Global Demographics - (Almost) Uncharted Waters

As our readers can see, Edward's most recent detailed analysis of Italy's demographic edifice certainly managed to stir up a batch of tempered comments as one commenter accuses us here at Demography Matters to bend spoons with our minds. If that is indeed the case I am going to try to bend a huge one with this post. The topic is consequently global demographics what we know and more importantly what we don't know. These questions cannot be answered in even the most ambitious blog post. However, we could do much worse than to visit a recent paper by David S. Reher entitled Towards Long-Term Population Decline: A Discussion of Relevant Issues. The paper is as per usual walled for non-subscribers of a university server but you can get a long most adequate survey of the paper here at Edward's Demography Resources.

Let us begin with the abstract which contains two crucial points that are very important to take away.

This paper contains thoughts on the process of imminent population decline under way in much of the developed world and quite possibly in other world regions as well. We are witnessing the beginnings of a vast trend change which promises to bring to a close a period of population growth that has lasted for several centuries. It can be shown that this great change is a byproduct of the demographic transition that unleashed a number of the forces leading to where we are today. The extent to which much of the developing world will follow the reproductive trends of the developed world, with their social and economic implications, is discussed. The decades ahead for much of the world will lead us into mostly uncharted territory that bears few similarities with past periods of population decline. The purpose of this paper is to stimulate reflection and debate on a subject that looms as perhaps the key social issue of the twenty-first century.

As many of you may know from rudimentary knowledge of demographic processes the original idea of the demographic transition always encompassed the idea that fertility would stabilize at replacement levels once the final stages had been dispensed with. This is then to say that the original idea of the DT envisioned a notable degree of balance (homeostasis) in the level of population with the obvious exception that an ever marginal decline in mortality coupled with a rise in longevity would steadily translate into ageing of the world's population. We know now that this idea of a balanced steady state (and no, this choice of word is NOT coincidental) in fertility must be seriously doubted and for all intent and purposes discarded as a valid theoretical explanation. Consequently, it is only very few developed countries today that can boast a fertility rate at replacement levels and indeed if we pull out the ruler none of the developed economies save perhaps the US qualifies for the strict definition of replacement fertility. This must then be the first important thing to take away at this point. The demographic transition or more specifically the evolution of fertility and rising life expectancy is not over and at this point there does not appear to be a theoretical governing mechanism to provide a balance. On the contrary and most worryingly we are now observing that the rapid decline in fertility which has occurred across a wide batch of developed economies is now being repeated, and more importantly fast forwarded, in the context of many emerging and transition economies. Notable examples here would be Eastern Europe, large parts of Asia, as well as Northern Africa. Conclusively this leaves us with two intertwined points which are absolutely crucial to be aware of. Firstly, and as I have argued before the demographic transition is not over and following from this is, as mr. Reher puts, the fact that we are moving into uncharted territory.

In general, I would say that Reher's small article is a good starting place if you want to understand some of the issues at work and also if you want to understand what the historical background of the demographic transition is. Reher frames his discussion around the issue of population decline and how world is now moving into a new regime of steady to declining population dynamics. Obviously and since mortality rates have declined much faster than fertility rates it will take some time before the global population actually start falling in numbers even if of course notable asymmetries are present. For example Russia's population is already declining and so is Japan's and unless aggregate European fertility rates rise to an almost unimaginable number the population will begin to decline slowly here too in a few years (also it has to be said with important asymmetries). Even though this perspective is important I am not a big fan of narrating the demographic changes in the context of population decline. There are two main reasons for this. First of all I think that population decline on a global scale need not be a detrimental development for the human race. In fact, a considerable amount of evidence supports this. Secondly, because I am convinced that the main economic effects from demographic changes need not be found in the context of declining populations in absolute numbers but rather in the form of the rapid and relentless process of ageing which is sweeping the planet in these years. Reher of course also notes this and mentions several times the potential impact of ageing. However, I like to take it even further. Another way to look at the demographic transition is consequently to look at it as a transition in age structure of a society. I am thus very much in tune with the original work on this conceptualization by the Swedish demographer Bo Malmberg. In this way and from a macroeconomic point of view the focus on ageing and changing age composition of a society opens up an important unattended flank in the realms of macroeconomic theories of growth and capital flows. In this context I feel that the following issues are very important to keep in mind ...

• The implied notion of an economic steady state runs into severe calibration issues in the context of the ongoing demographic transition. Growth theorists, of course, were always from the beginning aware of the potential effects of a skewed relationship between old and young people in a society. A whole battery of research consequently exists under the common notion of OLG (overlapping generations framework) which deploys standard life cycle assumptions to derive steady states in a modeling context of a rudimentary age structure of society. However, the theory runs into distinct problems when trying to formulate a steady state framework for countries that do not appear to exhibit a steady level of output growth over the long run. In this way, the steady state becomes a proverbial moving target. In addition there is evidence to suggest that the demographic transition is not a deterministic process but rather path dependent and thus endogenous to the growth process itself. Given the fact that we don't how this process ends it makes the potential modeling endeavor extremely difficult.

• Economies today are not closed but highly interdependent. If we couple this with the fact that the process of ageing occurs in radically different tempi across the batch of global economies I believe a number of important externalities can be identified in the context of the global economy. What does it for example mean that Japan is running a near 0% interest rate policy because it has found it impossible, after more than a decade, to effectively escape deflation? What does it mean for global capital flows that some economies are now, not only prone as the original theory predicts, but rather dependent on external demand to grow? And what happens as all the global economies steadily age thus all becoming ever reliant on external demand to grow?*

• Growth is above and beyond driven by the availability and quality of human capital; both on a macroeconomic and microeconomic level. Institutional set-up matters in the sense that they can make or break an economic edifice depending on their efficiency but without human capital the economic engine does not work. Institutions can be a powerful catalyst for the quality of human capital but on the other hand modern institutional arrangements also seem to be at the very heart of the dramatic decline in human capital formation (fertility) we have observed and indeed are observing. Moreover, there is evidence to suggest that a negative feedback mechanism is at work with respect to the quantity and quality of human capital. And as Edward likes to frame it, a society has a maximum capacity for growth when its age structure is at a specific golden level (i.e. when the most productive cohorts (say 25-45) are at their maximum size relative to the whole population). Yet, as the demographic transition ripples through this median moves steadily upwards and in this context the extra productivity extracted does not carry the same weight as it did before. In fact, and going back to the idea of a steady state it seems a very sound theoretical assumption to state that in order to observe a steady state of economic growth we need to have a balance by which the size of the most productive cohorts is fairly stable (the US would seem to be almost the only empirical precedent here).

These are but some of the questions which arise in the context of the global demographic changes and their impact on the economic environment.

If we return to Reher's piece I think that a couple of noteworthy rather random points can be extracted.

As I have relentlessly been arguing in the context of the topic at hand one of the most preoccupying concerns is that the observed and lingering trend in the developed world now seems to be repeating itself in the context of the world's emerging economies. In fact, as we have seen a wide array of transition countries are now finding themselves with severely damaged population dynamics. Reher is very specific on this topic which he uses essentially to argue that the world is now, for better or worse, entering a completely new and unknown demographic regime. Also he latches on to the idea that the demographic transition is indeed a path dependant process and not one which occurs automatically in the context of a pre-scheduled process of catch-up growth from the point of view of transition economies ...

Throughout the developing world, aging and its attendant economic and social challenges will become an acute social issue relatively soon after it becomes a central concern for societies in the developed world (Demeny & McNicoll, 2006b, 257–259). The intensity of change will leave these nations with but a brief window of the opportunity for modernization within which to take full advantage of the ‘‘demographic dividend’’ derived from their own transitions (Bloom et al., 2003).

What drove (and drives) this rapid demographic transition in the first place? This is perhaps where Reher is most elaborate. He consequently engages in a large and detailed discussion of the social change that occurred along side the demographic transition. Specifically, Reher devotes a large section to the changing role of women in our society and what effect this has had on childrearing. As far as I can see especially an elaborate account of the quantum effect of fertility emerges (curiously without a reference to the original work by Becker and Barro). Reher especially devotes attention to the process of family planning and completed family size. This is then an entrance point to the tempo effect (postponement of births) of fertility decline. As such, at any given point in time couples (or women) have a desired family size but the steady process of birth postponement may exert a notable influence on the final fertility level (i.e. cohort fertility). Moreover, Reher also refers to studies by the Austrian demographer Wolfgang Lutz who has devoted a lot research to the idea of a convergence towards a common very low level of fertility in Europe. An even more interesting side issue here is to actually develop a theory to explain these developments in desired family size potential convergence towards a one-child ideal. A considerable amount of debate has been made in the context of European sociological studies and specifically in relation to studies which have shown how many women in Europe's low fertility regions do not want to have children at all. A couple of months back Edward had a very elaborate piece on Demography Matters on this topic. Ultimately of course the idea that all this in the main can be pinned on the emancipation of women in terms of labour force participation and the social changes which accompanied it remains a rather dubious theory. Edward shows us as much in a recent very detailed analysis of Italy's demographics.

Finally, Reher manages to hit the proverbial nail on the head with his comments on international migration and the potential for ageing societies to mitigate their demographic travails through importing labour.

Labor shortages will be one aspect of the issue of aging. In some countries, this shortage of working age population is easy to predict because numbers of births have already been declining for several years. We believe that it is only a matter of time (perhaps 2–3 decades) before they begin to affect many or most societies in the developing world. The availability of surplus labor (potential migrants) to compensate the dearth of labor in the developed world may eventually be called into question, as the sending countries begin to suffer labor strictures of their own.

(...)

International migration itself, the focus of much current attention and concern, is unlikely to represent more than a temporary and rather inadequate solution for skewed age structures and population decline for two reasons. (1) Fertility among migrants, while initially higher than among the native populations, very quickly tends to decline to levels holding in the host society. (2) More important, perhaps, is the fact that many sending regions will be experiencing labor shortages of their own within two or three decades. It is unquestionable that these countries currently have abundant supplies of surplus labor that can be funneled fairly directly to receiving countries, normally developed ones, suffering from labor shortages. This situation, however, cannot be sustained indefinitely because of the dramatic fertility decline
taking place among those sending countries.

The only problem here with Reher's account is his time frame. 2-3 decades is way too optimistic. These issues are here today and very soon, if they are not already, they will come on the political agenda most prominently in Eastern Europe where for example the EU is still spinning the inter-relationship where CEE and Baltic migrants travel to the West as a positive one. The fact is that it is not and if the EU does not wake up to this they may end up with a lot dissatisfied new member countries.

In Conclusion

Reher's piece is well worth more than a scant glance. What I particular like was already emphasised in the beginning of this review. The demographic transition is not over but remains an ongoing process and this means that the global economy or society is moving into uncharted waters. At this point we already know a lot about the effects of demographic change but since we don't know the extent and/or the end of the changes themselves we are faced with a rather peculiar scientific problem. Personally, I tend to, unlike Reher, focus mainly on the dramatic force of ageing which is sweeping across the global economies. Especially, I like in this context how Reher emphasises the fact that the demographic transition seems to be moving much more rapidly in emerging and transition economies. This is a very important empirical fact to take away. In this respect I also think that Reher manages to pinpoint very accurately the issues which pertain to global trends of migration from the point of view of the sending countries rather than the traditional spin that this is a win-win situation for all parties involved.

A lot of literature is out there on this topic of the general trend in global demographics but I do think that Reher's piece is one of the better specimen.

* In more technical economic terms we are speaking of the fact that the global economies, as a result of ageing, will tend to have the same time-preference for consumption over saving thus leading to the optimal policy choice of many countries becoming the nurturing of a perpetual external surplus vs. the rest of the world. The formal theoretical impetus for this argument can be found in the notion of the inter temporal approach to the current account (see also here).

Familiarism in Italy - Dying From An Excess of Love?

"Italians have fewer children because they 'love them too much' and not the other way around" Rossella Palomba, Italy, The Invisible Change

Italy went to the polls last weekend. Manuel Alvarez has a good summary of the election process on Global Economy Matters (and a full page over at Election Resources on the Internet on Italy's electoral system), while I have carried out an in-depth economic analysis on the same blog. Basically Italy's economy has been the worst performing of the OECD economies over the last decade - and by some distance.

Italy is thus topping lists worldwide as the developed economy in the worst economic shape. The country came last in terms of labor productivity - a key measure of economic growth and competitiveness - in a recent inter-country comparison carried out by the 30-member Organization for Economic Cooperation and Development. No other developed economy has just been through three recessions in five years (2000 - 2005 and now heading into its fourth) and Italy is in fact coming to look more and more like the Japan of the "lost decade" - even down to the huge increase in the government debt to GDP ratio (currently around 103%). It is clear that Italy is now saddled with a whole plethora of economic problems that are holding it back, not the least of them its loss of overall competitiveness.

But Italy's export dependence and growth lethargy is not simply a result of the fact that Italy has not reformed sufficiently and as a consequence has become uncompetitive (the standard "institutions matter" explanation, which is of course valid as far as it goes), Italy's problems also need to be seen in the context of her rapidly ageing population, since it is this phenomenon which lies behind the ongoing lack of "gusto" in Italy's domestic consumption and it is precisely this consumption weakness in the context of non-competitve exports which makes Italy whole growth and debt position so unstable - and this is the part the "standard explanation" normally misses, and indeed this lethargic domestic consumption growth is what separates Italy from other - younger - current account deficit running economies like Spain (which is surely hardly any more "competitive" at the export level, indeed arguably it is a lot less so, as we may be about to see as the housing boom steadily disintegrates). Yet Spain has, of course, enjoyed rather stellar economic growth for as long as it had its housing bubble, so another way of putting the question might be to ask why Italy didn't get a housing bubble, even though it had exactly the same monetary conditions - thanks to the euro and the ECB - as Spain did.

It's The Demography, Silly!

Well, one of the features of Italy's present economic malaise which many comentators fail to dwell on in their otherwise illuminating analyses is the underlying long-term demography, and underlying that demography is Italy's long term fertility, since it is this, when coupled with the ongoing rise in life expectancy, which means that the Italian population is now one of the oldest on the planet.

Fertility in Italy is, as is very well known I imagine, currently running at very low levels - the US census bureau estimate a 1.29 TFR for 2007. What is possibly less well known is that Italian fertility has been below replacement for 30 years now, and the fertility rate is still stubbornly resisting upward movement.



But within the uniformity encapsulated in the national TFR there lies difference, and in Italy's case the differences are important since regional variations in demographic, economic, and social patterns have been - and are - pronounced. Fertility first fell to replacement level in parts of the North beginning with the 1910 birth cohort, while as late as the early 1980s the TFR in a number of southern regions was still above replacement level, with the highest (2.3) being found in Campania (whose capital is Naples). At that time the TFR was 1.1 in the northeastern region of Liguria, and below 1.2 in Emilia-Romagna in the center (capital Bologna). Over the last two decades of the 20th century, while fertility in northern and central Italy has remained more or less stable, the southern regions have had continuing sharp declines in fertility. By the turn of the century Campania, although still having the highest fertility nationally, had a TFR of only 1.5, while Sardinia, which is normally known for its economic underdevelopment, rugged terrain, and traditionalism, and which in 1960 had the highest TFR in Italy (3.5), had Italy’s lowest fertility (1.04).

Labour Force Participation and Fertility in Italy

Sardinia’s 2003 TFR of 1.06 was registered in a region where only 58% of the women in the 25-34 age group (and 55% in the 35-44 one) were in the labor force. By contrast, Trentino, the Northeastern region with the second highest fertility rate in the whole of Italy (TFR=1.46), had a female labour force participation rate of 76% in the 25-34 age group. In short, detailed cross-sectional examination of the relationship between female labour force participation (FLFP) and fertility across the Italian regions offers little support for economic-emancipation theory as a general explanation of low fertility.

In fact just this was the conclusion reached in what is a useful and interesting working paper(published 2006) - Italy’s path to very low fertility: the adequacy of economic and second demographic transition theories - by David Kertzer, Michael White, Laura Bernardi and Giuseppe Gabrielli. The authors examine a variety of competing economic and cultural explanations for Italy's ongoing low fertility -and draw on recent longitudinal data to investigate the timing of first unions, and first and second births. Their event-history analysis offers some support for BOTH the cultural and the economic theories of family formation and fertility, but as they argue most forcefully, the extent of regional differences and of secularization suggests that each explanation is at best incomplete on its own.

They find, for example, that women in the North of Italy are much more likely to be in the paid labor force than those in the South: in the mid- 1990s, 64% of women aged 20-49 in the northwest, but only 36% in the South, did paid work. Even more strikingly, 41% of the southern women had never been in the labor force, compared to only 7% of those in the Northwest. Indeed, the increase in FLFP has been quite modest in the South, with the proportion of women who had ever entered the labor force rising only from 41% among those born before 1929 to 51% in the 1944-58 birth cohort (compared to 84% in the North) and little sign of any increase since then. Among women with children under age six in the mid-1990s, 62% of the northerners and only 31% of the southerners were employed. In a 1998 national sample survey which asked individuals if they had ever been in the paid labor force the persistence of strong regional differences, and particularly the North-South contrast, was clear since in the South 50% of the 1941-50 birth cohort had never entered the labor force, while in the North only 20% had not had some sort of job or other.


The Kertzer et al research is of some general interest given that theorists have often presented us with two rival "paradigmatic" explanations - one economic and the other cultural - in an attempt to account for the arrival of below replacement fertility in one developed society after another since the 1970s. On the one hand many scholars have argued that ultra-low fertility could be straightforwardly explained by the massive entry of women into the extra-domestic labor force. Others have remained unconvinced that a purely economic approach is sufficient, and have suggested that underlying and ongoing culture change has been the key driver generating very low fertility. In just this vein, Second Demographic Transition (SDT) theorists have pointed changing cultural values associated with a move away from "familism" toward self realization and from religious attachments toward secularism as the key driving factors.

In this context the emergence of Italy and Spain as the countries with lowest-low fertility has proved something of an embarrassment for SDT theorists. Indeed, it would have been hard to find two European societies whose characteristics fitted in so badly with either of the main theories. Far from having particularly high rates of female labor force participation (FLFP) as the economically oriented theory would have predicted, both have had unusually low rates, and far from having weak family bonds and weak religious institutions, the countries had some of the strongest family ties and what appeared - on the surface at least - to be among the most influential church institutions in Europe.


Evidently Italy’s situation as one of the lowest fertility level societies in Europe does not correlate with a relatively high women’s labor force participation rate, but quite the reverse. In 1990, just as Italy was about to reach "poll position" as having the lowest fertility rate in Europe, its FLFP rate for the central age group 25-54 was 54%, compared to an EU-15 average of 64%. Neighboring France, with a much higher fertility had a FLFP rate in the same age group of 72%. The UK also had much higher fertility and much higher FLFP rate (73%). Since that time, Italy’s FLFP rate has risen somewhat, but its relative position has not changed much (the EU-15 FLFP rate in the 25- age group had climbed to 76% by 2004) and the increased female labor force participation was not accompanied by any further decline in Italian fertility. And one other detail should not escape our notice here, and that is that while we have seen a tendency toward convergence in fertility rates between the North and the South of Italy, this move has not been accompanied by any similar convergence in FLFP rates between North and South.

Secularism and Family Ties

Equally, far from being marked by weak family ties and a strong drive toward individualism, Italy is striking for the strength of its family ties. Italy is rightly regarded as being among those European countries having a strong system of family ties in which traditionally the family group has had priority over the individual, and this is a centuries old dichotomy which has long divided European societies along an axis running from North to South. In 1994, for example, 21% and 22% of people aged 25-29 were living with their parents in the UK and France respectively. The comparable figures were 66% for Italy and 65% for Spain. In 1995, 71% of all Italians aged 20-29 were living with their parents, compared to 33% in France and 31% in the UK.

Various post hoc economic explanations have been given for this kind of pattern - the high cost of housing, young adult unemployment, etc. - but none of these are really that convincing, not least because survey after survey seems to show that fully-employed young Italian adults find it to their liking to remain in the parental home, where they typically pay almost nothing for their upkeep, have their mother do all their cooking and wash, and can spend money on cars, vacations, discos or whatever.

Similarly, Italian illegitimacy ratios, divorce rates, and nonmarital childbearing are a small fraction of those found in northern Europe, and the use of modern contraception is much lower in Italy.


So while an examination of regional differences raises serious questions about the adequacy of an explanation focusing on women’s entry into the world of work, attempts to link cultural differences of the sort theorized by SDT theorists to fertility levels also proves to be problematic when you start to look at Italy's regions.

SDT theory tends to emphasise secularization and a movement away from religious values and religious identities. In the Italian context one way to capture such an impact might be by examining the spread of civil marriage, since for a couple to choose a civil marriage rather than a religious one involves making some sort of public statement of their distanciation from the Church, and the substantial regional variations which exists in the practice makes it a potentially valuable test of SDT theory. In 2001 73% of all Italian marriages were religious ones. In Italy’s largest northern regions - Piedmont, Lombardy, Veneto, Liguria - the proportion of religious marriages was in the 60 to 69% range, while in Emilia-Romagna and Tuscany, the heart of Italy’s red belt, with a strongly anticlerical and left-wing tradition, only 63% of weddings were celebrated in Church. In contrast, in no part of the mainland South was the percentage of religious marriages under 80%, and in the deep South (Puglia, Basilicata, Calabria) the figure was nearer 90%.

Yet plotting regional TFR against percentage of religious marriages in 2003 Kertzer et al found little evidence of any link between secularization and low fertility. Italy’s least secularized region using this measure was the deep southern region of Basilicata, where only 9% of marriages were celebrated outside the church, yet in 2003 Basilicata’s TFR was 1.20, actually below the national average. Perhaps it is also worth noting that Basilicata also had among the lowest FLFP rates in Italy, with only 46% of women aged 25-34 in the labor force.

Too Much Love Too Much Family?

Given that Italy’s regional differences appear to be revealing contextual effects that are not captured by either existing economic or SDT theory, effects which may be rooted in factors like social networks, provision of local public services, availability of kin, and, especially, sociocultural norms regarding family building, it might in fact be useful to look at other - rival - explanations. One such explanation has been advanced by leading Italian demographer Massimo Livi-Bacci. Livvi-Bacci argues that, and contrary to the initial assumptions of standard SDT theory, it may well be the very surfeit of "familism" in societies like Italy that is perpetuating the very low fertility. This is the sense in which I read my initial quote from Rosella Palomba that Italians "love their children too much", not s meaning that in other societies parents do not love their children, but as meaning that it is this very "excess" of family attention which effectively frustrates many of the possibilities which exist in other - less familiaristic societies - for young women to take autonomous decisions go ahead and have children. Intergenerational bonds of loyalty and affection effectively put a brake on cultural change and individual initiative, and given the top heavy shape of the present Italian population pyramid this "cultural conservatism" may only get worse and worse.

So maybe we should take the persistence over time of strong family ties as an important component in explaining the immovability of lowest-low fertility in both Italy and Spain over the last 25 years . As one influential paper by Livi-Bacci puts it, what we may well have in these countries is “Too few children and too much family”.

What Livi-Bacci effectively argues is that it is the intense inter-connection between generations which leads to a prolonged period of dependency in the younger generation, and that this leads the younger generation to avoid, postpone, and finally limit their assumption of parental responsibilities and commitments. Although this theory is an extremely hard one to test, the argument is an attractive one and, given the prominent place occupied by familistic societies among the pioneers of very low fertility, certainly worth examining closely.

Family differences between the North and the South of Europe are not recent in origin, and in fact profound differences in kinship systems lie at the heart of them, since young people in southern Europe have never left home as early as their northern European counterparts have consistently done. And despite the fact that the transition from rural to urban societies has brought about a good deal of change, the distinction between societies with strong or weak family ties certainly seems to endure. One of the most remarkable features of these intergenerational links is the way in which they are reflected in physical space. Indeed the physical proximity over time between children and parents in Italy may even have increased, since young Italian adults not only are now leaving the family home later, even when they do finally go they often end up living at a very close distance to their parents, almost as if they had never left the village. Furthermore, visits and telephone calls between parents and children occur with much greater frequency in Latin cultures than would be considered normal in Northern Europe.

A 1994 national survey found that, among young wives in the 25-34 age group, 29% lived in the same home or same building as their parents, another 37% were within one kilometer, and an additional 19% in the same town. These figures were little different for older women who had living parents. In 2005 it was found that Italian children are more likely to live near parents than those in any other European country. Separate data show that during the last thirty year of the 20th century only 30% of newly married Italian couples settled farther than one kilometre away from at least one set of parents, and one in four settled at less than one kilometre from both sets of parents.

One recent study found an interest difference between the Italian and the British patterns of family communication. Even in the UK most children tend to live not too far from their parents , since over 60% live at less than a half hour journey - or within 16 km - in both countries, Britons tend to phone their parents far less frequently and to actually visit them less often. For example, over 28% of British adult children visit their parents less than once a month, while only 12% of Italians do this; at the other end of the scale 37% of young adult Italians Italians say they visit their parents on a daily basis, while only about 11% of young British adults do so.

Also of note, the presence of siblings reduces the pressure on children to provide assistance to parents in both countries, but when we come to think about this Italy's low fertility means that the phenomenon of having siblings has been declining, and hence we have a reinforcing mechanism here which implies that the few children who are born will be under even greater distancial and communicational constraint in relation to their parents.






Cohabitation in Italy

Another area where parental approval (or disapproval) may be important is in the decision to cohabit - either prior to or instead of getting married In the mid-1990s, roughly one woman in three in the 25-29 age group in Sweden and Denmark was cohabiting; in France more than one woman in four was doing so, while in Germany and the Netherlands the equivalent figure was more like one woman in six. In Italy at the same time less than one woman in 20 was cohabiting.

Since non-marital cohabitation is a pretty public act then it may well be that children of parents who believe that cohabitation is not acceptable may decide not to cohabit in order to avoid embarrassment for or conflict with their parents. The result may be that couples who want to enter informal cohabitation but whose parents disapprove of it may also prefer to marry rather than to cohabit. This would seem to be especially true for Italian children, since the need for children to receive parental approval and hence support is extremely important in a southern European context, especially since the welfare state is historically characterized by a "familialistic" approach, expressed in the exitence of important transfers towards older generations and comparatively little in the way of direct help for the young.

In this context parental attitudes concerning household formation choices have an important influence on their children when they decide to form (or not to form) a household, net of the attitudes and values of these children themselves. There is plenty of empirical evidence that during the household formation decision-making process Italian parents are very willing to provide generous support to their children if they conform to parental expectations, in buying a home for example.

One area where this need for parental approval is immediately evident is in the high degree of synchronisation which exists between leaving the parental home and marriage. More than 80% of Italian women born in the 1960s left the family home directly to get married. This percentage is nearer to 40% for women in Northern Europe born in the same cohort. Over 85% of first unions in Italy are still marriages, and above all marriage remains the place for young Italians to become parents. And for younger Italians both the family and marriage continue to be considered to be among the most important corefundamental values, with more than 85%of young people in the 18-24 age group declaring marriage not to be an outdated institution, and that more attention should be given to the family in recent opinion surveys. Such a high percentage of pro-marriage attitudes has hardly any equal, neither in Western or Eastern Europe.

One strong possibility we need to consider is that the relatively low level of cohabitation in Italy is not so much the result of a low level of secularisation and a strong influence fromthe Catholic Church, but rather the result of the strong ties which exist between parents and children whereby parents support the young adult, not simply up to the age of consent, but also until he/she has reached a satisfactory employment situation and will normally involve substantial help while he/she is getting married, in particular (but not only) in the purchase of a house. As we have seen the strength of this bond is marked by the residential proximity which exists between parents and married children, by the continuous help by the parents to their children even after they are married (grandparents as babyminders), and by the comparative absence of cohabitation and children born out of wedlock.

It is perhaps worth noting that while in Italy the incidence of – heterosexual – cohabitations has remained fairly stable until recently, it did increase between the 1991 and 2001 censuses, although even by 2001 it still only involved about 4% of all couples. Marriage is still by large the prevalent form of settling in a first couple relationship for heterosexuals, although the most recent data does indicate that in the younger marriage cohorts one every 4 marriages has been preceded by a cohabitation, and that cohabitations have also increased in duration. Indeed recent research does seem to be showing that an increased acceptance of cohabitation by a parental generation (the key indicator here, not the children) with a higher level of education in the Centre-North of Italy is leading to a wider adoption of the practice by the young. There is however little evidence as yet that this increase in cohabitation is leading to an increase in childbirth outside marriage.

At the same time, it should be pointed out that in Italy cohabiting instead of marrying has long been the province not of young people entering their first partnership, but of mature adults who have had a marriage dissolution. The impossibility to obtain adivorce before 1970 and the long process through involved in obtaining one even today mean there is a long waiting period during which couples often cohabit simply because they are not in a position to remarry.

In Conclusion


Basically what has been argued here is that low fertility is a complex phenomenon, where a variety of factors come into play, and that the driving forces - for either higher or lower dertility - may well vary from one country or region to another. In particular the theoretical assumptions behind some of the traditional views of fertility decline - the labour market participation thesis , and the second demographic transition "secularisation" one - while not being entirely erroneous have at best only limited explanatory power when confronted with a detailed examination of what has actually happened in practice.

In particular it has been suggested here that underlying kinship structures form one important and intriguing part of the puzzle. In general it has been the case that fertility is higher where family ties between parents and children are weaker (as in Northern Europe and the English-speaking countries generally), and where “new” types of marital behaviour (eg cohabitation, extramarital fertility and marriage disruption) have become widespread, and where gender roles, both within couples and in society at large, have become more balanced. The bottom line would seem to be that the association between the waning of the “traditional” family and the arrival of lowest-low fertility seems to be negated by what has happened in Southern Europe over the last 20 odd years. What would now be very interesting would be to see some studies of Eastern Europe and low fertility Asian countries to examine what similarities and differences are to be found.


Bibliography

Italy’s path to very low fertility: the adequacy of economic and second demographic transition theories by David Kertzer, Michael White, Laura Bernardi and Giuseppe Gabrielli.

Rosina, A. and Fraboni, R. (2004). Is marriage losing its centrality in Italy? DemographicResearch, 11:149–172

Livi Bacci M. (2001). “Too Few Children and Too Much Family”, Dedalus, 130, 3:
139-155.

Gianpiero Dalla Zuanna, Social mobility and fertility, Demographic Research: Volume 17, Article 15.

Paola Di Giulio and Alessandro Rosina, Intergenerational family ties and the
diffusion of cohabitation in Italy, Demographic Research
Volume 16, Article 14, Pages 441-468

Research Digest # 1 - Ageing and Wages, Retirement Saving Crisis, and Income of Aged Cohorts

As Edward alluded in his introductory post for 2008 many of the main contributors of this blog were hard at work monitoring the ongoing events in global financial markets. We still are. However, we are also social scientists and this space is still a very important place in our minds where especially the scientific progress within the realm of demographic research commands a center role. As such, I am going to unilaterally venture a new tradition here at DM and one which I hope that I will be able to carry forward. In this way, the authors of this blog do in fact get a steady stream of links and references to research conducted in the sphere of economics and demographics. It is only because of the well-known shortage of time that these rarely reach the front pages here. This, I hope, is now going to permanently change. So, without further ado let us commence.

In this first edition of the research digest I am going to present a couple of papers which investigates a number of the hypotheses we are working with.

The Labour Supply of Older Americans - Alicia H. Munnell and Steven A. Sass (2007) Center of Retirement Research Boston College.

This paper summarizes what is known about the labor supply of older men defined as those 55 and over. The topic is of great interest because older individuals will comprise a much greater portion of the population, so their labor supply will have a significant impact on national output, tax revenues, and the cost of means-tested programs. Most importantly, a greater proportion of older individuals will need to work than do at present, because retirement income systems are contracting and working longer is the only way for most to ensure financial security in their old age. The focus is on men, because women’s work patterns reflect the increasing participation of cohorts over time as well as the factors that affect retirement behavior.

What is particularly interesting in this paper is of course whether the factors identified in the study represent factors that can be extrapolated to other countries and thus whether we can identify some universal points on the labour supply of ageing workers. As always, cultural differences may exert a considerable influence here and in a scientific light the issue of causality might be particularly difficult because it is difficult to see where culture begins and where it ends. Not surprisingly, the paper's conclusion is situated in the context of US regulatory context and here the paper notes that while the partipation of older men (say 55-64) has risen since the mid 1990s it is unlikely to grow at the same pace. The authors field a projection that by 2030 about 75% of men aged 55-64 will be in the labour force up from 70% today but, as the authors note, not near the 80% in the 1960s and 1970s where social security for the elder was not available to same degree. More importantly though in the context of the global forces of ageing the following excerpt describing the 'nature' of the elderlies' labour supply is quite important ...

Even today, with the elimination of the earnings test after the Normal Retirement Age and an actuarially fair Delayed Retirement Credit, the majority of workers continue to claim their benefits as soon as they become available. Another important factor is the increased mobility of older workers, which exposes them to the vagaries of the labor market. Extended and difficult job searches as well as the prospect of low wages may cause many older workers to simply give up. Moreover, older people have a strong preference for part-time work and flexible schedules, which to date employers have been reluctant to accommodate. Finally, 15 percent to 20 percent of older people are probably not healthy enough to work beyond age 62.

Now, the detail highlighted in bold is by no means unsignificant. In order to show this we need to remember that the US population pyramid remains one of the exceptions to the rule of rapid ageing amongst the developed economies. If we thus go to Japan the paper by Munnell and Sass seems to provide some kind of support for the hypotheis that one of the key tendenies of falling wages in a Japanese context quite simply is that as the workforce ages and once we get to the situation Japan is in with a median age of 42-43 (and counting) the ratio of part time jobs to regular jobs will increase thus in itself surpressing the aggregate income level.

Population ageing, Labour Demand and the Structure of Wages - Margarita Sapozhnikov and Robert K. Triest (2007) Center for Retirement Research at Boston College

One consequence of demographic change is substantial shifts in the age distribution of the working age population. As the baby boom generation ages, the usual historical pat tern of
there being a high ratio of younger workers relative to older workers is increasingly being
replaced by a pattern of there being roughly equal percentages of workers of different ages. One might expect that the increasing relative supply of older workers would lower the wage premium paid for older, more experienced workers. This paper provides strong empirical support for this hypothesis. Econometric estimates imply that the size of one’s birth cohort affects wages throughout one’s working life, with members of relatively large cohorts (at all stages of their careers) earning a significantly lower wage than members of smaller cohorts. The cohort size effect is of approximately the same magnitude for men and for women. Our results suggest that cohort size effects are quantitatively important and should be incorporated into public policy analyses.

Once again we get some interesting indications as to what happens to the aggregate wage structure of society as the ratio of older experienced workers to young workers climb. As the paper emphasises this is all about relative cohort sizes and how this affect macroeconomic variables. As with the paper above the this paper also enters the discussion of the marginal utility derived from working in old age relative to retiring where society obviously has a distinct interest in nuturing the former.

These results imply that older workers will face increasingly unfavorable relative labor market conditions as their ranks become crowded by the baby boom generation in the near future.

Is There Really a Retirment Savings Crisis? - Alicia H. Munnell, Anthony Webb, and Francesca Golub-Sass (2007) Center for Retirement Research at Boston College

The National Retirement Risk Index (NRRI) has shown that even if households work to age 65 and annuitize all their financial assets, including the receipts from reverse mortgages on their homes, nearly 45 percent will be ‘at risk’ of being unable to maintain their standard of living in retirement. That is, these households are projected to have replacement rates — retirement income as a share of pre-retirement income — that fall more than 10 percent short of a target rate designed to maintain their pre-retirement living standard.

As is implied by the snippet above this small brief enters the discussion of dissaving and asset price declines as the baby-boomers retire. Often, this discourse has furthermore been framed in the context of a global process of dissaving and subsequent 'asset-price meltdown' as a result of the joint process of ageing amongst the world's developed economies. I shall not enter this discussion here. The brief in question does however highlight the inescable truth that given the main underlying reason for the observed life cycle of saving and consumption to smooth consumption so that retiremen living standard does not deviate from work life standard households and savers will need to adjust.

Thus, a good report card for older households in 1992 is fully consistent with an NRRI of 32 percent for those 51-61 in 2004. And, unless households begin to save more or work longer, the NRRI will continue to increase as the Social Security Normal Retirement Age rises to 67, the shift from defined benefit plans continues, retirement periods become longer with increased life expectancy, and the one-income couple virtually disappears. Yes, there really is a retirement savings crisis.

Capital Income Flows and the Relative Well-Being of America's Aged Population - Barry P. Bosworth, Gary Burtless, and Sarah E. Anders (2007) Center for Retirement Research at Boston College

One way to assess the effectiveness of a nation’s pension system is to measure its success in bringing the incomes of the aged close to those enjoyed by the nonaged. The comparability of income estimates for the aged and nonaged depends, however, on the relative accuracy of the income reports for the two populations. Unfortunately, some income items that are particularly important to the elderly, including occupational pensions, income derived from financial assets, and returns on homeowners’ net equity in their principal residence, are either unreported or significantly underreported in household surveys. In this paper we assess the effects of unmeasured and underreported income flows on the relative incomes of the aged and near-aged.

This paper is a monster and very ambitious in the sense that what it really does is to provide recommendations for national income estimates and household survey methodology. What I am particularly interested in is the point that by including income earned from transfers and dividends (and other secondary asset income) the standing of the aged cohort is increased relative to the younger cohort who naturally earns the majority of its income from wages. This is very interesting I feel since the conclusions can be used to derive some general tendencies of the life cycle of aged cohorts in the sense that these will attempt to put their assets to work in order to yield cash flows. Recently, I treated this and related issue in the context of Japan where the main point was that the income earned by Japanese savers came from foreign assets. Whether this is the case in the US is dubious. Obviously, the US economy is still able to provide domestic return for its savers, at least for now. However, the evidence from this paper highlights one very important potential transmission mechanism that runs from the life cycle behaviour of ageing cohorts to international capital flows. The key here is the extent to which we observe a decline in home bias as the domestic economy steadily looses steam as a result of the effect of demographic changes ripples through. If the decline in home bias as we are currently seeing in Japan is universal we end up in a rather interesting situation since as the ratio of aged to young economies in the world is set to change in favor of the former how are all those savers going to earn yield and what will it mean for those few economies who are young. Can they be expected to keep their markets open?

Ok, that was enough for now. As the astute reader will have observed this first edition of the Research Digest was compiled by papers from the Center for Retirment Research at Boston College. This is a coincidence since the recent slew of refereces to hit my inbox was from this particular source. As I said in the introdution I hope that I will be able to do these on a semi-regular basis.