In general, all the statistics proved that Europe’s population will shrink greatly before 2050 and the results will not be good. According to the latest revision of the UN (2015) projections, a decline by 4.5% (31 million) is suspected between 2015 and 2050. This overall decrease change according to the population, since the population which is over 70 will increase by 65%, while the population which is below the age 79 will decline by 14%.
Most of the European countries suffer from lower fertility and higher life expectancy, thus population ageing in Europe is a real problem and will have a remarkable impact on the economic growth, the public cost of pensions and the health care.
How to decrease the effect of ageing population:
This bad effect can be decreased with some pension reforms that can counter the contracting of the working age population and increasing the immigration of high-skilled migrants can be much helpful too.
Actually, there are three main mitigating factors that can enhance the sustainability of the public cost of pensions:
1- Transforming the public pension to notional defined contribution scheme(NDC).
2- Accumulating the public pension reserves and substituting of public for private pension schemes.
3- Health care cost will rise because living longer increases the demand for health care, while the technological progress and innovation are two important drivers of healthcare expenditure.
Population ageing in Europe:
Population ageing is a Major problem in most countries in Europe. The fertility has halved since the 1950s (women are giving birth to 1 or 2 babies only, and some are not doing it at all), and as a result the share of younger cohorts in the total population has greatly declined. On the other hand, the life expectancy has increased vastly ( the people are going to live more than before). This change of the age structure will badly affect economic growth, the public cost of pensions and the health care in European countries.
Population ageing negatively affects the growth through two channels:
First, without accommodating policy, the working age population is expected to contract ( according to UN, 2013), which will limit the potential growth. As a result, we will see a clear downward trend over the next decades.
This is applied for all Europe except Nordics and Turkey, whose working age population will slightly increase, caused primarily by the persistent population growth. On the other hand, in the Baltics, the total population will contract because of the low fertility and the emigration to outside the country causing the sharpest decline in the working age population in Europe.
Secondly, as a result of ageing, the whole structure of demand will change, for example the demand for care will rise since the elderlies become less self-sufficient with advancing age, and this means that a greater share of resources is needed to service their needs,and this share will be taken away from the other ( mainly tradable) sectors. This may also put upward pressure on some wages mainly in the tradable sector and which may hurt competitiveness, and in turn hurts the growth. The empirical findings suggest that a every 1% increase in the proportion of people aged over 65 in total population will decrease per capita growth by between 1 and 2%, assuming a constant retirement age.
To mitigate the effects of population growth:
There are a fee of policies that can be followed to mitigate the effects of population ageing on the economic growth.
1- The country must give the citizens the opportunity to continue working even when they become older, thus it must raise the retirement age.
2- The country must increase the acceptance of the emigres from other countries who have potentials and ability to work which will increase the working age population.
3- The country must give each family an extra pension as a reward for giving birth to new babies( especially more than two), and this may highly encourage the families to give birth to at least three infants.
4- The country can increase the labour market participation of older workers.
Raising the retirement age:
There are three ways to raise the retirement age in the society:
1- Raising the legal retirement age.
2- Making it more difficult and non-profiting to take early retirements.
3- Granting financial incentives to workers who continue working after a certain age.
Impact of ageing on public finance
Population ageing mean spending more money on pension benefits and healthcare, and this will highly increase especially that old people need more healthcare and more exposed to diseases.
Aging and productivity:
A simple question can show us the effect of ageing on productivity, Can a 70-year-old worker replace a 30 year old one, accomplish all his work and give the same productivity? Let’s start from the physical efficiency, the old person’s’ health is not as the youngers so the oldest person may quickly get tired, can’t spend much efforts, can’t carry heavy objects…
On the other hand, those olds are wiser, have more experience and greater ability to take decisions than the youngers, so they can be shifted from the forms of labor which need physical, muscular effort to forms of labor which need sophisticated intellectual abilities… this strategy will lesser obstacle to economic efficiency.
Aging and innovation:
Innovation is another important aspect which must be taken into account. According to sciences, the modal age of the creative mind which are able to invent and innovate is between 35 and 40 years old, which is higher than at 60 or 70 years of age several times. This is often true in most of the fields. Quickness of mind, risk-taking, and rebelliousness are the secret key of success and development, and these feelings mitigate with age.
Bringing in migrants with high productivity can compensates for the loss of the older workers who exit the labour market. However, European countries can benefit from highly-skilled immigrants as they complement the existing physical capital.
To get these highly qualified migrants, in 2009 the EU adopted the Blue Card directive which facilitates their approval and mobility by harmonising residence conditions and providing a legal status and rights. However the UK, Ireland and Denmark opted out of the Blue Card directive mainly because there are some flaws regarding the transposition, the low level of coherence, and the limited set of rights and barriers .
Juncker declared that one of his main duties will be reviewing the Blue Card Directive and enhancing it help in mitigating the effects of population ageing in the future.
The case of Germany:
Germany is called Europe’s powerhouse and taking a closer look to it gives a clearer view of the situation.
Assume that number of immigrants is zero between 2015 and 2050, the result would that the population will witness a decline by 16%, and its working age population ( between 20 and 64 years old) will fall by 24%. Even if we increase the retirement age, the active population in 2050 would be only 4.5% which is lower than in 2015. That’s why bringing immigrants plays a beneficial role in mitigating the effects of population growth.
Europe must really take strict decisions to solve the problems of ageing, or it will soon be facing huge complications.