Thursday, May 25, 2006

The nature of Germany's population as we move formard

It has been some time since anybody on the Demography.Matters team has put something up. I think we are busy at the moment doing other things because it most certainly is not lack of interest and spirit. (Upd. Incidentally Thomas has new post up just before this one) Well, apologies aside ... we are obviously bound to react when the NewEconomist duly prompts us back into action (literally:)) by pointing us to a recent report by Deutche Bank Research about Germany's demographic challenge (PDF-format).

Now, Germany's demographics have been on the agenda before (also here and here) but still the report's conclusions are worht a while. Remember, though, that we are forecasting here ...

"In the coming decades, the demographic changes looming ahead will hit Germany with an impact never felt before. This applies not only to the pension system. It holds equally for the labour market, and will entail repercussions for wages and interest rates and thus growth potential and international capital flows. DB Research has analysed the complex interplay of these factors by using an overlapping generations (OLG) model.

The main results of our simulations:

— The growth potential of the German economy will shrink from about 1 ¼% p.a. at present to a mere ¼% p.a. by about 2060.
— The annual increase in real income per capita will be dampened by up to 0.3 of a percentage point up to 2050, falling to just below 1% p.a. This comes to only one-third of the annual increases in prosperity from 1955 to 2005.
— Under “Status quo” conditions, the return on capital will decline by around 100 basis points by 2060.
— A change of pensions policy towards “More personal provision” would drive down returns by a further 35 basis points.

The findings of this study are generally in line with those of our past analyses pertaining to the demographic challenge, but they have to be interpreted with caution as they are based in some cases on very restrictive assumptions."

See also figure number 1 page 4 which shows the decline in the population and labour force from index 100 - 2004. Or as NewEconomist shows us with a quote ...

"Our projections suggest that the population in our “model world” will decline by a further 15% from 2050 to 2080 and then remain stable from about 2150."


Mrs. Davis said...

Nevertheless, they should be interpreted with caution since they are based in some cases on very restrictive assumptions. The main assumptions that could limit the significance of the findings are:

—The model is based on a closed economy.
—The households have perfect foresight. They maximise their consumption over their entire lifetime and can decide their optimum consumption or savings plan from the outset.
—The time preferences of the households and their risk aversion levels are constant across the entire survey period.
—The labour participation rate is constant and equal to 1, i.e. in our model all households of working age “work”.
—Wages are completely flexible. —The labour market clears, i.e. there is no unemployment.
—There is no transfer of assets by inheritance.
—Only one good is produced and it can be both consumed as well as invested.

Such assumptions may be necessary to construct a mathematical model. But they are so unrealistic as to make the results little better than a random guess from a policy maker's perspective. Why does Deutsche Bank publish such output for general distribution instead of for academic interest only?

S.M. Stirling said...

Germany has a rather unusual pattern when you examine fertility in detail.

About 1/3 of German women have no children at all. The rest usually have more than two. The number with only one is smaller than in other countries with similar overall TFR's -- Italy or Poland, frex.

This suggests that the problem may be self-correcting, since number of siblings is a strong predicator for how many children a woman will eventually have.

If most of the children of the 2-4 child families who constitute most of the younger generation copy their parents, the results could become apparent by the 2020's.

Edward Hugh said...

"This suggests that the problem may be self-correcting, since number of siblings is a strong predicator for how many children a woman will eventually have."

I think it is much to early to jump to conclusions like this, since we are in a continuing transition and it is hard to predict behaviour from one generation to the next. The desired family size surveys really represent the only kind of data we have about possible lines of future evolution. In the 2001 eurobarometer survey the number dropped to an average of 1.7 in Germany and Austria. The next survey findings are due in July and should make interesting reading.

Remember that 1/3 of German women who had no children at all did have brothers and sisters, so it is hard to see siblings as being such a strong predictor.

Also I think outward migration of young educated people (potential parents)from Germany will be an increasingly important phenomenon.

I think this is a case where the Easterlin/Macunovic cohort thesis will have some relevance. Basically people in their twenties in Germany now face increasingly complicated economic circumstances, this will more than likely encourage even more postponement.

The important thing is to study those people with more than two children, what is their socio economic profile?

I have a working hypothesis which attempts to link this to the characteristics of the labour market: the dual labour market thesis:

Essentially those who are less qualified and start working earlier may start families earlier and hence have more children. The issue then hangs on levels of social mobility. If the children of unskilled workers subsequently become better educated and seek a different employment profile from their parents.

Where there is upward social mobility the migrants normally move in and follow the path of the earlier generation of unskilled. Spain currently is a good example of this process at work.

"The rest usually have more than two."

I find it hard to believe that the number of German women having only one child is so statistically insignificant, do you have a source on this?

Italy and Poland are, as you say, different from Germany. Italy started postponement much later, and the future path of fertility there is unknown. Economic circumstances will certainly not be conducive to having children.

Poland is just developing economically, and postponement is only now really starting to take off in a big way. Fertility in the short term in Poland is much more likely to move down than move up.

S.M. Stirling said...

Simply looking at national TFR's can be misleading. You have to break down the patterns to a finer degree of detail to get at the probable long-term trends.

If the overall TFR is, say, 1.5, but there's a substantial sub-group with a consistent 2.5, then what you're looking at is not a sub-replacement population, but two populations, one in the process of being replaced by the other.

This is most obvious in countries with large, diverse populations.

Eg., the US (leaving minority groups aside for the moment) has two significant fertility patterns, one with a very low TFR (in the German/Spanish range) and one with a quite high one.

Relative fertility levels are an extremely strong selective feature over generational periods. Hence very low TFR's will tend to self-correct, since they'll eliminate both bloodlines and general behavioral patterns.

The German pattern is one where about a third of the population isn't reproducing at all. Obviously there's a selective process at work, and whatever the distinguishing features of this group, they're being selected against.

Edward said...

"Relative fertility levels are an extremely strong selective feature over generational periods. Hence very low TFR's will tend to self-correct, since they'll eliminate both bloodlines and general behavioral patterns."

Not if they are associated with very high lifetime earnings capacity in the few children produced they won't. They will be reinforcing, with some migration from the other -relatively poorer group - maintaining numbers.