Age structure and sustainability Demographically, this depends on the stability of the ratio between population in working age and population in retirement age ‘Support ratio’: how many persons aged are there for a person aged 65 and over? ‘Old dependency ratio’: the opposite (how many persons aged 65 and over are there for a person aged 15-64)?

Age structure and sustainability The most important issue that links age structure to potential problems of sustainability is the pension system The equilibrium of a pay-as-you-go pension system depends on the fact that the total amount of contributions is equal to the total amount of pensions paid in any given year

Age structure and sustainability Population forecasts are designed also in order to assess the sustainability of population changes and the economic challenges given by demography

‘Support ratio’ Italy, Germany, Spain,UN projections 2002

… this is population ageing If the support ratio decreases, solutions for a pension system: –Increase retirement age –Increase labour force participation (i.e. of women) –Decrease level of pensions –Increase level of contributions At the level seen, the development is not sustainable

… this is population ageing The impact on the labour force is also important: the labour force is ageing and, more important, shrinking

Why is the EU population ageing? The main reason is the decrease in fertility Second reason the increase in longevity

TFR (number of children per woman) Italy, Germany, Spain

Life expectancy at age 65 Italy, Spain (women)

Why is the EU population ageing? “Lowest-low” fertility, defined when the average number of children per woman in a year (“period” TFR) drops below 1.3 has emerged in Europe in the 1990s (Kohler, Billari, Ortega, 2002) Forerunners: Italy & Spain. Then Central & Eastern Europe, Former USSR

Why is the EU population ageing? Long-term sustainable solution: –Increase in fertility combined with –Increase in immigration To be in equilibrium, TFR should be close to 2.1 (e.g. 1.8) and immigration compensate for the difference (close to U.K., U.S. solution) Of course, in the meanwhile medium- short- term solutions

Net migration rate (% of the population) Italy, Spain

Potential for labour migration: Unemployment Not surprisingly, employment fell notably at the start of transition; in addition, despite the recovery in GDP growth in the late ‘90s, employment fell by 1.5% during the period and it is still on a downward trend (thus also exacerbating the demographic problems). As a consequence, unemployment exploded in early transition years. Subsequently it decreased in 1995 to slightly below 10%, but then, due to further restructuring and an increase in productivity, it rose again in the late 1990s, reaching an average rate of 12.5% in N.B. Due to the relevance of the informal and grey sectors, these figures have to be considered as a lower bound.

Potential for labour migration: labour costs The European Commission however estimates that such phenomena will be limited, although with a diversified impact on the different Member States. Although unit labour costs have increase significantly these are still at 25% of the EU average. Unemployment and lower labour costs => potential for labour migration At this purpose, transition periods in the Chapter related to free movement of persons have been negotiated, as it has been the case for the Southern enlargement

Key references Social Agenda : al_policy_agenda/social_pol_ag_en.html al_policy_agenda/social_pol_ag_en.html Green Paper “Confronting demographic change: a new solidarity between the generations”: al_situation/green_paper_en.html al_situation/green_paper_en.html