Ageing and the economy: Costs and benefits

                      Rob Ranzijn1, Jane Harford 2, and Gary Andrews3

                  Australasian Journal on Ageing, 21(3), 148-153 (2002)
  University of South Australia and Centre for Ageing Studies, Flinders University of South Australia;
Address: Dr Rob Ranzijn, School of Psychology, University of South Australia, St Bernards Rd, Magill
5072 SA Australia; Ph 61 8 8302 4468; Fax 61 8 8302 4729;
  University of Adelaide; Address: Ms Jane Harford, Department of Public Health, University of
Adelaide, North Terrace Adelaide 5005 SA Australia; Ph 61 8 8302 3588; Fax 61 8 8223 4075;
  Centre for Ageing Studies, Flinders University of South Australia; Address: Professor Gary Andrews,
Centre for Ageing Studies, Flinders University of South Australia, GPO Box 2001 Adelaide 5001 SA
Australia; Ph 61 8 8201 7554; Fax 61 8 8201 7551;

          The authors gratefully acknowledge the support of the Office for the Ageing, South Australia,
which provided most of the funding for this research. The funding was supplemented by a grant from
the Division of Education, Arts, and Social Sciences of the University of South Australia. We are also
grateful to the work of the Centre for Ageing Studies, Flinders University of South Australia, which
provided access to participants in the Australian Longitudinal Study of Ageing (ALSA) the source of
much of the data for this study. We are also grateful for the helpful comments of the two anonymous

Please address all correspondence to
Dr Rob Ranzijn,
School of Psychology,
University of South Australia,
St Bernards Rd, Magill, SA 5172.
Ph (08) 8302 4468, Fax (08) 8302 4729

Objectives. The purpose of this study was to estimate the financial value of the
productive contributions that older adults make to South Australian society and to
compare this to the cost of maintaining them in good health and well-being.
Method. 391 participants aged between 65 and 101 years were interviewed over the
telephone about the number of hours per week engaged in a comprehensive list of
activities in the previous week, and half of the sample also completed a week-long
inventory of goods and services which they produced. The goods and services were
converted into financial values using current market rates. The costs of health and
aged care were obtained from official sources like the Australian Bureau of Statistics.
Results. The total value of productive activities was estimated to be between A$4.9
and A$8.1 billion, and the value of work performed for other people was estimated at
between $0.82 and $1.38bn (the South Australian older population is about 200,000).
The cost of health and aged care was calculated to be about $1.8bn.
Conclusions. It was concluded that older South Australians make essential
contributions to society, contributions which have a very large economic value.

The aim of this study was to estimate the financial value to society of the productive
contributions of older South Australians.
         Much has been written and discussed about the looming economic crisis due
to the projected burgeoning numbers of older people (1). Given earlier retirement, a
longer non-working life, and the costs of keeping older people physically well, there
are concerns in developed nations that society may soon collapse under the strain of
trying to provide social and medical support (2). The evidence so far indicates that the
Australian economy will be able to cope with population aging very well. For
instance, between 1982 and 1995 real health expenditure in Australia grew by 2.9%
per annum, but only one fifth of this (0.6%) was directly attributable to population
aging (3). In the same time, there have been increases in expenditure on
unemployment, child care, and family payments “at least equivalent to those directed
to aged care” (3, p. 12). Nevertheless, alarmist predictions are starting to enter the
aged care debate in Australia (1, 4).
         Most of the debate about aged care has focussed on the costs side of the
equation, with very little looking at the nature and value of the contributions that older
people make (5, 6). The present study was commissioned to attempt to balance the
picture somewhat by presenting evidence about the value of productive activities in
the present cohort of older people in South Australia.
         Productivity is classically defined as the ratio of the output of goods and
services which have a marketable value to the input of resources needed to produce
them (7). Many older adults do not produce goods and services which they trade for
money. However, many of their activities can nevertheless be considered productive
since they produce necessary goods and perform essential services. Productive aging
has been defined as “any activity by an older individual that produces goods and
services, or develops the capacity to produce them, whether they are to be paid for or
not” (6, p. 6).
         In recent decades there has been a growing awareness that traditional
economic thinking does not satisfactorily account for all categories of productivity. In
accordance with current Australian thinking about the economic value of housework
and non-work-related activities (8), it has been suggested that unpaid work should be
included in the productivity equation. Some authors think that self-care and mutual
help should also be included (7), the rationale being that the more that older people
can do to look after themselves, the less call they are likely to make on health services
and social security. The counter-argument is that it is the responsibility of each
individual, regardless of age, to look after themselves and their families to the extent
that they are physically capable, and therefore self-care should not be regarded as a
productive contribution to society as a whole.
         It is well-established that substantial numbers of older people are productively
involved in the paid workforce (9, 10) or as volunteers, whether formal or informal
(11). Many older people help their own adult children, other family members, or
friends in numerous ways, by direct financial support, minding children, caring for
people who are sick or frail, and doing chores like cleaning gutters, gardening,
painting, and cooking. Many older adults are caregivers, of their own parents, spouses,
other family members, friends, or their own children who may be disabled in some
way (1).
         People who are older today have been making productive contributions all
their lives and have built today‟s society through their lifelong efforts (12). Arguably,
they may continue to make contributions even after their deaths. Almost all older

Australians own their own homes, so their children will inherit houses free of
mortgages (13). In summary, older people throughout the world make enormous
contributions to their communities (5). However, these contributions are often
         Apart from some work on formal volunteering (13-15), there is little empirical
evidence about the financial value of these contributions. Using a crude formula ($10
per hour, which may underestimate the true value) it has been estimated that the
financial value of the work performed by volunteers at the University of the Third Age
is $4m per year in Australia and $300,000 in New Zealand (15). There have been few
attempts to estimate the value of even some of the productive activities of older
people, and as far as we know none that have tried to encompass the full range of
activities. The Time Use Surveys conducted by the Australian Bureau of Statistics
(ABS) (16) measure some aspects of productive activities (although they deliberately
exclude the production of goods and only measure services), but they are further
limited by including all older people in one group of 65 years and over. The research
reported here aimed to address gaps in knowledge by estimating the financial value of
productive activities of four age-groups of older people, with most of the participants
being aged over 80 years. Furthermore, the study included regional as well as
metropolitan participants. The study also produced data about the cost of providing
social security and health care.

The participants in the survey consisted of two sub-samples, one comprising 282
participants in the Australian Longitudinal Study of Aging (ALSA), a large age-by-sex
stratified community sample of older adults living in the Adelaide metropolitan area,
and the other consisting of 109 people living in the three South Australian regional
centres Renmark, Mt Gambier, or Whyalla. Full details of the participants in the
ALSA are available from numerous papers elsewhere (e. g., 17, 18).
         There were 171 men and 111 women in the ALSA sub-sample, aged between
78 and 101 years, with a mean age of 84.1 years. The preponderance of men over
women is unusual in studies of older people. The regional participants included 55
men and 54 women with an age range between 65 and 89 years and an average age of
74.6 years. These three places were selected as representatives of the three major
regional areas in South Australia (the Riverland, the South-East, and the Iron
Triangle). Overall the mean age of the sample was 81.4 years. Preliminary analyses
showed that there were no effects on any variable of geographical location, so the
results from the metropolitan and regional samples were analysed together. Because of
low numbers in some age-groups, the age-groups 65-69 and 70-74 were later grouped
together, as were the age-groups 85-89, 90-94, 95-99, and 100+.
         The ALSA sub-sample was recruited by letter of invitation to the known
surviving database. The response rate was about 51%, which was considered good
given the advanced age of most of the participants. The people in the regional centres
were also approached by letter of invitation, using the patient records of local general
practitioners, supplemented by consulting local telephone books.
         A validity check on the representativeness of the sample was performed by
comparing the data on productive activities in the present study to those in the Time
Use Survey conducted by the ABS (16). In comparable categories of activities
concerning household work, the amounts of hours for the older age-groups reported in

the ABS study, for both men and women, were very similar to those found in the
present study.
To measure the value of productive activities, three levels of analysis were addressed:
1. identification of activities and items construed as having an economic value.
2. quantification of productive activities into natural units.
3. estimating a dollar value for these activities.
    Quantification into natural units was done in two ways: the number of hours spent
in productive activities in the previous week, and the units of goods and services
produced in a one-week period. The one-week period was selected because it was
recent enough that people could recall what they had done, yet long enough to provide
a range of activities spanning both the weekdays and weekend. This is in contrast to
the method used in the ABS Time Use Survey (19) which asked people to record their
time use over two successive days. Dollar values were estimated using the lists of
productive activities and their dollar value produced by the ABS (19), supplemented
by market values of goods and services obtained from industry sources where the ABS
source did not provide such information.
    The two instruments developed for this survey were a telephone interview
schedule and a self-complete daily inventory of goods and services. The complete
instruments and further details of methods of estimation can be found in the full report
on this project (20) or on request from the first author.
1. Interview schedule.
    The interview schedule contained items grouped into the following sections:
     household activities
     building and making activities
     looking after children
     looking after adults outside the household
     attending to household business and financial matters
     working for volunteer organisations
     working for recreational and service organisations
     paid work
     any other activities not already mentioned, and
     donations, gifts and loans.
         The categories assessed in the interview were modelled on the Time Use
Surveys conducted by the ABS.
         Housework, building and making things, and care of other people and of one‟s
inner needs were labelled informal productive activities, whereas paid work,
organised volunteering, and helping with the running of recreational, church, and
social organisations were defined as formal productive activities. Most of the
questions about productive activities followed the same format, for example
       How many hours did you spend on food and drink preparation and clean-up
       (washing dishes)?
       1. For people in your own household, including yourself
       2. For relatives who do not live in your household
       3. For non-relatives who live outside your household
         Direct questions were also asked about some financial matters, such as the
amount of donations and loans in the previous year. However, the participants were
not asked about pensions and other forms of income since information on the age-

groups of interest was available from other sources such as the ABS and the
Australian Institute of Health and Welfare. Data about the costs of health care and
other forms of assistance were also obtained from these sources.
2. Inventory of goods and services.
         The interview schedule described above led to an estimate of productive value
based on the number of hours devoted to various activities, which is sometimes
labelled the „inputs method‟. An alternative method (the „outputs method‟), based on
the value of the units of goods and services produced, is thought by some economists
to provide a more accurate estimate (21, 22). Consequently, the participants in the
telephone interview were also asked if they would be willing to keep a diary of units
of production for a week. 51.3% of the sample completed these inventories.
         Comparative data, to estimate the relative values of productive activity from
the inputs and outputs methods, were derived only from people who took part in both
aspects of the study, the interview schedule and the goods and services inventory, and
not from grouped data for the full sets who completed each component.
         The interviewing was conducted over the telephone by a team of experienced
interviewers. The responses were recorded electronically by means of the Computer
Assisted Telephone Interviewing system (CATI), which has been used extensively in
large-scale surveys, such as the Australian Longitudinal Survey of Ageing (18), with
its widest application in health surveys (e.g., 23, 24).
         The self-reported number of hours devoted to productive activities in the week
preceding the telephone interview, and the estimated financial value of these
activities, are shown in Table 1. There were two people with missing values on some
variables, hence the number of cases shown in Table 1 does not exactly equal the total
sample size of 391. The greatest amount of time was taken up with housework and
house-related activities, mostly for people within the respondents‟ own households.
         Almost all of the making and building activities were performed for the benefit
of people within the household. There were few people in the sample involved with
the care of children, whether within or outside their household. On average, a
substantial amount of time was devoted to care of adults within the household, most
likely accounted for by those people who had to devote a lot of time to the care of a
dependent spouse (this specific question was not asked). Altogether, 46.8% of the
sample were involved in providing informal care of other adults, which includes
14.1% for within the household, 10.7% for relatives outside the household, and 29.1%
for non-relatives outside the household. There was a progressive decline in hours of
productive involvement with increasing age across almost all categories of activities
listed. The mean number of hours engaged in informal productive activities by men
(33.39 hours, SD 24.70) was less than that for women (36.09 hours, SD 28.21), but
the differences were not statistically significant. There were likewise no gender
differences in any of the specified categories.
                                 Insert Table 1 about here

        There were 54 people (13.8%) who were involved in formal volunteer
organisations. This relatively small proportion may be attributable to the advanced age
of many of the participants. There were 61 people who served in a voluntary capacity
in recreational and service organisations (15.9%), the most common involvement
being as a member of a committee.

        Many participants made direct financial contributions in the past year, mostly
to help their children and grandchildren. 10.7% of the sample provided loans to
relatives, mainly sons and daughters. Indirect assistance was provided by 15.0% of the
sample. This was mainly to sons and daughters, and included providing board and
accommodation, use of land, giving blankets or other goods, paying for airline tickets,
helping to pay off a mortgage, and paying for car repairs. The average total amount of
financial contributions was estimated to be $900 per year.
        There were only four persons who had performed paid work in the week
previous to the interview. All this work was casual, the number of hours ranging
between 5.5 and 20. The low number of people engaged in paid work (1% compared
to the South Australian participation rate of 5% for people 65 years or over) (25) was
attributed to the advanced age of the sample.
        The final part of the activities schedule was an open-ended question asking if
there were any other activities which the participants considered to be productive
which had not been mentioned so far. 62 people (15.9%) reported other activities, to
which they devoted up to 30 hours. They included things like making a will, preparing
fossil materials for a University, and being on a disaster callout for the Red Cross.
        Table 2 and Figure 1 show the time spent in informal help for people outside
the household and in organised volunteer activities, and Table 2 also shows the
financial value of these activities. About 50% of the sample participated in one or
other of these activities, the average number of hours for the sample overall being
5.46 hours per week, which was calculated to be worth $79.80.
                                 Insert Table 2 about here

                              Insert Figure 1 about here

        Using data from the self-complete inventory of goods and services (the outputs
model), the financial value of meals, laundry, daily cleaning, other housework,
outdoor chores, pet care, and car care was estimated to be $259.45 per week. The
value of these goods and services as estimated by the inputs model (hours per week)
was $215.06 per week. Therefore, the inputs model provided an estimate that was
17.11% lower than that provided by the outputs model.
        Because of uncertainty about whether the inputs or outputs method of
estimation is more accurate, a range of estimates was calculated. Furthermore, there
were possible biases due to over-reporting of hours and under-representativeness of
the sample which also needed to be taken into account. It was thought unlikely that
self-reporting would have over-estimated the true amounts of time, and therefore the
true values, by more than 30%. The low extremes of the estimates shown in Tables 3
and 4 were arrived at in the following way:
        1. the average number of self-reported hours for the sample was reduced by
            30% (multiplied by 0.7)
        2. the product of Step 1 was multiplied by the number of weeks in the year
        3. the product of Step 2 was multiplied by the number of South Australians in
            the different age-groups according to 1996 estimates (4), namely, 112,600
            65-74 year olds, 65,500 75-84 year olds, and 19,200 people aged 85 or
The lowest estimate of the financial value of the total productive activities of older
South Australians, calculated using the inputs method, was $4.41 billion per year. The

highest estimate calculated by the outputs method was $7.63 billion per year. The bulk
of these values are from activities performed within the household. Table 3 shows that
the value of productive activity in the service of people outside the household was
estimated to be between $822 million and $1.38 billion per annum.
                                Insert Table 3 about here

         Many older people earn a financial income. Using ABS (1999) data (26),
income from non-pension sources of older people in South Australia was calculated as
$492 million per annum.
         The costs of pensions, health costs, and other aspects of aged care were mostly
calculated from the health and welfare expenditure data published by the Australian
Institute of Health and Welfare (3) and are summarised in Table 4. The total for the
age pension also includes veterans‟ pensions. The cost of health services took into
account the fact that 90% of people aged 65 or more have private health insurance.
The cost of aged care facilities was adjusted to exclude the cost of food and
accommodation, which should not be regarded as health care costs (3), and to reflect
the freeing up of housing stock once people move into a facility. (People living in
institutional care were not surveyed for this study.) Table 4 shows that the total cost of
aged care in South Australia was estimated to be around $1.8 billion.
                                 Insert Table 4 about here

        It should be noted that the dollar amounts in Table 4 may represent an under-
estimate of the actual value, since they do not include the worth of less tangible
contributions to social capital, such as providing wisdom, guidance, family stability
and continuity, and passing on cultural history and traditions.
        The results of this survey demonstrate that older people in South Australia
today are very busy looking after themselves and other people, both within and
outside their own households, and many are also involved in organised volunteering
and helping to run recreational and other community organisations. The amount of
time engaged in productive activities by the sample varied according to age, but was
substantial in all age-groups, including the group aged from 85 to 101 years (around
27 hours per week). The youngest group (65-74 years) was the most active, devoting
an average of 44 hours per week to productive activities.
        The figures on domestic work are consistent with the results of the 1997 ABS
Time Use Survey (16), in which men over 65 spent about three hours per day, and
women almost four hours per day, in these activities, for a total of about 25 hours per
week compared to our result of about 26 hours. However, the Time Use Survey
reported that the 65+ age-group spent about seven hours per week in child care
(compared to 1.35 hours in the present study) and about 14 hours per week in
voluntary work (compared to 5.5 in our study). Given that the Time Use Survey only
had one category of older people (65+), it is possible that most of their older group
were at the young-old end, but in any case the figures in that survey seem rather large.
        The nature of productive activities measured in the present study differed
somewhat between the age-groups. The older groups on the whole were less active
than the younger ones, but in the area of care of other adults the oldest groups were at
least as active as the youngest, and there were no differences in producing clothes and
other objects and in involvement with organisations.

        The financial value of productive work, including income from non-pension
sources, was estimated at between 4.90 and 8.12 billion dollars per year, and the value
of productive work excluding work performed for self was estimated to be between
1.31 and 1.87 billion dollars. The total cost of providing aged care was estimated to be
about 1.80 billion dollars. It must be acknowledged that the sample did not include
people in aged care facilities, whose costs would be far higher than those in the
sample. It must also be acknowledged that an important part of the cost-benefit
equation was not included in this study, namely, the financial value of the
contributions that relatives and friends make to the welfare of older people. Therefore,
it would be overstating the case to conclude that the productive activity of the older
population, if converted into dollars, would pay for their aged care costs. However,
these estimates do not take into account the value of the contributions that older
people have made all their lives, via taxes and non-paid activity, to develop the
infrastructure of society for the benefit of both present and future generations (12).
        These results indicate that older people are not a drain on society. The
evidence shows that most older people of all ages are capable of making substantial
contributions, and there is no reason to suppose that the generations of the presently
middle-aged will not likewise contribute as they themselves become older. The main
policy implication is that government, and society at large, needs to continue to work
towards an age-friendly society by removing barriers and obstacles to the expression
of productive ageing.

                                      Key points
      Most older adults, including those of advanced years, actively care for
       themselves, their spouses and families, their communities, and society at large
      The value of productive activities performed by older South Australians on
       behalf of people outside the household is estimated to be between $820
       million and $1.38 billion per annum and in addition they have an income of
       about $490 million annually from non-pension sources
      The total cost of health and aged care for older South Australians is about $1.8
      These estimates do not take into account the value of the productive
       contributions that older people have been making all their lives, nor does it
       include more difficult to operationalise contributions to social capital


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Table 1.
Mean time (hrs per week) involved in productive activity, by age-group (standard
deviations in brackets).
Activity                 Range   %        65-74 years          75-79 years
                                          (N=57)               (N=93)
Housework                0-96    99.0     29.91 (15.73)        30.36 (21.01)
Building and making 0-42         28.1     1.91 (4.39)          2.45 (6.42)
Child care               0-50    28.6     4.47 (9.45)          0.96 (1.99)
Adult care               0-168   46.8     3.09 (5.83)          2.81 (8.18)
Household business       0-34    88.7     2.77 (2.02)          3.08 (2.60)
Formal volunteering      0-16.5  8.7      0.83 (2.71)          0.71 (2.21)
Rec. organisations       0-25    12.3     0.63 (2.48)          0.65 (2.19)
Other                    0-30    15.9     1.79 (2.89)          0.68 (0.73)
TOTAL HOURS              0-168   99.7     43.91 (27.39)        44.10 (29.02)
FINANCIAL VALUE                           $639.38              $598.41

Activity                 80-84 years        85+ years           TOTAL
                         (N=121)            (N=118)             (N=389)
Housework                25.80 (17.75)      20.10 (12.99)       25.76 (17.49)
Building and making 1.57 (4.99)             1.42 (4.41)         1.79 (5.12)
Child care               1.17 (3.95)        0.31 (0.85)         1.35 (4.56)
Adult care               2.96 (6.30)        2.95 (10.45)        2.94 (8.13)
Household business       2.82 (3.54)        2.33 (2.15)         2.72 (2.75)
Formal volunteering      0.19 (1.17)        0.12 (0.76)         0.39 (1.71)
Rec. organisations       0.34 (1.10)        0.43 (2.53)         0.48 (2.09)
Other                    0.68 (0.82)        0.89 (0.93)         0.91 (1.25)
TOTAL HOURS              34.93 (27.23)      26.52 (20.99)       35.49 (26.92)
FINANCIAL VALUE $508.58                     $402.05             $516.74
Note: „Range‟ refers to the obtained range of responses. „%‟ refers to the percentage
of respondents who spent at least some time in that activity. The data for the one
person with self-reported hours of 168 for adult care were included since for some
people being „on call‟ for a dependent spouse represents 24 hours-per-day work.

Table 2.
Mean time per week devoted to productive activities for people outside the household,
by age-group (standard deviations in brackets).
Activity                Range              65-74 years        75-79 years
Housework               0-56               3.18 (6.74)        2.27 (6.71)
Building and making 0-28                   0.32 (1.35)        0.66 (2.26)
Child care              0-50               3.47 (9.11)        0.73 (1.79)
Adult care              0-75.5             1.42 (2.97)        1.14 (2.01)
Household business      0-8.5              0.30 (0.82)        0.22 (0.96)
TOTAL INFORMAL 0-75.5                      8.51 (12.47)       5.01 (8.39)
Formal volunteering     0-16.5             0.83 (2.71)        0.71 (2.21)
Rec and service orgs    0-25               0.63 (2.48)        0.65 (2.19)
TOTAL HOURS             0-75.5             9.90 (13.14)       6.37 (9.14)
FINANCIAL VALUE                            $144.14            $92.75

Activity                80-84 years        85+ years          TOTAL
Housework               1.04 (3.53)        0.23 (0.88)        1.40 (4.73)
Building and making     0.65 (3.30)        0.54 (3.03)        0.57 (2.76)
Child care              0.93 (3.62)        0.23 (0.80)        1.04 (4.27)
Adult care              1.38 (3.06)        1.87 (8.07)        1.48 (4.99)
Household business      0.01 (0.35)        0.01 (0.32)        0.14 (0.63)
TOTAL INFORMAL          4.06 (7.71)        2.95 (9.24)        4.60 (9.30)
Formal volunteering     0.19 (1.17)        0.12 (0.76)        0.39 (1.71)
Rec and service orgs    0.34 (1.80)        0.48 (2.09)        0.48 (2.09)
TOTAL HOURS             4.59 (8.29)        3.50 (9.54)        5.46 (9.89)
FINANCIAL VALUE         $66.83             $50.96             $79.50

Table 3.
Estimated range of annual value of productive work performed outside the household,
by age-group.
Category of activity 65-74 years     75-84 years      85+ years     TOTAL
Informal             $508-$877m $157-$172m            $30-$52m      $695-$1,202m
Volunteering         $50-$86m        $16-$27m         $1.2-$2.1m $66-$115m
Recreational orgs    $38-$65m        $17-$30m         $5.0-$8.5m $60-$103m
TOTAL                $596-1,030m $190-$329m           $36-$63m      $822-$1,384m

Note. Low estimate is 70% of value calculated by inputs method whereas high
estimate is 100% of value calculated by outputs method.

Table 4.
Comparison of productive activity to costs of aged care.
Item                                           Value
Total productive activity                      $4.41 billion - $7.63 billion
Income from non-pension sources                $492 million
TOTAL                                          $4.90 - $8.12 billion
(Total including only work for people          ($1.31 - $1.87 billion)
outside household plus income from non-
pension sources)
Age pension                                    $1,440 million
Disability pension                             $90 million
Hospitals (minus 50%)                          $62 million
Medical services (minus 50%)                   $18 million
Pharmaceuticals (minus 50%)                    $11 million
Nursing homes (health costs)                   $119 million
HACC services                                  $47 million
TOTAL                                          $1.8 billion





          1.5                                                                                             75-79



                                                   Adult care

                                      Child care


Figure 1.
Mean time per week devoted to productive activities for people outside the household,
by age-group.


                                       Child care


Figure 1.
Mean time per week devoted to productive activities for people outside the household, by


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