Thursday, March 09, 2006

Ageing in the EU25: a short introduction.

For those who are interested in the current situation on ageing in the EU region. This recent EC paper "The economic impact of ageing populations in the EU25 Member States", gives a good and concise overview. The first part is a summary of what we know about the impact of ageing on the labour supply, input, capital intensity, TFP and indirect budgetary effects.
The 2nd part goes into the projections for all the EU-25 members. It also gives three distinct time periods the EU zone will go through.

"• 2004-2011 – window of opportunity when both demographic and employment developments are supportive of growth: both the working-age population and the number of persons employed increase during this period. However, the rate of increase slow down, indicating that the effect of an ageing population is starting to take hold even if it is not yet visible in aggregate terms. This period can be viewed as a window of opportunity, since both demographics and labour force trends are supportive of growth. Conditions for pursuing structural reforms may consequently be relatively more favourable than in subsequent years "

"• 2012-2017 – rising employment rates offset the decline in the working-age population:
during this period, the working-age population will start to decline as the baby-boom generation enter retirement. However, the continued projected increase in the employment rates of women and older workers will cushion the demographic factors and the overall number of people employed will continue to increase, albeit at a slower pace. From 2012 onwards, the tightening labour market conditions (lower labour force growth together with unemployment down to NAIRU) may increase the risk of labour market mismatch "

"• the ageing effect dominates from 2018: the trend increase in female employment rates will broadly have worked itself through by 2017, with only a very slow additional increase projected in the period 2018-2050. In the absence of further pension reforms, the employment rate of older workers is also projected to reach a steady state. Consequently, there is no counter-balancing factor to ageing, and thus both the size of the working-age population and the number of people employed are on a downward trajectory. Having increased by some 20 million between 2004 and 2017, employment during this last phase is projected to contract by almost 30 million, i.e. a fall of nearly 10 million over the entire projection period of 2004 to 2050."


Marcelo said...

That's a very interesting forecast, because it gives a concrete date for the expiration of the "easy" solutions (increased work participation, reasonably adjusted retirement ages). If this work holds, then discussing these measures -while necessary in the short term- cannot be taken as "solutions" in any sense of the word. There's only so much demographic slack on any aging society.

Past 2018, it's either massive (and perhaps impossible) migration, the steady contraction your overall labor input... or something else (a massively outsourced and robotized society?)

And 2018 isn't that far away. If you are thinking in terms of society-wide changes, it's right around the corner.

CV said...

Excellent find Thomas ...

It really shows us some very important trends to look for. I think Marcelo has the pivotal point for governments trying the easy way out ... especially the "increased work participation" is not a solution for the long haul. However, many governments seem to think so.

David Friedman said...

It sounds as though the study doesn't consider the long run effect of further medical progress--in particular, ways of stopping or slowing aging. Given how far forward they are looking, that may be a mistake. Progress in biological knowledge has been very rapid in the past century, so it wouldn't be surprising if, well before 2050, the aging problem was solved.

CapTVK said...


The jury is still out on how far medical life enhancement is going to take us. The study makes a mention of that in box 1 on p.19 "Healthy life expectancy – will the extra years of life be spent in good health and
free of disability?". Plus, if people would live longer it would results in even higher future claims on pension systems then in these projections.

Can we stop or slow ageing? At this point in time we don´t really know. Demographers are split on this issue. Some believe we have a natural limit, some believe we´ll continue to see a rise in life expectancy. There´s also a third group that includes Bongaarts who believe that the statistics are messed up and it only seems we are living longing but the actual gains are far smaller due to tempo effects. But I´ll leave that for another post.

Marcelo said...

I generally lump somewhat radical life extension in the bat of "weird" solutions, because they will most likely involve procedures at the genetic level, artificial tissues, or who knows what, often the very technologies that could improve productivty if applied by the healthy population. Granted, there can be life extension without "radical enhancement" due to legal restrictions (e.g., nowadays modafinil is used medically but not, lawfully, for performance enhancement, although caffeine is), but at least technologically, I'd be very surprised if we can lick aging without enough knowledge of our molecular machinery to also do nifty things with the healthy people.

Bottom line, the timeline seems to me to be:

From now to 2017: Lalala-land, "everything is fine".

From 2018-onwards: Increased fiscal pressure, short horizon "adjustments", and ultimately a choice between or partial combination of

* Radical productivity and longevity enhancement via massive use of biotechnology.

* Massive migrations.

* Severe economic contractions.

If you squit a bit, you can see the seeds of all three possibilities simmering in Japan like Schrodinger cats...

Edward said...

"Progress in biological knowledge has been very rapid in the past century, so it wouldn't be surprising if, well before 2050, the aging problem was solved."

I'm very much with Marcelo I think here. Progress in scientific knowledge is one thing, but turning that knowledge into meaningful extension of very productive activity into the older age groups is another.

I don't really see ageing as a problem, it is more a sign of progress, but our institutional structures are hopelessly behind the curve. And the way we are seeing the problem, this was my point I think about Richard Sennett and the perceived lack of flexible attitudes in the older populations.

I think in many ways the 2050 horizon is far too long, (although maybe by the time we get there Keynes's idea that in the long run we are all dead will be way behind the curve). 2015 to 2020 looks like a very interesting timeline. This is when many of the 'big picture' issues may well really kick-in.

"If you squit a bit, you can see the seeds of all three possibilities simmering in Japan like Schrodinger cats..."

Quite. And try squinting towards Eastern Germany and Italy while you're at it :):