades from 10% to 14%. It is a tremendous growth in a very short period of time.

All this may sound like a whole lot of boring data. However, it is of huge significance. People who are not working — the elderly or children — depend on others to support them. And as the proportion of working people decreases, the burden on their shoulders is bound to increase: Not only will they have to care for their own livelihood, but they will also have to provide for the non-workers, whose number is steadily growing. At the same time, they will have to see to it that the economy keeps growing at a high rate; otherwise, the general standard of living in the country will inevitably decline. So, how can it be done? Well, it is a crucial question, the answer to which may decide our fate. Welcome to your future! It is here already.

The blanket is too short; you pull it up and your toes rebel

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“The dependency ratio is on the increase,” said Eliyahu Ben Moshe. He is talking about the ratio between the number of people of working age and the number of people who are not. “Today, every four Israelis of working age support one elderly individual. Within two and a half decades, the burden will increase and there will be only three people of working age to support each elderly person.”

Ben Moshe is the most prominent Israeli figure in the hot field of demographics. This area of research, which for years suffered from the image of a dull profession, the province of stern looking statisticians, has gained a new status in recent years as one of the most effective and important disciplines for social and economic forecasting. The realization that, more than any other force, the force of the demographic engine is about to fundamentally change Israeli society — just as is the case in Japan, the United States, China and Europe — has won Ben Moshe and his colleagues recognition as key researchers, whose insights determine fates.

Ben Moshe is probably the most senior demographer in Israel today. He studied under professor emeritus Dov Friedlander (“the most important Israeli demographer”), and later on, served as deputy director-general at Israel Central Bureau of Statistics, where he was in charge of population censuses. As of 2005, Ben Moshe has been a self-employed statistician consultant, conducting analyses for various government bodies.

In recent years, once it dawned on the decision-makers, Ben Moshe was asked time and again by government agencies to analyze the future of the country. In 2011, he provided the Ministry of Economy with a far-reaching 30-year forecast for the labor market. He then advised the National Insurance Institute of Israel on the acute question of how long its funds would last. Last October, he completed an in-depth study that provides an extensive demographic forecast for the next 100 years. All data in this article are taken from this study and published here for the first time.

Naturally, 100-year projections do not presume to be accurate. Rather, they are designed to provide probability ranges for certain scenarios. Yet, as Ben Moshe has often noted, the next three decades are quite certainly going to look the way his study envisages them — and this, for the simple reason that the people his study deals with were already born. There is no need to imagine them. And as he is fond of saying, “It has already happened.”

“One thing is for sure, and that’s the ongoing decline in the growth rate of the labor force,” says Ben-Moshe. “We are entering a process of population aging, the same as in the developed countries. However, they have an advantage — that of a lower proportion of children in the population. Thus, they do not have to invest as much in education as we [in Israel] have to, and so on and so forth.

''As the population begins to grow old, resources are naturally allocated to the elderly. And since the budgets are limited, the blanket becomes too short; you pull it up and your toes rebel. Once we start to withdraw funds to deal with the aging population, we will have less and less funds for young couples.

“I attended the [social justice protest] rallies in 2011, and my heart went out for them. I saw those young couples who believed they were going to make a change, and I remember saying to myself, ‘The best that we can hope for is that it will not get any worse.’ After all, I know that we are in for even worse times, and that the aging population will eat up budgets. And since the funds [for the elderly] will not be taken from the budget pensions of the defense establishment, we will all have to pay for it. It is going to be one big fiasco.”

When the pyramid of ages begins to look like a Rorschach ink blot, it is a bad sign

Contrary to conventional wisdom, the accelerated aging of the population in the coming decades does not derive out of the extended longevity. As far as the next few generations are concerned, the effect of medical and technological advances on longevity will be only minimal. In fact, the year 2010 was a watershed year due to factors originating way back, in the years following the establishment of the state [1948], when birth rates soared, giving rise to the generation of Israeli baby boomers.

Those baby boomers, all born within the same span of time, in the years after World War II, have also been retiring en masse since 2010. Consequently, the proportion of people of working age has abruptly declined. Furthermore, as time goes by, those baby boomers are getting older, so that within a decade and a half, the proportion of those aged 75 to 85 will also rise at the same time, and further on, the percentage of those over 85 will simultaneously shoot up. Every such leap will heavily burden the working-age middle class, as supporting the very old involves very high costs.

The said leaps can be clearly seen in the study of Ben Moshe. Under the foretelling title “Expected changes in the structure and composition of the Israeli population in the hundred years 2010-2109,” it is written in black and white how Israeli society is going to transform in the coming decades. At the heart of the study are the so-called “age pyramid” graphs, which illustrate the number of individuals of each gender and in every age group — from the age of 0 to 90 and above. A “normal” age pyramid should look like — well, like a pyramid, with a broad base of children, and ever narrowing layers, tapering off at the top of the pyramid, which should represent the age group of the extremely old. The problem starts when the pyramid stops looking like a pyramid and begins to look like a Rorschach ink blot. And that's precisely the warning message delivered by the pyramids of Ben Moshe.

Thus, for instance, the current age pyramid of the secular sector does not look at all like a pyramid. The age groups of 50 to 60 are much broader than the age groups of those who are in their seventies today. This means that in a decade and a half or two, there will be a lot more retired people here — far more than ever before — whom someone will have to support. The funds required to pay their old-age allowances will then be derived from the taxes collected from the younger generation. And the same holds true for the sums of money required to maintain the health and nursing systems accommodating so many elderly people. Alas, the available financial resources will just not be enough.

The lower layers of what is seemingly a pyramid present an even more alarming picture. It can be clearly seen that the age groups of teenage boys and girls are all of a sudden narrowing. This may be attributed to the declining birth rates among the secular during the period under discussion (which subsequently rose once again). This means that in a few decades, there will be even fewer people of working age to support the older generation. Plainly stated: If you are now in your forties or fifties, the generation of your children is going to pay the price.

The Black Panthers are retiring, and possibly taking to the streets

Ben Moshe’s study is unique because it's the first time population aging processes have been explored across various sectors of Israeli society, for example, among Mizrahi Jews [of Middle Eastern origin]. “At present, 80% of the elderly aged 85 and above are Ashkenazi Jews [of Eastern Europe origin]," says Ben Moshe. “However, the old [mostly Ashkenazi] generation is currently joined by the generation of the Black Panthers [protests in the 1970s, launched by Mizrahi Jews]. Hence, all at once, the elderly population is becoming more ‘Middle Eastern.’”

Why does it matter?

“It may have far-reaching financial and social implications. Generally, Ashkenazi Jews are better off. Over the years, they enjoyed higher salaries. Some of them received [Holocaust survivors'] reparations. They bought homes and they had a pension fund. On the other hand, the Mizrahi Jews have nothing of the kind. And they reach old age with weak pensions, if any.

“Take a look at the age pyramid: Every 25 years or so you see the 'fat' cohort (the generation of baby-boomers) reach a crossroads. In the 1970s, they reached the age of 25 or so, and it is not by coincidence that the Black Panthers crisis erupted at that point in time. That’s why the Black Panthers took to the streets then — this is the demographic explanation for their protest movement: When large masses of people reach a certain age at one and the same time, it triggers a crisis in the market, especially when the market is not ready to absorb such large masses. And which are the markets most susceptible to a crisis generated by a large cohort of people in their twenties? Well, it is the housing market and the labor market. As a matter of fact, it was then that the term ‘young couples’ was born. It was when the [second] generation of Jewish immigrants from Middle Eastern countries, those who were born within the State of Israel, could not afford an apartment and were unable to find a job. The first to bear the brunt at times of tough competition in the housing market or the labor market are invariably the poor and downtrodden. It was easier for Ashkenazi Jews to buy an apartment since they could rely on their parents’ support. The Black Panthers had no such backing, so they took to the streets.”

And now the Black Panthers generation is retiring …

“That’s why it could happen once again. This cohort is reaching pension age — that is, the senior housing and nursing care market and everything entailed by old age. Yet, there is a very big difference between the ability of Ashkenazi Jews and Mizrahi Jews to support their parents financially.

“The second generation will have to share to a large extent the burden of caring for their parents. However, it is not at all sure that the younger generation will respond to the challenge. Indeed, the younger generation is no longer prepared to take the elderly parents home to live with them — and it is true even for the Mizrahi Jews — certainly not when divorce rates are so high. In other words, we expect someone else to take care of our parents — be it the state, through social security allowances, or the long-term care insurance. Alas, even that is not necessarily going to happen.”

Another dramatic change is expected in the Arab sector: The percentage of the elderly in the various Arab communities (Muslims, Druze and Christians) is relatively high, while declining birth rates turn the age pyramids far less stable in the Arab sector, as well. “For the first time in its history, the Muslim population is growing old,” says Ben Moshe. “However, there are no infrastructures for geriatric care in this sector. It is a population that is undergoing an accelerated process of modernization, where the younger generation is not necessarily honoring the tradition of living with aging parents. Educated young people are moving away from the village, leaving their parents behind on their own. The traditional family framework has been broken. They [the elderly] are going to be really miserable, and consequently, we are all going to take the punishment. After all, someone will have to carry this burden.”

If the situation in Europe improves, anyone with a profession in demand could get up and go there

This “burden,” entailed by the ever growing number of the elderly in Israel, which is about to double within the next two decades, will have a tremendous impact on all the already overburdened health and nursing care systems. It is bound to impact municipal infrastructures, the housing market, the faltering pension system, social security expenses, as well, and thus, inevitably, also the taxes we are paying. The state is not really prepared to deal with this accelerated population aging.

This conclusion is now starting to seep into the most important nodes of decision-making. The Prime Minister's Office has already realized it. Already a year ago, National Economic Council Chairman and professor Eugene Kandel brought up for discussion in the government the issue of population aging in the next 15 years — prompted in part by the analyses of Ben Moshe himself. An inter-ministerial committee on the issue of senior citizens, coordinated by the Prime Minister's Office is working these days to formulate solutions. In the Ministry of Economy and Trade, an effort has been made to devise a strategy to adjust the labor market to the changing circumstances. And in the Finance Ministry's budget division, they are busy preparing three different studies designed to provide the whole picture: how the aging population is going to affect the growth rate and the state’s tax revenues and budget. They are still analyzing the data.

Ben Moshe is not optimistic. When I ask him how, in his opinion, the process is going to affect the young generation, he describes a conversation he had with a young woman following the last lecture he gave. “At the end of the lecture, she said to me, 'When you were half through the lecture, I felt like getting up and leaving, right there and then. I just wanted to pack up, take the kids and get out of here.' And she is not alone — it is the type of response I often encounter when talking with this peer group. And having come to Israel from Argentina in 1982, as a Zionist teenager, my worst fear is that the economic situation in Europe or in the United States will improve.”

Why?

“It’s because a young Israeli engineer sees the big picture today. He sees that he is going to pay a lot more taxes here, but get less in return. It is just the opposite in Australia or elsewhere. So why should he stay here?”

Do you expect successful middle-class or upper middle-class Israelis to just get up and leave the country?

“It's not that I expect a massive exodus tomorrow. It’s only the elites who are currently emigrating en masse. Their children are already abroad, whether studying or working there. The problem is that, if the state fails to offer a future to the younger generation, the effect is liable to be devastating. Therefore, if the situation in Europe improves — and they still have their whole lives ahead — anyone with a profession [in demand] could get up and go there. And it is especially true for any individual who does not consider Zionism a good enough reason to sacrifice his life. It will not happen overnight, and just seeking to emigrate cannot in itself guarantee anything. You should have a place that would be interested in welcoming you as a fellow resident. Yet, it could happen.”

Is the process you describe as inevitable?

“The most important thing in any healing process is that the patient becomes aware of his disease. We have not fully realized yet what’s going on here. True, in the Bank of Israel, they have awakened to the situation. However, we should promptly realize that it is a crisis situation, as we need to deal with it without delay.”

Maybe, if we enable the ultra-Orthodox to integrate into the labor market right away, it will be of help?

“If you succeed in integrating the ultra-Orthodox into the labor market, it will only slow down the process. And in any case, the added value of the ultra-Orthodox in the first generation is bound to be negligible. Even if here and there, one of them has managed to set up a high-tech company, it is still far from affecting the whole picture. Generally, they have nothing much to offer in the labor market. Their English is poor; they have not studied math. So, what can they possibly contribute to the economy? In fact, when unskilled workers enter the labor market, labor productivity drops.

“That's the thing with demographics. And that’s why I can predict the next few years with a high level of confidence. As the coming decades have already been written. The workforce has long since been born. And whatever is going to happen has already happened.”

The era of demographics: Welcome to the most crowded country in the West

The study conducted by Ben Moshe on Israeli demography in the next 100 years examines the changes in the Israeli population and their impact on life in the country. According to his calculations, the Israeli population will cross the threshold of 10 million even before 2030 (in less than 15 years), and quite certainly, over the next 50 years, the population will double itself. One of the side effects will be a very high population density.

“In a society divided into mutually exclusive groups, each seeking to maintain its own unique identity, the increased population density may prove most problematic,” Ben Moshe notes, pointing to one of the potential implications of this trend. “Within a few years, Israel will become the most crowded country in the developed world, and this situation will require groups that can hardly make it together today to live not only side by side, but mingled with each other.”

And these are the numbers: In 1955 there were in Israel 85 persons per one square kilometer. Population density in 2002 reached 350 persons per one square kilometer — second only to the Netherlands (with 400 persons per one square kilometer) among the developed countries. However, the population growth rate in Israel is higher, so that by the end of the decade, population density in Israel is expected to exceed 400 persons per one square kilometer. And within two decades, “it will without doubt approach 500 persons per one square kilometer.”

And then what? “From that point on, it will depend on the birth rates: If they moderately drop (as predicted by Ben Moshe), then within 50 years, the population density will stand at slightly more than 750 people per one square kilometer.'' If, on the other hand, birth rates do not fall, the situation will become even worse. And one can only imagine the impact on housing prices.

This is just one aspect of the role demography plays as a parameter that dramatically affects the economy and society. It is not for nothing that it has become one of the hottest fields of study in the world. In the United States, for example, they are currently discussing at length a recently published book titled The Next America, which deals with the demographic changes expected in the American society in the coming decades — notably, the loss of the white majority and the accelerated population aging. These two processes have already fundamentally transformed the United States. The Economist devoted the cover story of its latest issue to the aging American population, and analyzed its potential impact on employment rates, inequality levels,and growth. People are going to find themselves working many more years, and entire empires are liable to collapse into oblivion, the magazine warns.

One such empire, which is already in imminent danger, is Japan. Within the next two decades, the proportion of the elderly in Japan is expected to cross the 60% threshold. In China, the threat of population aging has already led to the mitigation of the one-child policy. The accelerated population aging of the Asian countries featured high on the agenda of the Davos World Economic Conference earlier this year. In another conference, convened at the beginning of April, participating European countries reported on the initiatives they were launching to adapt their health systems to the challenges of an aging population. And just this week, the World Bank published a special report on the issue. Any way you look at it, countries all over the world are awakening to the demographic changes looming ahead, and realizing that they are going to change the world.

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Found in: youth, population, mizrahi jews, israel, demography, ashkenazi
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