Terry McKinley, Jo Michell and Giovanni Cozzi Centre for Development Policy and Research (CDPR) School of Oriental and African Studies (SOAS) University of London AUGUR stakeholder’s workshop, November 2011 DG Research and Innovation, CDMA building, 21 rue Champ de Mars, Brussels AUGUR TRENDS IN DEMOGRAPHY AUGUR WORK PACKAGE #4

AUGUR stakeholder’s workshop, November 2011  This presentation covers demographic trends, except for migration (covered in the companion presentation)  The focus is on Europe (which is disaggregated by blocs) and on the evolution of the age structure of the European population (young, working-age and elderly)  Within this focus, our research is concerned with addressing the impact of the progressive ageing of the European population  When the research is complete, we hope to be able to assess and recommend various policy options: 1) raising the retirement age, 2) encouraging more in-migration of workers, and/or 3) prioritising gains in employment (especially for young workers) INTRODUCTORY REMARKS

AUGUR stakeholder’s workshop, November 2011  We will begin with illustrative ‘baseline’ projections until 2030 of the age structure of the population for five European blocs (based on data in the CAM macroeconomic model)  We will also do some brief comparative analysis of trends in other blocs or countries (US, Japan, China, North Africa, West Asia)  The basic projections are well known: a relative decline in the young (<15), a relative increase in the elderly (65+) and increasing pressure on those of working age (15-64) to support both of these groups, especially the growing number of the elderly  How can we evaluate the impact of such trends? We use two composite indices for this purpose: 1) a ‘Government Service Standard’ and 2) an ‘Economic Dependency Ratio INTRODUCTORY REMARKS

AUGUR stakeholder’s workshop, November 2011 AUGUR THE ELDERLY DEPENDENCY RATIO (ELDERLY/WORKING-AGE)

AUGUR stakeholder’s workshop, November 2011 AUGUR THE ELDERLY DEPENDENCY RATIO

AUGUR stakeholder’s workshop, November 2011 AUGUR WORKING-AGE POPULATION (% OF TOTAL POPULATION)

AUGUR stakeholder’s workshop, November 2011 AUGUR WORKING-AGE POPULATION (% OF TOTAL POPULATION)

AUGUR stakeholder’s workshop, November 2011 AUGUR  Our first assessment tool is called the ‘Government Service Standard’, which is essentially a combination of two ratios: 1)Government Expenditures/a ‘Weighted Population Index’ 2)Compared to Average Income per Person  The ‘Weighted Population Index’ contains three groups:  1) The Elderly Population (65+ years), which is given a weight of 3;  2) The Young Population (<15 years), which is given a weight of 2;  3) The Working-Age Population, which is given a weight of 1.  As the Young or Elderly grow relative to the Working-Age population, the Population Index increases THE ‘GOVERNMENT SERVICE STANDARD’

AUGUR stakeholder’s workshop, November 2011 AUGUR  This Index will fall for two basic reasons: 1)Government Expenditures fall relative to Total Income 2)The ‘Weighted Population Index’ rises relative to the Unweighted Total Population, meaning that either the Young or the Elderly are growing faster than the Working-Age Population  In many European countries, the Elderly are growing the fastest, meaning that the ‘Weighted Population Index’ is increasing fairly rapidly, as the shrinking Working-Age Population has to support them through Government Expenditures  Though the ‘Government Service Standard’ represents a rough approximation of what we want to measure, it is useful in highlighting general trends THE ‘GOVERNMENT SERVICE STANDARD’

AUGUR stakeholder’s workshop, November 2011 AUGUR THE GOVERNMENT SERVICE STANDARD

AUGUR stakeholder’s workshop, November 2011 AUGUR THE GOVERNMENT SERVICE STANDARD

AUGUR stakeholder’s workshop, November 2011 AUGUR GOVERNMENT SPENDING AS % OF GDP

AUGUR stakeholder’s workshop, November 2011 AUGUR RATIO OF TOTAL POPULATION TO WEIGHTED POPULATION

AUGUR stakeholder’s workshop, November 2011 AUGUR  One of the aims of our research is to link demographic trends, such as ageing, with employment.  Hence, we are not just interested in trends in the Age Structure of the Population, namely, the dependency ratios based on the relative size of the Young and Elderly Populations  We want a broader measure of Dependency that takes into account the prevalence of Inactivity Rates and Unemployment Rates among the Working-Age Population  Hence, we utilise an ‘Economic Dependency Ratio’, which helps us track such trends (see Palley 1991)  Essentially this indicator represents the ratio of the various categories of ‘the Economically Dependent’ to the Employed THE ‘ECONOMIC DEPENDENCY RATIO’

AUGUR stakeholder’s workshop, November 2011  The ‘Economically Dependent’ include four categories: 1)Those Younger than Working Age (<15 years) 2)Those Older than Working Age (65+) 3)Those of Working Age who are ‘Economically Inactive’ (many women, students, persons on benefits) 4)Those of Working Age who are ‘Economically Active’ but Unemployed (such as young workers)  In our analysis we attempt to decompose the effects of these four categories (two of which are strictly demographic and two of which are defined more by employment status)  The first two categories change slowly; the latter two more rapidly THE ECONOMIC DEPENDENCY RATIO

AUGUR stakeholder’s workshop, November 2011 AUGUR THE ECONOMIC DEPENDENCY RATIO

AUGUR stakeholder’s workshop, November 2011 AUGUR THE ECONOMIC DEPENDENCY RATIO

AUGUR stakeholder’s workshop, November 2011 AUGUR RATIO OF THE INACTIVE AND UNEMPLOYED TO THE EMPLOYED

AUGUR stakeholder’s workshop, November 2011 AUGUR RATIO OF THE OLD AND YOUNG TO THE EMPLOYED

AUGUR stakeholder’s workshop, November 2011 Concluding Remarks Highlights of Europe’s Projected General Demographic Trends:  A rising Elderly Dependency Ratio combines with a falling share of the Working-Age Population in Total Population The Government Service Standard:  This Index (gauging government expenditures per dependants) declines, unfortunately, through 2030 across Europe  The decomposition of the GSS into expenditure and demographic factors shows: Government Expenditures as a ratio to GDP generally declines, but not markedly under current projections (more strenuous fiscal consolidation would sharpen this decline) The increases in the Dependent Populations, particularly the elderly, have a more dramatic negative impact on the GSS

AUGUR stakeholder’s workshop, November 2011 AUGUR The ‘Economic Dependency Ratio’:  This Ratio is generally on an upward (adverse) trend until 2030, beginning with the global financial crisis  The decomposition into its Employment and Demographic factors shows: The Ratio of Inactive plus Unemployed to the Employed generally increases in the wake of the global financial crisis and stays elevated (except Central Europe’s ratio) The Ratio of the Young and the Elderly to the Employed exhibits a more dramatic upward trend across all of Europe CONCLUDING REMARKS