Tuesday, January 15, 2013

More on France versus Germany

My post last Monday compared French and German fertility patterns, as key elements in French and German demographic patterns. It's been noted for some time that the populations of Germany and France, the first and second-largest countries in the Eurozone and European Union by population and the anchors of the European Union, are evolving in very different directions. In my 2008 post on Eurostat's demographic projections for 2060, for instance, I noted that the projections assume that the French population will grow to surpass a shrinking German population.

These differences have continued. Gérard Cornilleau's blog post at the French Economic Observatory, "France-Germany: The big demographic gap", outlines the extent to which fertility in France and Germany has been different for the past half-century.

The demographic trajectories of France and Germany are the product of Europe’s history, and in particular its wars. The superposition of the age pyramids is instructive in this regard: in Germany the most numerous generations are those born during the Nazi period, up to 1946; then come the cohorts born in the mid-1960s (the children of the generations born under the Nazis). In contrast, in France the 1930s generation is not very numerous. As a consequence, the baby-boomer generation which, as can be easily understood, kicked off earlier than in Germany (starting in 1945, at a time of a baby crash in Germany that ended only in the early 1950s, with the German baby boom peaking somewhat late, in the 1960s), was limited in scale, as people of childbearing age were not numerous. On the other hand, the birth rate in France slowed much less in the wake of the 1970s crisis, and most of all it has risen again since the early 1990s. This has resulted in the fertility rate remaining close to 2 children per woman of childbearing age, so that the size of the generations from 1947 to the present has remained virtually constant. German reunification led to a collapse in the birth rate in former East Germany, which converged with the rate in ex-West Germany in the mid-2000s. Overall, French fertility has generally been higher than German fertility in the post-war period, with the gap widening since the early 2000s. As a result, the number of births in France is now substantially higher than the number in Germany: in 2011, 828,000 compared with 678,000, i.e. 22% more births in France.

A recent German study goes into more detail. France is going to be enjoy a relative advantage over Germany in that its working-age population will not shrink.

During the post-war baby boom, women in both France and Germany gave birth to more children than today. However, while fertility rates in Germany declined significantly in the mid-1970s and have been fluctuating around the number of 1.4 children per woman ever since, French rates have never dropped below 1.7 and have even climbed back to about 2.0 children recently. Since the decimated generations of German women, who were born in the 1970s and after, are in the midst of their childbearing careers today, the downward trend is gathering pace: Since the 1960s, the number of newborns has halved - from 1.35 million to less than 700,000 per year. Furthermore, due to the constantly shrinking cohorts of potential mothers, this figure is likely to decrease even further. The picture looks different in France: Here, around 750,000 children are being born every year for quite some time already.

The neighbouring countries also differ when it comes to migration: France has been recording net immigration of maximum 200,000 people for the last 40 years. Germany's migration figures, on the contrary, exhibit considerable upward deflections: in times of the guest worker immigration, but also after the end of the Cold War, when around three million ethnic Germans from the former Soviet Union, and in consequence of the Yugoslavia War, numerous refugees entered the country. Meanwhile, however, the attractiveness of Germany as an immigration country has declined considerably. In 2008, statisticians observed net immigration of a mere 4,800 people. That same year, France welcomed 67,000 immigrants, mostly North Africans, who reunited with their families in Europe. In France, both nationals and foreigners have more children than their respective counterparts in Germany.

However, even France is not spared from the trend of demographic ageing. Not only because life expectancy is increasing steadily in both countries - the French figures of 84.4 years for women and 77.5 years for men are even significantly higher than in Germany, where women average 82.3 years, while men can expect 76.9 life years -, but also because the French have less children than in the past. Here too, a generation of families with many children is replaced by one with comparatively few, although at a different level than in Germany. While in Germany the share of under 20-year-olds in society will decrease from 19.5 per cent in 2007 to 15.1 per cent in 2050, in France it will drop from 24.7 to 21.9 per cent. Analogously, over the same time period the share of over 64-year-olds will rise from 19.9 to 33.2 per cent in Germany, while, in France, it will only reach 26.2 per cent in 2050 - up from 16.5 in 2007.

At a rate of two children per woman, the number of people of working age - defined here as 20 to 64 years - will remain constant in France until 2050. In Germany, however, the potential labour force will shrink by almost 15 million. This development is expected to have impact on both countries' economies. While Germany outscores its neighbouring country by far in terms of absolute GDP, GDP per capita is nearly the same in both countries. In view of Germany's rapidly ageing society, France could not only overtake its Eastern neighbour population-wise, but also economically. Germany will need to massively invest in education and be able to trigger innovations as well as to raise productivity levels in order to compensate for its labour shortages.

Due to the proceeding demographic ageing, the two countries will find it increasingly difficult to finance their health care and pension systems. Particularly in France, the low employment rate of the 55- to 64-year-olds is an increasing matter of concern for policy-makers. While a retirement age of 67 is a settled matter in Germany, the French public is still debating - despite a higher life expectancy - if it is reasonable to continue working after having celebrated one’s 60th birthday.

(This, is goes without saying, is a significant change as Euractiv noted in commenting on an INED comparative study of French and German patterns.)

In 1800, France had a population of 30 million, twice that of Germany when calculating those who then lived within what are its current borders. However, over the following 150 years, the situation was reversed. "In the mid-18th century, women in both countries had 5 or 6 children on average," noted Pison in the study.

"But by the end of the century, the practice of birth control was spreading in France, and fertility fell from 5.4 children per women in the 1750s to 4.4 in the 1800s and 3.4 in the 1850s. In Germany, on the other hand, it was not until the late 19th century that German women, in turn, started to limit their family size. This timing differential is often attributed to the early spread of Enlightenment ideas across France, or to the lifting of religious constraints."

"One consequence of the early fertility decline was slower French population growth in the 19th century compared with its European neighbours, and early population ageing ... The crushing defeat in the Franco-Prussian War of 1870-71 was attributed to the superiority of the Prussian education system, but also to the demographic decline of France which was believed to have lost its triumphant vigour of the Napoleonic First Empire. Similar reasons were given to explain France's vulnerability in the face of its German enemy at the start of the First World War. These ideas served to justify the introduction of pronatalist policies at the end of the 19th century." By 1939, Germany’s population had reached 60 million, compared to 41 million in France. “German growth was due to a surplus of births over deaths, with a birth rate that remained consistently above the death rate throughout the nineteenth and early 20th centuries (discounting war years),” observed Pison. “By contrast, the curves of births and deaths in France remained very close over this same period, and the resulting low level of natural growth was even cancelled out by the losses of the 1914-1918 war. It was only thanks to immigration that the population did not totally stagnate between 1900 and 1939." Beginning at the end of the 19th century, France saw a strong influx of immigrants, rising notably in the years immediately after World War I. "Germany, on the other hand, far from being a country of immigration, saw an exodus of it inhabitants towards the New World," Pison underlined. "Without this emigration, its population would have increased even further.

This French demographic advantage, however, does not necessarily have to translate into a French economic advantage relative to Germany. It's perfectly possible to imagine a France that does have a larger working-age population than Germany while still having a less efficient economy. One recent article contrasts in its very title "Germany's business boom vs. France's baby boom". Cornilleau in his analysis notes that France has breathing room that Germany lacks--France's relatively slower aging makes French pensions more affordable despite being more generous than Germany's, for instance, while France can boost employment rates in a way that Germany cannot, and French potential rates of GDP growth are consequently higher. Will the potential necessarily be realized, though? Demographics are very important, but other factors can intervene to prevent the realization of these demographics' potential.

Jacques Attali warns that this profound difference between the two largest economies of the Eurozone could tear the currency apart.

This explains much of what we live today: Germany has absolutely nothing to gain from inflation, which will impact savings, therefore the elderly, to the benefit of borrowers, who are the youngest. And of course, without young people with a job, the German pensions will not be fundable. Germany must therefore keep most of its resources to try to fund at least part of its pensions, while France has less to fear from inflation and should have an interest in maintaining important social spending (in terms of family, childcare facility, female employment, housing, taxation) that accompanies in a very substantial way its demographic structure.

These differences in demographic trends in the same currency zone will eventually be as unbearable as differences in public debt and competitiveness. For, if we continue like this, the Germans will have to borrow money from the French to pay for their own pensions.

("Will the French necessarily have the money to lend?", Attali might have gone on to ask.) He himself recommends that Germany try to adopt French policies and attitudes, with a more open attitude towards immigration also being key. Will Germany necessarily do this, though? Or will France and Germany continue to diverge?

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