A Political Response to Changing Demographics?

This one is another one of those small posts which show the effects of demographics in developed economies. Here at DM we talk about all aspects of the changing demographic indicators and realities. In the realms of politics however there is a lagged effect in terms of how policy makers view and (are able to?) respond to the changing demographic profile of their countries. This is quite natural since policy makers need to worry about election and re-election. In that ligth a proposal to open the gates for unskilled immigration as proposed by Edward a couple of days ago seems as political suicide in many developed countries, at least for now. We of course would like to see such courage and prevision but we must also be realistic. So where are we then?

Basically many governments of developed economies have begun responding to changing demographics in one key area; namely in the area of growing life expectancy and longetivity. In essence many developed economies are becoming aware (they are beginning to feel it as well) that the dependancy ratio is rising and as such pensions schemes, health care schemes and in fact general welfare schemes are being modified accordingly. The general consensus seems to be something like; we need to work longer as function of rising longetivity and go quicker through the education system (specifically coined in a Danish context) in order to ameliorate the dependancy ratio. As always there is of course an article to go along; this time from The Guardian about the pressures on UK's pension system.

'Britain's pensions deficit could be larger than official figures suggest because workers are living longer than predicted, the regulator said yesterday.

Employers, already under pressure to plug deficits in their final-salary schemes, could be forced to inject further finance into their retirement funds to honour obligations to staff, said David Norgrove, who chairs the pensions regulator board.

(...)

A recent report by the Institute of Economic Affairs, a rightwing thinktank, argued that the increasing life expectancy, coupled with falling investment returns and low interest rates, had increased the public-sector pension deficit by a quarter to more than £1 trillion. The deficit in the private sector is estimated to be about £100bn on liabilities of £900bn.'

The obvious question which must come on the back of my post is whether it is enough? Is it enough to tweak existing structural mechanisms to better fit the compositional effect of an ageing population? Well at the offset it makes perfectly good sense; we are living longer and therfore we also need to push retirement age accordingly; this is logical. But at the end of the day it is probably not enough (fertility is low and falling as well) and certainly this is not a viable solution for a countries like Japan and Italy, or Germany for that matter. Here at DM (this includes our commentators as well!) we are still trying to get to grips with explaining what is actually going on as we move forward. However, we are getting there and it seems clear that the current political response to changing demographics is inadequate in many countries. So what should they do?

Cold Feet?

I wanted to highlight this story from BBC which immediately caught my attention: "EU Chief urges enlargement pause".

I know migration is only a fraction of the issue, but I do believe that on some level, this is a nationalist response (weird considering that the EU is theoretically not a nation) -- and I don't necessarily fault the EU for it. As analysts who study globalization and other social phenomena like population aging, it is easy for us to take for granted that, sooner or later, Turkey will end up joining the EU because the Union was founded on priciples of integration and inclusion. We support our claims by saying that Turkey is the only nation which can help alleviate some of the burdens of the EU's rapidly aging population.

However, right now, it seems quite obvious that trends are heading in the opposite direction and that Turkey will probably end up aligning more closely with Russia and Iran than the EU. As I see it, and I hate to sound like a broken record, this is a part of the nationalistic response to (perceived) predatory globalization - both in Europe and in Turkey.

I would appreciate some insights and comments from people closer to Europe.

Young And Over-Educated In Sweden?

by Edward Hugh

Well its been a quiet week over here at DM, and today is a grey drizzly day in Barcelona, so lets try and liven things up a bit with a (somewhat) controversial post.

It is curious to watch how some ideas which are rather badly thought out sometimes gain an acceptance and a status which they hardly merit. A classic case in my book is the Goldman Sachs idea of BRICs (this is ill-thought-out since Russia is very different from the other three, and it would be more coherent to have BTICs, substituting Turkey for Russia. We could then develop the parallel concept of the IRs - energy-rich non-democracies with serious problems: Russia and Iran). But another case in point (and it is the relevant one for this post) emanates from a McKinsey report which came out in the summer which was entitled Sweden's Growth Paradox.

Now first it is important to take note of the fact that McKinsey have a lot which is very much to the point about Sweden in the report, especially related to sustainability in the conext of population ageing:

Second, demographic change will put Sweden's public sector under intolerable pressure unless its productivity improves. An aging population will require more welfare services—paid for by taxes levied on working-age people, whose share of the population is falling—and technical developments in health care constantly increase the demand for it. If nothing else changes, the resulting increase in welfare costs would become too large to finance through the current tax system in only 10 to 20 years. Even our base case scenario indicates that the municipal income tax rate would rise to roughly 50 percent over the coming 20 to 30 years, from about 30 percent today, unless productivity rises. Since the taxpayers are hardly likely to accept such an increase, the quality of public welfare and health care services would have to decline.

So I want to be clear: Sweden obviously needs reform, this is not at issue here.But in this post I want to focus on one simple theme (or meme) in the report (For a review of some of the recent blogsphere 'noise' on Sweden in this context, see postscript). Essentially the idea in question is the following one:

Overall Sweden's inability to create new jobs has a negative effect on economic development and creates a growing de-facto unemployement. Today more than 15% of the able working population is without full employment. This includes students who want to work but remain at university since they cannot get a job, part-time employees looking for more work, and people who are on sick-leave or early-retirement above and beyond the levels seen in and around 1970.
Extract From: Sweden's Economic Performance: Recent Developments Current Priorities Synthesis, May 2006

Basically McKinsey suggest that there is a big market imperfection in the way young people in Sweden take choices about education, and essentially young Swedes are getting too much education. This idea is a widely accepted one, and none other than RGE Monitor's very own Brad Setser recently argued something similar in an Afoe thread:

I would say neither the US or France has produced enough jobs -- and certainly not enough jobs that match the wage expectations of their native-born population -- over the last few years, despite a similar housing boom. in france that shows up in persistently high unemployment rates, and, i suspect, in a tendency to stay in school a bit longer than is required just to create human capital (lots of folks seemed to do several DEAs while looking for a job back when I studied in france). In the US, this shows up in a falling employment to population ratio.

Now the interesting thing here is the idea of 'over-education'. This would seem to be a rerun of the young and ’overeducated’ argument first run by Lester Thurow some years back (I suspect it may also be connected with Easterlin’s version of cohort theory). The thought would seem to be that in unfavourable labour market conditions, young people in a 'challenged' cohort may be encouraged to continue their education by the difficulties of finding a job.

Now this interpretation may have had a certain validity in the US in the 70s (and in the presence of the boomer generation) but it isn’t clear that it is the case in Europe today where there are small and not 'boomer' cohorts. One of the problems is that no-one really knows how much education you need. US thinking seems to veer towards the lower end of the band, and to then - given the uncertainty - let the markets decide the rest, but as people from Paul Romer to Alan Greenspan have been arguing, the market mechanism seems to be resulting in an under-educated US population, heavily dependent on importing qualified labour.

I think this is to get thinks the wrong way round. What we may have in operation in Europe today is the confluence of two market imperfections which in combination may, via the law of unintended consequences, just serve to cancel each other out. The first imperfection undoubtedly comes from rigidity in the labour market, and the other from a time consistency problem in the way in which a well-functioning market would determine the level of education needed in the context of declining age cohorts.

Let me explain.

Basically in the US and in Europe what is currently being widely proposed is a model of skilled inward migration. This, I think, is a mistake and leads to the sort of resentment towards immigarnts that Nandan is worried about.

If we want to correct (in the short run, in the long run this will be impossible) imbalances in the population pyramids, what we need are lots of unskilled migrants. So one reform that is badly needed in many parts of Europe is an institutional one, which makes this possible, and which facilitates a massive expansion of relatively low wage employment.

OTOH what is also needed is reform in the educational system which means that young people in developed economies get a better eduction, and are thus well-placed to take advantage of the supply-side push created by the migrant influx and which will have a demand-side impact as people are needed further-up the value pyramid.

This kind of migration is much more sustainable, since the local population can clearly see themselves to be beneficiaries.

If you don't have this 'dual' process, then you risk having the kind of problem which exists in Italy (see this post) where according to the OECD:

Compared with other OECD countries, an above-average proportion of the Italian population has only lower-secondary education. This is especially true for older age-groups, but it is also true for younger ones. Forty per cent of 25-34 year-olds are in this category compared with an EU and OECD average close to 25%, and the results of the OECD Programme for International Student Assessment (PISA) show that Italian 15-year olds have attainments well below the average in particular in mathematical and problem-solving skills. There is a high proportion of youth which is in neither education nor the labour force, suggesting a difficult school-to-work transition. The risk of unemployment later in life is also considerably higher for those with only lower secondary education.

Furthermore, a smaller proportion than the OECD average has completed tertiary education, even though a relatively high proportion embarks on it. Years spent in obtaining an undergraduate degree are greater than the average, raising the opportunity cost of tertiary education and discouraging the formation of high level skills. The demand for high-skill workers may be hampered by the specialisation of Italian industries in low tech sectors and the small size of Italian firms, which reduce their R&D spending capability. At the tertiary level, a problem is an insufficient number of younger professors, for whom there are barriers to entry. Academic appointments lack transparency, promotion is not always linked to productivity, and Italy spends far less than the OECD or EU average on research and development, and significantly less on tertiary education. As a consequence Italy suffers from a pronounced net brain-drain.

So what we need to think about here is sustainability, demographic sustainability, social and political sustainability, and economic growth sustainability. Effectively what I am proposing is a new model for migration, and one which puts up-front the real needs of the developed economies. If this path is not followed then what we risk is a permanent drift down the value chain, as the scarce resource (young people) is over-priced in under-performing activities (someone has to care for the growing number of young people, and look, for eg at the growing importance of the health sector in the US economy). This creates, of course, a growing sense of frustration and increasing inequality, and a permanent feeling that what we have is a weak labour market, rather than the reality which is, of course, a shortage of young people.

Postcript: There has been a lot of commentary around the blogs over the last week on the change of government and the need for reform in Sweden. New Economist has given some pretty thorough coverage (see here, and here, and here), while my Afoe co-blogger Emmanuel has a rather different take, and indeed links to an article in the Economist which cites - guess what - the Mckinsey report. Also Mark Thoma recently had a post on Economists View which is not entirely irrelevant to the point at issue here. Basically the quality of education received by large sections of the US population needs to be improved, so it isn't only Sweden which is in need of reform.

Immigration, Demographics, and Economics

Firstly, I would like to thank Edward for inviting me to post on DM. We have been having an ongoing discussion on the Indian Economy blog over the past two weeks and he thought this might be a good forum for me to expound on some of my views. Some of what I write might repeat previous posts and threads, and I would ask regular DM readers to forgive me for this until I am better acquainted with the blog.

Over the past few years, I have studied demographics and the economics of globalization and practiced to what extent I could through my jobs. What interests me most about the current state of demographic change throughout the world – is the fact that because of globalization, for the first time international migration has become a significant variable in how these changes translate into economic growth. To put it another way, the graying of parts of the world and population explosions in others can both be mitigated by net positive or net negative international migration, respectively. Edward’s recent post on Ireland only serves to highlight this.

The larger concern, in my view, is whether these dynamics will last. After all, doesn’t logic dictate that international immigration will flow to where there is more economic opportunity? In that case, the current net positive immigration rates of the slow-growing EU and US, and the net negative rates of fast-growing places like India and China (along with other developing nations) will tend towards a reversal – which would only exacerbate the demographic crisis. This is certainly reflected in some recent anecdotal experiences: my best friend and my brother both recently left lucrative Wall Street jobs for investment banking jobs in Mumbai (admittedly, a very small sub-section of society!). They took big pay cuts, but the promise of income growth was far bigger there – banking compensation (salary + bonus) has been doubling every year there, compared to ~10-15% increases in New York.

The more balanced view is probably that decisions to immigrate are based not just on opportunity which exists on the margin, but also on the absolute standard of living in the receiving country. This would of course imply an immigration advantage to the developed regions for quite some time to come. However, another interesting dynamic then comes into play. Presumably, for younger workers (for clarity sake, say ages 25-40) the difference in growth rates is what is more important, whereas for older workers (40-65), the standard of living is the more important concern. This would then imply a shifting structure—whereby near-retirees are moving to the US and EU, and young workers are moving to India and China (I am using regional oversimplifications of course – in reality, the demographic dynamics within and amongst nations/regions are far more complex). This would, of course, compound the problems and benefits of the regional age distributions.

A final, more imponderable, question also comes to mind: what level of international immigration can countries tolerate socially and politically? A growing American chorus of concern over (illegal) Mexican immigrants, and vague European gripes about Polish plumbers come to mind as I wonder whether nations can retain their national fiber if they become “polyglot boarding houses for the rest of the world” (to quote Teddy Roosevelt). Even having grown up on three different continents, it is still difficult for me to imagine a world where ethnic/racial/religious backgrounds of immigrants cease to polarize the judgments of the local populations.

Rather than feigning a conclusion, perhaps it is best to end with a question I should have asked at the beginning of the post: What effect will international immigration have on the different demographic and economic dynamics of the major regions of the world?

Here is a link from the IMF report which discusses some of this.

Welcome To Nandan Desai

Just a quick word of welcome and introduction to Nandan. Nandan is a young Indian economist who currently lives and works in the USA. He will be posting here from time to time in the coming months.

Migration Ireland

by Edward Hugh

This may not exactly comes as breaking news, but the Irish Central Statistical Office published a report earlier this month giving population and migration estimates for 2006. And of course what we learn from reading that report is that immigration now constitutes some two thirds of the annual Irish population increase (the other component coming naturally from increasing life expectancy, since fertility is now below replacement level).

In fact we learn that 86,900 people migrated into the Republic of Ireland between May 2005 and April 2006, and that this was the largest number of immigrants received by the Irish republic since record-keeping on immigration began two decades ago. 43% of the migrants came from the EU member states in Eastern Europe, with 22,900 of these coming from Poland and 6,100 from Lithuania.

On the other hand the rate of Irish emigration has been declining continuously, and in particular Irish migration to the US, which has been declining since 2002 and is now running at record lows: last year 1,400 Irish citizens resettled in the United States, compared with 4,800 in 2002.

The Irish economy clearly needs labour, having as it does one of the fastest growing economies in the European Union, and since fertility is now down to around the 1.9 Tfr level the younger generations are starting to contain less people. Indeed less and better educated young people, since there has been a veritable explosion in tertiary education in Ireland in recent years, with 55% of those completing secondary education now progressing to the tertiary level.

Obviously, in part, Ireland has been experiencing its demographic dividend (see this post Europe's Tiger for some exploration of this topic, and also see this post and comments for discussion of the issues involved in relation to fertility and migration in Morroco.

Here's an interesting review of Ireland's migration history from Migration Information Source.

Key Quote:

"In 1996, Ireland reached its migration "turning point," making it the last EU member state to become a country of net immigration. The main reason: rapid economic growth created an unprecedented demand for labor. Unemployment declined from 15.9 percent in 1993 to a historic low of 5.7 percent in 1999. While total emigration flows have remained significant (with an annual average of about 24,800 during 2000-2003), total inflows increased markedly in the mid-1990s".


Some Additional Data

In May 2006, the number of EU-8 nationals requesting the PPS income/social security numbers required to work in Ireland topped 206,000 for the first time. They included 116,000 Poles, 35,000 Lithuanians and 18,000 Latvians. Some of those who had been waiting for the PPS number may have returned home before it was granted.

The 2006 Irish census is expected to find 400,000 foreigners in Ireland, making them over 10 percent of the population. In the 2002 census, foreigners were six percent of the 3.9 million residents.

The AIB bank reported that 159,300 foreigners were employed in Fall 2005, eight percent of total employment of two million. Irish foreign workers included 27,800 employed in manufacturing; 23,100 in hotels and restaurants (they were 20 percent of this sector's work force); 22,600 in construction; and 21,000 each in education and health services and business services.

The above comes from this article. They also make the following point.

Low interest rates have fueled a construction boom in Ireland, which has increased employment of migrants; about 13 percent of Irish workers are employed in construction, up from eight percent in 1997. However productivity growth slowed, and economists warn that, if interest rates rise, construction could slow sharply.

This is very similar to what has been happening in Spain. The question is, is the construction boom sustainable? In the long run it obviously isn't. In the short run it can even actually feed on itself, as the boom sucks in more immigrants, who then want to buy houses. This is all being paid for by having low interest rates thanks to the ECB. Normally I tend to argue that this situation was undesireable, especially when you take into account inflation rates in Ireland and Spain. However we are not living in 'normal' circumstances, there are substantial - demographically related - global imbalances, and it is not clear how these will 'correct' themselves. If Ireland and Spain can hang on to the migrants they have attracted when the property boom stabilises, then they will have made a 'one off' population pyramid adjustment which will be advantageous for them. Basically they can postpone the day of 'settlement of all debts', and thus they will have bought time. This may be a real advantage since time will mean more room to manouvre as the reality of what is happening elsewhere gradually sinks in.

So there are definitely plusses and minues here. It is very hard to call this situation. High interest rates will *not* be coming (in any meaningful and sustained sense) so long as we have the euro, the needs of Italy and Germany for growth virtually guarantee this.

Demography Matters Categories

Just to let you know, gentle reader, that we now have a functioning 'home made' Demography Matters category section (in the sidebar). This should make it easier for any of you who wish to look for material on a particular topic, and help us when we want to find old pieces to link back to.

A Tall Story

by Edward Hugh


This article from AP caught my eye:

Most of us are taller than our parents, who probably are taller than their parents. But in the Netherlands, the generational progression has reached new heights. In the last 150 years, the Dutch have become the tallest people on Earth — and experts say they're still getting bigger. It is a tale of a nation's health and wealth. With their protein-rich diet and a national health service that pampers infants, the Dutch are standing taller than ever. The average Dutchman stands just over 6 feet, while women average nearly 5-foot-7.

The Dutch were not noted for their height until recently. It was only in the 1950s that they passed the Americans, who stood tallest for most of the last 200 years, said John Komlos, a leading expert on the subject who is professor of economic history at the University of Munich in Germany. He said the United States has now fallen behind Denmark.

Many Dutch are much taller than average. So many, in fact, that four years ago the government adjusted building codes to raise the standards for door frames and ceilings. Doors must now be 7-feet, 6 1/2-inches high.

Now this is very much Robert Fogel territory (and here). Fogel famously argued, it will be remembered, that population heights correlate with economic growth, and that the prime mover in all of this was improved nutrition. This is an issue which is also dear to my very own heart, and I have a draft paper which I am working on (ouch, PDF) which has a lot of 'synnergy' with the Fogel view.

Basically it now appears that the situation is more complex than Fogel initially imagined, since height is not only a measure of health (it can, for example, imply increased cancer risk in some cases) but on the other hand we now (thanks to molecular biology) understand better some of the nutritional pathways which are at work here. The pre-birth environment is, as David Barker has long been arguing, now known to be very important.

"Prosperity propelled the collective growth spurt that began in the mid-1800s and was only interrupted during the harsh years of the Nazi occupation in the 1940s — when average heights actually declined."

Indeed, and the Dutch famine winter (1943/44) is one of the classic cases of a changed nutritional environment producing lifelong changes in the health of those born at the time. Really there is a lot more to say about this, and as we move forward I will undoubtedly say some of it, but I thought it was worthwhile bringing this phenomenon to everyone's attention, to start the ball rolling as it were.

Feedback Loops

by Edward Hugh

Rising ocean temperatures in key hurricane breeding grounds of the Atlantic and Pacific oceans are due primarily to human-caused increases in greenhouse gas concentrations, this is the key finding of a study published online in the September 11 issue of the Proceedings of the National Academy of Sciences (PNAS). You can find a description of the study here, and an interview with study authors Benjamin Santer and Tom Wigley here.

Why is this news interesting for a blog like Demography Matters? Well quite simply because it shows that a feeback loop exists between human activity, climatic change, and the frequency of hurricanes. And hurricanes, as we know (from, eg, the dramtic case of Katrina) then go on to influence human behaviour, and so we go on.

And the best bet is that there is a tight link between demographic processes, economic growth and climatic change. These loops are extremely complex and unfortunately we have no class of models which even begin to address such issues.

I highlighted this question in an earlier post on some work by the biologist and ecologist Mercedes Pascual. The issue there was health, and how climate changes were affecting mosquito populations in East Africa. As Pascual suggests these changes are obviously implicated in the incidence of diseases such as malaria, and the consequent health impact may then lead to changes in both economic growth and fertility patterns. That the problem is an extensive one, and 'hard' to get to grips with (in the true meaning of hard problem), and that we are still light years away from understanding the compex processes involved I take as evident. As I said at the time, a good first step here will be to understand the demographic processes themselves (call this partial analysis if you will) and how they impact on (and are in turn impacted by) economic growth processes. This seems a 'doable' challenge, and would be a good first step to building out to a much broader class of models which might then begin to address the bigger questions.

AIDS in South Africa

by Edward Hugh


The New York Times had an article last week about the alarming way mortality rates in South Africa have been rising in recent years. As can be seen from the graphic death rates for adults of virtually all ages and both sexes rose sharply from 1997 to 2004, among some groups by a factor of four or more.

Now as the NYT point out AIDS is not reported as a cause of death in South Africa. But the age patterns of the increased deaths and their reported causes — in many cases parasitic infections, immune disorders and maternal conditions — make it likely that AIDS and ailments related to H.I.V. were behind much of the trend. The report from the SA statistical office on which this information is based seems to leave little doubt that South Africa, with the largest number of H.I.V.-positive citizens of any nation, faces an AIDS problem on a huge scale. Among other significant details which have become apparent the death rate among women in the 30-34 age range was 4.6 times higher in 2004 than in it was 1997 (leaping in the process) to nearly 23 per 1,000, while the death rate among men in the 40-44 age group more than doubled, to nearly 28 per 1,000.

At the same time, according to the latest data set from the Population Reference Bureau, fertility in South Africa is around 2.8 TFR and falling steadily (the CIA give a 2.2TFR figure) and will soon be below replacement level, while total population is already falling at 0.4% per year.

The expession "growing old before growing rich" has been used extensively of late, but it may be that South Africa will never grow either old or rich, at least following the current path it won't, and that's for sure.

So following Claus's recent point about what is happening in Russia, we seem to be able to identify two groups of countries, one in Eastern Europe, and the other in Africa, who have become detached from the 'pack' in a very meaningful sense. What we urgently need is a theoretical framework in both economic and social theory which enables us to better understand the processes at work here.

The Economics of Demographics

(various typos have been edited 9.11-06)

This one is a real treat for anyone simultaneoulsy interested in demographics and economics and as such also a treat for the DM team and hopefully for our faithful readers as well. What am I talking about then? In short, the IMF has chosen to devote their Septemper issue of Finance and Development to 'The Economics of Demographics' and obviously this cannot go un-noticed here. On that note we should thank fellow blogger Pienso for brining the IMF publication to our attention via E-Mail. So what do we have here?

Well in so many words; a lot! I honestly do not have time to go through the publication in detail so this post will serve as a pointer. However, I am sure we will re-visit the study later and go a bit depper into its content. At first hand though, there are some articles which at an intial glance come off as particularly interesting ...

Asia: Ready or Not? - Peter S. Heller

'The challenges faced by industrial countries in the West and Japan with the prospective retirement of the "baby-boom" generation are well recognized. Governments face a growing financial burden from pension costs, medical care, and possibly long-term care, implying either sharp increases in taxes or a reneging on the promised level of benefits. But less appreciated is the fact that many Asian countries also face their own demographic "time bomb." Although they lag two decades or so behind the industrial countries, the sharp decline in fertility rates and rising longevity will result in a growing proportion of elderly people, relative to both the overall population and the number of working-age people, by 2020–30.'


Can Europe Afford to Grow Old - Giuseppe Carone and Declan Costello

(Watch out the final sentence here ;))

' The population of the 25-member European Union (EU) in coming decades is set to become slightly smaller—but much older—posing significant risks to potential economic growth and putting substantial upward pressure on public spending. The region's old-age dependency ratio (the number of people 65 and over relative to those between 15 and 64) is projected to double to 54 percent by 2050, meaning that the EU will move from having four persons of working age for every elderly citizen to only two. In addition, upward pressure on spending has fueled concerns that unsustainable public finances could jeopardize the smooth functioning of the single currency, the euro.'

What is the Demographic Dividend? - Ronald Lee and Andrew Mason

'Industrial countries have largely completed what is called the "demographic transition"—the transition from a largely rural agrarian society with high fertility and mortality rates to a predominantly urban industrial society with low fertility and mortality rates. At an early stage of this transition, fertility rates fall, leading to fewer young mouths to feed. During this period, the labor force temporarily grows more rapidly than the population dependent on it, freeing up resources for investment in economic development and family welfare. Other things being equal, per capita income grows more rapidly too. That's the first dividend.'

(On this one we might need a disclaimer/note since a large part of the research undertaken by the contributors here are specifically concerned with the DD, the mechanisms by which this process operates, and how it relates to and affects the demographic transition. In short, expect the mainstream view to be challenged here :))

---

These three articles above are consequently my immediate reading list but by no means necessarily yours too. I thus encourage to shop around in the publication because it seems to contain some very solid work in terms of background analysis of the major trends and salient issues pertaining to demographics and economics anno 2006.

Enjoy!

Czech Pensions

by Edward Hugh


I just found this article from the Prague Daily Monitor via a link on an interesting looking website called Age Times. It is pretty wooly, but the fact that the Czech pension system is already going into deficit does start ringing alarm bells. The problem obviously can only get worse if they don't have a substantial reform, but to have anything more to say I think I will need to look into this a bit further.

"Prague, Sept 4 (CTK) - The Czech pension system will probably be in equilibrium for the last time this year and will slide into a deficit in the following years, new Labour and Social Affairs Minister Petr Necas told journalists Monday.

He said a change in the pay-as-you-go system applied now and an adjustment of voluntary pension private schemes will be among his priorities.

Necas said the change should more motivate people to contribute voluntarily to their pension schemes.

According to previous data, it was hoped that the new pension system would last for another 20 years without running into a deficit."

Obviously it is a good idea to encourage people to take out private pensions, but the big issue - given the fertility decline - is the existence of the 'thicker' generations of people who are already over 50. The young people, who are much fewer in number, will be having to do double book-keeping as they pay for the previous generation and accumulate resources for their own pensions. This was always going to be a problem.

A Message To Our Readers

Hi there, gentle reader. This is just to say that, as you will already have noticed if you are reading this, that Demography Matters is now back in full swing again after our extended summer recess. The team here have their batteries fully charged and are ready to roll.

I would also like to take the opportunity to thank those of you who are participating in our growing and lively comments section. We consider you now part of our 'family'. Basically DM is a little different from most weblogs since it is in many ways a research project. The phenomena we are looking at are not understood, by anyone, and we all learn something new every day. Really we are using posts here to 'test' ideas, and your friendly and constructive criticisms form an important part of the 'testbed'.

Really, since this is not especially a news driven blog, many of the posts don't particularly date, and often when we are discussing topics it would be useful for people to be able to go back and look through the relevant prior posts. So with that in mind I will try and make the time to put together some category sections where we can group the posts.

One last thing, Claus has a post up this weekend on his own blog on Russian demography, if anyone is interested.

Saving Your Bacon

by Edward Hugh


This suggestion by fertility expert Gillian Lockwood has not been getting the coverage it deserves. Lockwood argues that women who are thinking of postponing childbirth should take the precautionary measure of having some eggs frozen. I think this is an excellent, cost effective and very practical suggestion. Basically I would go further than Lockwood and suggest that any women who wants a child eventually but is postponing beyond 25 be encouraged to do this as a precautionary measure at that age. Not because at 25 the issue is pressing, but precisely because it isn't. This means the decision could become a routine one. I think we should have massive public health campaigns about this just as we do with tobacco. That way many women can avoid having the ultimate disappointment later on, and, of course, collectively fertility would almost certainly go up.

" Women expecting to have children in their late thirties or forties should freeze their eggs if they want to boost the odds, a British fertility expert said.

Fertility expert Gillian Lockwood told a conference in Glasgow that women thinking of delaying motherhood should freeze their eggs to avoid finding out that they had "missed the boat".

A woman in her forties will have better chances of giving birth using eggs frozen in her thirties than using fresh eggs, Lockwood told the British Fertility Society conference at the University of Strathclyde.

A woman is born with all the eggs she will ever have, meaning they age at the same rate she does. Women's fertility is known to plummet after the age of 35.

"It's the age of the egg, not the age of the womb, which determines the miscarriage rate," Lockwood said.

"Once an egg is frozen, it is frozen in time and there is no decay or damage and the chance of healthy pregnancy is about one in four. That is not great, but it is all a normally fertile couple have the old- fashioned way, about a one in four chance every month," Lockwood said.

Just two last points. I wouldn't put it like Lockwood does, since I doubt many women at 25 are actually planning to have children at 40, this is just something that happens, so I would word it 'if you are thinking of postponing'. This should be in the sex education for the girls in school. Secondly, given the odds that Lockwood outlines, I would recommend freezing 4 eggs, and then after doing this going out and replenishing the system with a good old-fashioned English breakfast, over-easy or sunny side up, it doesn't matter, the nutritional benefit is the same.

The Alberta advantage

Edward mentioned yesterday the consequences that different rates of population change in different regions within a country can have on internal politics. Within Spain, as he noted, the fact that two of the regions experiencing the quickest population growth are the Spanish capital of Madrid and the nationalist and potentially separatist region of Catalonia is going to have interesting consequences for the future of Spanish federalism. Certainly, in Canada similar concerns over different rates of population change--especially changing fertility and immigration rates and the speed of language acquisition and loss--played a critical role in driving the growth of Québécois nationalism.

Québec now shares in the standard Canadian pattern of relatively low TFRs and high rates of international migration, if to a lesser extent than Ontario or British Columbia, and while the relative weight of Québec within the Canadian federation is decreasing, it isn't doing so quickly enough to precipitate a crisis. The new destabilizing population change in Canada relates to the dynamic growth of the province of Alberta. Statistics Canada strong economic growth observed in 2004 that the economy of the province of Alberta was growing much more quickly than the economies of the other nine provinces.

Looking across the [1990-2003] period, Alberta increased its GDP per capita from 117% of the national level to 140%.

For the other nine provinces, those with the highest levels of GDP per capita in 1990 (Ontario and British Columbia) tended to experience weak GDP per capita growth. In contrast, provinces with relatively low levels of GDP per capita in 1990 (Saskatchewan and the Atlantic provinces) tended to experience strong growth. The result is a group of provinces whose levels of GDP per capita have become more tightly packed over time.

Between 1990 and 2003, only per capita GDP in Alberta and Ontario exceeded the national level. Over this period, Alberta accelerated away from the national level while Ontario drifted back towards it.

In 1990, Alberta and Ontario's GDP per capita were, respectively, 117% and 112% of the national level. By 2003, Alberta's GDP per capita was 140% of the national level, while Ontario's had dropped to just 105%.

Alberta's wealth in hydrocarbon fuels lies at the root of this economic surge, providing the provincial government with the funds that allowed it to pay off all of its debt even as it reduced taxes to the lowest level in Canada. This particular policy mixture produced the so-called "Alberta Advantage" that has so successfully stimulated the Albertan economy. It also produced significant migration from the rest of Canada--between 1996 and 2001, Alberta enjoyed a strongly positive balance of migration with the rest of Canada, attracting 119 400 people--roughly 5% of the Albertan population at the time. Since 2004, record highs in oil prices have only accelerated Alberta's economic and population growth. Despite this accelerated population growth, Alberta is still experiencing severe labour shortages.

In Fort McMurray, the two Tim Hortons franchises operated by Louay Maghrby are paying up to $15 an hour and covering full medical and dental for experienced staff. The com­pany that owns the franchises bought a condo to attract staff spooked by Fort Mac’s hyperinflated real estate market. Three managers stay there now at a subsidized $500-per- month rent. Maghrby’s still short about 20 people, and one of the coffee shops runs reduced hours. “Five years ago, if someone had told me we’d be covering medical and dental, I’d have laughed out loud,” he says.

The Tim Hortons and McDonald’s chains offer student scholarships; the McDonald’s scholarship program is exclusive to Alberta. Wages are exploding. The average weekly wage for chefs and cooks in Alberta rose 20% between 2000 and 2005, compared with just 14% for the whole country. Weekly wages for cashiers in Alberta rose an average of 18% over the same period, less than 10% in the rest of the country.

Alberta is also enjoying a relatively high TFR by Canadian standards at least in part because of the in-migration of mothers--only 51 births in every 100 in Alberta were to women born in Alberta. Alberta's demographic weight is bound to increase, possibly creating a third pole in Canadian federal politics outside of the Ontario-Québec pair that dominated Canada from the beginning of its history.

What's the political significance of this? Apart from the yawning gap starting to open up in between standards of living in Alberta and the rest of Canada, Alberta is well-known as a stronghold of American-style fiscal and social conservatism. Alberta's growth has already started to influence Canadian politics, for in the recent federal elections the Conservative Party of Canada swept Alberta, taking all of its 28 seats in the federal parliament and so ensuring the current Conservative minority government. When combined with Canada's controversial system of equalization payments, which transfers funds from richer provinces to poorer ones in order to ensure the comparability of public services across the country, and continuing Albertan resentments over the Trudeau-era National Energy Program that cut deeply into Albertan oil profits in the early 1980s, this promises to create significant problems. What might happen to a federation when its richest and most dynamic member is also ideologically distinctive and strongly suspcious of federal intervention into its domestic economy? Alberta had its own secessionist movement for a time; it might yet have one again.

UPDATE: My hometown paper, The Guardian of Charlottetown in Atlantic Canada, is today carrying a supplement promoting out-migration to western Canada.

A glossy recruiting magazine carried in Wednesday’s edition of The Guardian offers 52 pages of evidence about the eagerness of western Canadian employers to attract workers from the east.

MoveWest, a publication originating with the CanWest MediaWorks website working.com, appeared in daily newspapers across the region, carrying 83 ads from operations hoping to recruit workers for the labour-hungry economies of British Columbia, Alberta and Saskatchewan.

[. . .]

Alberta Human Resources and Employment Minister Mike Cardinal is quoted in the magazine as predicting his province will need 86,000 new workers over the next decade. Meanwhile, P.E.I. struggles to bring its unemployment rate below 10 per cent.

One economist interviewed by The Guardian suggests that "skilled workers and tradespeople" will be particularly likely to respond.

Greying in Liguria

by Edward Hugh

This article in the IHT provides an interesting insight into how the ageing process is affecting one region of Italy, the Liguria region whose capital is Genoa. Probably the idea of NO children in the streets is something of an exaggeration, but the main picture is clear:

There are hundreds of stores in the Fiumara Mall - Sephora, Elan, Lavazza Café. But in a nation long known for its hordes of children, there is not one toy store in the sprawling mix, and a shiny merry-go-round stands dormant.

"This is a place for old people," said Francesco Lotti, 24, strolling with his fiancée in Genoa's medieval old town. "Just look around. You don't see young people." Even for people their age, "there are not many places - no clubs, for example." Playgrounds? He looks quizzically at his fiancée. They can count them on a few fingers.

While all of Europe has suffered from declining birthrates, nowhere has the drop been as profound and prolonged as in this once gorgeous Mediterranean city, the capital of Italy's graying Liguria region. Genoa provides a vision of Europe's aging future, displaying the challenges that face a society with more old than young, and suggesting how hard it will be to reverse the downward population spiral.

The article usefully highlights the fact that one of the big problems with population ageing is surely going to be the regional imbalances which are generated within countries as well as between them. Those countries who manage to leverage immigration to maintain and even increase their populations will undoubtedly fare better, and those regions within states which attract migrants will do better than those that don't.

In Spain Madrid, Valencia and Catalonia stand out head and shoulders above the rest of the autonomous communities, since they are enjoying far higher levels of economic growth and their populations are now not ageing anything like as rapidly as they would have been, while some of the other regions are going to face severe problems. This of course is producing its own internal political tensions.

The old East Germany would be another example of this process at work. As we can see from Liguria the problem is particularly strong in areas where family networks provide traditional care for the elderly and where suddenly there are far fewer children to share the load, while the women in question are at the same time working more and more to make up for labour market deficits. In my experience here in Spain it is women in the 45 to 55 age group who are carrying a very disproportionate part of the burden, at one and the same time working, taking care of their own children who have still not left home and caring for elderly parents. Stress as we know is an important element in the 'rate of ageing' and this generation of females are bound to pay a price here, especially as the need to balance state budgets and the consequent cutbacks only piles on the load. Put another way, should it surprise us if survey after survey shows that while the most popular web pages among men are those related to sport and money, women mainly surf pages connected with health.

Fertility in Morocco

by Edward Hugh

Actually the big demographic news of the moment has to be what is going-off in the stretch of water between Mauritania and the Canary Islands. Since I am posting on this separately at A Fistful of Euros, I thought it might be timely to also take a quick look at why Moroccan immigration into Spain isn't the big issue everyone thought it was going to be. Basically, as we can now see from the rising importance of Sub-Saharan migration to Spain, there are nothing like the number of Moroccans arriving in Spain - at least proportionately - as there were back in the 1990s. Undoubtedly there are many reasons for this change, but one of these without doubt is the impact of the demographic transition on Morocco itself.

Essentially, as can be seen in this article, fertility has been falling rapidly in Morocco. By 2004, average TFRs were down to 2.5, with TFRs in the urban areas at around replacement level. This was down from 3.1 in the mid-ninetees. Thus the decline is rapid, and it is undoubtedly continuing. One of the consequences of this is undoubtedly that internal migration inside Morocco itself - from rural to urban - is now the main driver of the migration process.

Economic growth in Morocco, which has been volatile now seems to be taking off (but note this since part of the volatility seems to be related to a move out of traditional primary sector activities in agriculture and fishery, with an ongoing shift into industry and services), and inbound foreign investment and an expanding package of reforms is undoubtedly playing a part in this.

Another component in the fertility decline is undoubtedly increasing female education, with the proportion of girls in the 15-24 age group with no education decreasing between 1992 and 2004 from 50 percent to 34 percent, while the proportion of the female population with secondary and higher educational attainment increasing from 29 percent to 42 percent over the same period. What this seems to reflect is a very rapid transition among the female population from schooling exclusion to significant educational levels, something which may be related to traditional taboos about labour market entry.

If we turn to immigration we can see from this document that while in 1998 there were 200,000 Moroccans resident in Spain (a figure which was up from 59,000 in 1990), by 2005 this number had only increased to 397,000. And this period was one in which inward migration into Spain was enormous.

Basically at the end of the 90s there were around 400,000 non-Spanish residing in Spain. By January 2005 this number had risen to 4 million (at this point there are probably something over 5 million given the continuing migration rates of about 700,000 a year). So Moroccans went from constituting about 50% of the migrant population to under 10% in 5 or 6 years. Given the proximity of Morocco to Spain, and the comparative ease of undocumented workers establishing themselves here, some explanation is needed for this.

One part of the explanation undoubtedly lies in the existence of an implicit pact between the Spanish and Moroccan governments to restrict migration from inside Morocco. To some extent this collaboration is reflected in the numbers of Moroccans intercepted in maritime crossings which had fallen from 81% of the total in 1999 to 55% in 2004 (and which are obviously currently many fewer). But obviously the collaboration is only possible against a background of common interest, a background which is provided by the utility of foreign investment in a Morocco which is ripe for economic take-off. So the other part of the explanation, I suggest, is the one I have offered here.

Gender Imbalances

by Edward Hugh


Just a fairly brief post to sign-in again after what has been a rather long summer break. Claus and Randy have both put up recent posts which highlight the problem of demographic imbalances, and in particular gender related ones.

Randy points out that the long standing issue of 'excess' male births in the third world is likely to present a serious problem in the not too distant future with a lack of available marriage partners in large countries like India and China, a problem which will only serve to compound the pyramid structural issues associated with the arrival of below replacement fertility. Claus, on the other hand, directs our attention to the issues which arise in the context of a developed and rapidly ageing society like Germany, where it seems lack of economic growth is leading a growing number of young and qualified Germans to 'throw the towel in', and seek a seemingly brighter future elsewhere.

One thread which ties the two issues together is the question of gender imbalances. Conveniently Geohive has a table which classifies population by gender ratio. What can be seen at a glance (by skimming down the right hand column) is that there are two poles. At one extreme we have countries like Lithuania (where the ration of women to men is 100:87), or Ukraine (100:85). At the other are countries like Afghanistan (100:107) or Bahrain (100:132) or Saudi Arabia (100:117) or China (100:106) or India (100:105).

Clearly there are two things going on here. In underdeveloped countries abortions are being extensively used for gender selection purposes, and in the long run the fertility decline will be even greater than that reflected in the Total Fertility Rates (since this measures children per female of child bearing age, and what we are likely to see is a large rise in childless males, which will impact the population pyramid even more than will be reflected in the TFR).

On the other hand in ageing developed societies there is a gender imbalance which is created by the fact that women live longer than men, and this issue is only added to by the fact that in some of those societies with the worst imbalances (some East European states) life expectancy is either stagnating or even reducing in the male population. The economic stagnation which is associated with this evolution is producing a situation where many young males are leaving (Lithuania, the former East Germany) and this then only adds to the extent of the fertility decline as an increasing number of younger women remain single and childless.

An illustration of this process at work can be found in the gender chart for Germany. All those regions in deep purple to the top right are the Lande of the old DDR, and almost all of them have ratios of less than 85 males per female (if you click on the graphic you should be able to see a more or less readable interpretation of the colour coding). Clearly none of this is very sustainable, but exactly how it will all unwind is, at this point in time, far from clear.

German demographics ... food for thought!

The FT had a really telling article about the demographics of Germany I couple of days I thought I would share with you. It is well known that Germany is getting older and that the country's TFR rate is well below replacement levels (1.3). This means that as we go along the relationship between old and young people (can also be operationalized as the dependancy ratio) will change markedly. For visuals of the general outlook of German demographics check out this figure (found under 'population development').

What I am interested in here is especially immigration since this as we have argued before represents a viable solution to amend the effects of a declining and ageing population but as the FT reports Germany does not look good on this parameter either ...

(From the FT linked above)

'The exodus of Germans being lured away from home is greater today than at any time since statisticians began collecting figures about population movements in the 1950s.

Last year, for the first time since 1968, more people left Germany than arrived, according to Destatis, the federal statistical office. It estimates that 144,815 Germans left the country last year because of high unemployment, better opportunities or, in some cases, tax.''

(...)

German demographers were shocked in 1987 when the latest census put the population at 82.4m – 1.3m lower than projected. But a more unpleasant surprise could be in store for Germans as work for the next census gets under way this week. The previous emigration record of 1956 was breached in 1994 and, after several years of decline, the outflow began rising again in 2001, and continued to rise up to 2004, although 2005’s figure of 144,815 was slightly down on the year before.

“There has definitely been an increase [in German emigration] over the past two to three years,” said Christina Busch at the Raphael-Werke, an organisation that counsels would-be emigrants. “What worries me is that 99.9 per cent of those I see have qualifications. Many have children. Some even have good jobs. And most want a clean break – they do not intend to come back.”

Architects, engineers, lorry drivers, scientists and social workers are leaving in droves, according to figures. The outflow of doctors towards Scandinavia is such that the medical faculty of Erlangen University recently started offering Swedish courses to its students.'

(...)

'For former East Germany, the outlook is particularly grim. Another IAB study estimates the region’s population will drop from 15m to 9m by 2050.'

In my opinion this is really one to watch out for especially amidst all the talk of a sustained recovery in the Eurozone. But even in its own right and looking at Germany alone we can already see that some serious challenges lie ahead for policymakers as the effect of the Germany's relative demographic decline is kicking in.

How do rich Asians adapt to unbalanced sex ratios?

In a recent issue of Le Monde Diplomatique, Isabelle Attané describes in her article "L'Asie manque de femmes", the boy-biased ratio of boys to girls at birth in many of the largest countries of Asia: 117 in China, 111 in India, 110 in Taiwan, 108 in South Korea, 106 in Indonesia. This excess is a relatively recent phenomenon, beginning only in the 1980s when the demographic transition accelerated in these countries and parents, unwilling to incur cultural and economic disadvantages of bearing daughters to full term, began to produce only sons. Attané concludes her article with an apocalyptic floush, invoking the images of social collapse produced by such a global excess of Lebanese Amin Maalouf's 1992 novel The First Century After Beatrice (Le premier siècle après Béatrice).

"If tomorrow men and women could, by a simple way, decide the sex of these children, certain peoples would only choose boys. They would stop reproducing and, soon, disappear. Today a social flaw, the culture of the male will become a group suicide," that what will happen will be an "autogenocide of misogynistic populations." Before that, in Maalouf's vision, will come decades of civil and international war as resentful single men fight it out among themselves.

Poor regions suffering from serious sex imbalances will face serious problems indeed, perhaps even the something like the depopulation-related strife that Maalouf described. Richer regions, though, can import their women from poorer regions. This is already happening on a large scale in China, where not only women from poorer parts of China but ambitious emigrants from Vietnam are entering the marriage market in richer areas. In Taiwan and South Korea, two wealthy countries with pronounced sex ratios in favour of men, the immigration of women from poorer countries--Vietnam, the Philippines, China--has taken on remarkably large dimensions, as Attané notes in the case of Taiwan.

These marriage migrations are also growing strongly towards Taiwan, where nearly 8% of the marriages celebrated in 2000 involved a Taiwanese man and a Vietnamese woman. Since the mid-1990s, Vietnam has provided spouses to several hundred thousand Taiwanese men, wanting a women who respects their shared traditional values and who is less likely to demand their independence than a Taiwanese woman.

In South Korea, despite growing concerns about the fate of these female emigrants and considerable prejudice against children born in mixed-nationality marriages, this immigration is transforming the country's population.

About 800,000 foreigners make up Korea`s population of 48 million. The number of foreigners is expected to reach 1.5 million in the next five years, according to government data.

Moreover, there are rising numbers of mixed marriages in Korea. The number is increasing due to rural women moving into cities, leaving young farmers and fishermen to find brides from other Asian nations, particularly in Southeast Asia.

International marriages now make up 13 percent of all marriages in Korea. More than 30 percent of international marriages are unions between rural men and foreign brides.

According to Pearl S. Buck International, there are about 35,000 mixed-race children in Korea. About 15 percent of all newborns in Korea are from mixed marriages. That figure will likely double by 2020, the foundation said.

As Attané notes in her article, even though in South Korea at least the sex ratio is slowly returning to normal, the effects of the shortage of women will create a generation of men who will need to import women immigrants as spouses. This marriage immigration might be enough to handle the unbalanced sex ratios in the richer parts of Asia, though the prospects facing the poorer regions of China now and Southeast Asia and North Korea in the future aren't pleasant. It will also make these richer countries, where a double-digit percentages of children are born to marriages involving at least one foreign-born parent, rather spectacularly multicultural in the very near future. One only hopes that these receiving countries will do a better job of handling this population shift than some of their other counterparts.

Can India meet the Global Challenge of Declining Populations?

This is obviously a silly question since it would be unfair to put the solution of this solely on India's shoulders. But still the logic is worth pondering; as many Western countries step into a period with ageing populations and declining workforces one of the only sources of upward demographic stimulus comes from immigration and of course exploiting foreign labour locally. Now India has a huge and young population and many pundits are hailing India's future as resting on this very fact. So does it all add up then? Well actually if we look at it the numbers it fits ok ...

'As richer nations age, India is growing younger: 60 per cent of its current population is aged below 25, and the present working-age population (aged 15-59) is four times that of the United States, according to official and non-governmental organization (NGO) data.

A report by investment bank Goldman Sachs estimates that by 2020, the US, China, Japan and Russia would together face a shortfall of 42 million people of working age, while India would have a surplus of 47 million.'

But alas, this analysis does not hold up for scrutiny because if we look inside India we find that there are large boundaries for the effective deployment of the country's workforce.

'Despite an ambitious development agenda, the future does not augur too well. A study by the Vienna Institute of Demography concluded on the basis of the experience of the past decade that 30 per cent of Bihar and 20 per cent of Uttar Pradesh states would remain illiterate in 2026.

Bihar and Uttar Pradesh are among the five states with lowest development indicators that, according to demographic projections, will account for nearly 60 per cent of the increase in population by 2026.

Bringing the youth of these states into the loop would require huge investment in providing basic amenities like drinking water, sanitation, healthcare and primary education, experts maintain. But they add that there is no shortage of resources or capacity. The root cause of slow progress is the lack of political will.'

In fact, when we speak of India and demographics it is fruitful not to analyze the country as a whole but instead to look at bit more closely at what actually are the demographic realities of this country. To that end Edward had an informative post over at The Indian Economy Blog some time ago.

'The idea that India is not one country but two (or more?) is, of course, not a new one, but it does seem to me to be a thesis which is worth revisiting, in particular in the light of India’s current demographic realities. Chris Wilson in a paper (pdf) entitled “Implications of global demographic convergence for fertility theory” suggests that in order to understand anything which is worth understanding about India some type of regional dis-aggretation is vital since there is so much variance between states. In arguing this he makes the following seemingly valid point that.'

So what do we have here? Comparing numbers like I did initially above does not serve much purpose. We need to approach this in two steps.

1) Before we can understand how India's demographic development will interact with the rest of the world we need to understand that development. Here we can immediately make two points; firstly we must be aware of the demographic disparities within India and how the dynamics of immigration can potentially amend this. Secondly we must realize that merely resting one's analysis on the fact that India is passing through its demographic dividend with a favourable dependency ratio to follow is not quite enough. Whether India can actually exploit this is the real question and since I do not want to open Pandora's Box I will leave this question for now.

2) Once we have a bit more clear picture of the internal demographic dynamics of India we can begin to ponder about how and to what extent India's surplus of workers can offset the decline of workers elsewhere. Here the numbers seem to add up quite neatly and already the business-trend of offshoring to India is a part of every serious textbook on business strategics. In short, India has so much potential in its own right and for the rest of the world to draw upon but we cannot say for sure how far this will go in the future.