Demographic Challenges and the Lisbon Strategy

COSAC CHAIRPERSONS MEETING VIENNA 20 FEBRUARY 2006

Wolfgang Lutz and Alexia Prskawetz

Vienna Institute of Demography

Austrian Academy of Sciences

Outline:

• Population ageing as a European mega-trend• Does ageing endanger the Lisbon targets?

- Balance of benefits and contributions in pensions systems

- Innovation and productivity

- Investments and competitiveness

• Can the demographic trends be influenced ?- Fertility

- Migration

• Conclusions

Uncertainty Range of Future Demographic Support Ratio (15-64/65+) 2000-2050

European Union, Support ratio

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

200

0

200

5

201

0

201

5

202

0

202

5

203

0

203

5

204

0

204

5

205

0

Year

Su

pp

ort

rati

o

0.8

0.40.2

0.025

0.975

Median0.6

Fractiles

Sergei's DELL PIII, file: C:\Sergei\Share\EU\[presentation02.xls],21-May-02 13:56

When considering pension expenditure, the key variable is not the demographic support ratio, but rather the balance between economically active and inactive persons.

The negative impact of demographic trends on this balance can be partially offset, if more persons of working age participate in the labour market.

Lisbon objective/target:

Making Europe the most competitive and dynamic knowledge-based economy in the world by 2010.

Aim to raise employment rates 70% - overall employment rate, 60%- female employment rate, 50%- older people

by 2010 and to improve labour market performance

Employment rates of workers aged 55-64, 2004, and the employment targets according to the Lisbon and Stockholm

summits

0,00

10,00

20,00

30,00

40,00

50,00

60,00

70,00

80,00B

E

DK

DE

GR

ES

FR IE IT LU

NL

AT

PT FI

SE

UK

EU

15

total

males

females

Eurostat, labour force survey

0,00

10,00

20,00

30,00

40,00

50,00

60,00

70,00

80,00

CY CZ EE HU LT LV MT PL SK SI EU25

total

males

females

Employment rates of workers aged 55-64, 2004, and the employment targets according to the Lisbon and Stockholm

summits

Eurostat, labour force survey

Important open question: Will a higher proportion of elderly workers lead to lower productivity growth and less innovation?

Major factors of productivity growth in Europe:

innovation (public and private)

information and communication technology (ICT)

international knowledge spill over

human capital development

entrepreneurship

Evidence that older people are less educated, less healthy and demand more transfers.Open question whether older workers are less willing to adopt new technologies.Unclear whether innovation and new firm entry hampered, if there are fewer young workers?

Many skills decline with age – Experience increases with age

-0,5

-0,4

-0,3

-0,2

-0,1

0,0

0,1

-19 20-24

25-34

35-44

45-54

55-65

Age

Pro

port

ion

of S

tand

ard

Dev

iatio

n to

25-

34 Y

ear

Old

s. ReferenceValues

DecliningImportanceofExperience

What is the balance at the level of firms? Evidence that the age profile is also hump shaped.

There is also the fear that in a globalizing world more investments will be made in dynamic markets rather than in those expected to stagnate.

-0,3

-0,2

-0,1

0,0

0,1

0,2

-19 20-24

25-34

35-44

45-54

55-65

Age

Sha

re o

f S

td.D

ev. (

25-3

4 Y

ear

Old

) 'Manager'

'Engineer'

For the future all three factors of population change are uncertain:Fertility - Mortality - Migration

This uncertainty affects different age groups very differently

0.0 1.0 2.0 3.0 4.0

2050204520402035203020252020201520102005200019951990198519801975197019651960195519501945

females

0.01.02.03.04.0

05

101520253035404550556065707580859095

100105

European Union, 2050

Population (millions)

males

Age Period of Birth

Sergei's DELL PIII, file: C:\Sergei\Current\Run\2002\EU\[make_pyramid_to_file2_EU2.xls],21-May-02 14:36

Western Europe, Total Fertility Rate, 1960-2001

Germany

Netherlands

FranceBelgium

Austria

Luxembourg

1.0

1.5

2.0

2.5

3.0

3.5

19

60

19

62

19

64

19

66

19

68

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

Year

To

tal F

ert

ility

Ra

te

Southern Europe, Total Fertility Rate, 1960-2001

Greece Slovenia

Portugal

Italy

Spain

1.0

1.5

2.0

2.5

3.0

3.5

19

60

19

62

19

64

19

66

19

68

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

Year

To

tal

Fe

rtil

ity

Ra

te

Northern Europe, Total Fertility Rate, 1960-2001

Denmark

Sweden

United Kingdom Ireland

Finland

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

19

60

19

62

19

64

19

66

19

68

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

Year

To

tal F

ert

ility

Ra

te

Czech Republic

Estonia

HungaryLatvia

LithuniaSlovak Republic

Poland

1.0

1.5

2.0

2.5

3.0

3.5

19

60

19

62

19

64

19

66

19

68

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

Year

To

tal

Fe

rtil

ity

Ra

te

Central / Eastern Europe, Total Fertility Rate since 1960

Central / Eastern Europe, mean age of childbearing, 1960-2001Tempo effect: While the mean age of childbearing increases, the Total Fertility Rate is artificially depressed: here since 1990

Czech Republic

Estonia

Hungary

Latvia

Lithunia

Slovak Republic Poland

24

25

26

27

28

29

30

19

60

19

62

19

64

19

66

19

68

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

Year

Me

an

Ag

e o

f C

hil

db

ea

rin

g

“Geburtenbarometer” for AustriaMonthly Changes in the Total Fertility Rates (TFR) and a rate adjusted for tempo distortions (PAP: Period Average Parity)Black line: In January 2002 a new child care benefit was introduced.

PAP im

September 2001: 1,54

Oktober 2005: 1,66

An

zah

l d

er

Kin

de

r p

ro F

rau

(Ø

)

1.20

1.30

1.40

1.50

1.60

1.70

1.80

Jan-2

000

July

-2000

Jan-2

001

July

-2001

Jan-2

002

July

-2002

Jan-2

003

July

-2003

Jan-2

004

July

-2004

Jan-2

005

July

-2005

Totale Fertilitätsrate (TFR)

Um Tempo-Effekt bereinigte Rate (PAP)

Einführung des Kinderbetreungsgelds

Can Migration Compensate for the Missing Births?Alternative Projections of the Old Age Dependency Ratio for the EU-15 in 2050

based on different Fertility and Migration Assumptions (Black line gives the level in 2000)

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

1 1.2 1.4 1.6 1.8 2 2.2

Total fertility rate

Old

-age

dep

ende

ncy

ratio

MIG=0 MIG=400,000 MIG=800,000 MIG=1,200,000 Year 2000

z

Conclusions:

• Population Ageing is a powerful force that will shape Europe’s society and economy in the future.

• Much is predetermined in the current age structure shaped by past trends, but there is certain room for policies to influence future fertility and migration levels that will moderate the speed and extent of ageing.

• Since this is a new experience in human history and Europe is at the forefront of this process, the social and economic implications are hard to predict.

• Ageing is a challenge rather than a crisis: It is like a current affecting a boat that has means to counteract it (by rowing or engine). The Lisbon strategy could be such an engine.