2. Economic Lifecycle

The economic lifecycle can be summarized by the amount consumed, the amount produced through labor at each age, and the lifecycle deficit, i.e., the difference between the two. Age reallocations occur because at some ages individuals consume more than they produce, while at other ages individuals produce more than they consume. The purpose of this document is to describe the methods used to estimate the economic lifecycle in the National Transfer (NT) Flow Accounts. Important additional preparation for the reader would be to read Lee, Lee, and Mason (2008).

The lifecycle deficit measures the total value of goods and services consumed by members of an age group, C(a) less the value of goods and services produced by members of an age group, Yl(a). That is:

$LCD(a)=C(a)-YL(a)$

$C(a)=C^F(a)-C^G(a)$

where $C^F$ represents private consumption and $C^G$ is public consumption.

Figure 1 shows the case of Taiwan in 1998. Figure 1a presents estimates of aggregate consumption and labor income by single years of age. The age profiles of aggregate consumption and labor income reflect the age distribution of the population (Figure 1b) and per capita variation in labor income and consumption (Figure 1c).

Figure1a

Source: Mason, Lee et al. 2009.

Age groups with a lifecycle deficit, LCD(a)>0, support their surplus consumption by generating age reallocation inflows. For Taiwan, the net flows to those 24 and younger amounted to 36% of total labor income in 1998. Total net flows to those who were 56 or older amounted to 11% of total labor income. Thus, reallocations from the working ages to the dependent ages amounted to nearly half of total labor income.

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