DEMOGRAPHIC INTERGENERATIONAL

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1 DEMOGRAPHIC DYNAMICS AND INTERGENERATIONAL FAIRNESS Loukas Stemitsiotis Head of Thematic Analysis Unit DG Employment, Social Affairs and Inclusion, European Commission

2 Why intergenerational fairness? Real GDP per capita, 2005 prices, since 1949 Living standards keep rising since generations. Can we take that for granted?

3 The story of ESDE 2017 Ch 1: Recovery continues in the EU; Ch 3: Still today's younger people are disadvantaged in terms of income, and on the labour market; Ch 2,4: Yet demographic change puts pressure on the young to become more productive, and they will bear a 'double burden' of ageing in the future; Ch 5: Social dialogue can play an important role in promoting intergenerational fairness.

4 Europe continues its recovery

5 The story of ESDE 2017 Ch 1: Recovery continues in the EU; Ch 3: Still today's youngsters are disadvantaged in terms of income, and on the labour market; Ch 2,4: Yet demographic change puts pressure on the youngsters to become more productive, and they will bear a 'double burden' of ageing in the future; Ch 5: Social dialogue can play an important role in promoting intergenerational fairness.

6 EU-28 Employment will face its limits. 307 Working-age Population (20-64) millions 89.0 % of working Age Population (20-64 years) Active population Employment Employment rate Own calculations based on Eurostat 2015 population projections, Eurostat LFS

7 EU-28 Employment will face its limits. 307 Working-age population millions 89.0 % of working Age Population (20-64 years) Active population LOW activity scenario Employment Employment rate Own calculations based on Eurostat 2015 population projections, Eurostat LFS

8 EU-28 Employment will face its limits. 307 Working-age population millions 89.0 % of working Age Population (20-64 years) Active population LOW activity scenario Europe 2020 : 75% by 2020 Employment +1.1% p.a. Employment rate Own calculations based on Eurostat 2015 population projections, Eurostat LFS

9 Own calculations based on Eurostat 2015 population projections, Eurostat LFS EU-28 Employment will face its limits. Working-age population LOW activity scenario Active population Employment +1.1% p.a. Employment rate

10 EU with implications for growth! 2.0 GDP growth annual growth in % Productivity growth Employment growth Own calculations based on Eurostat 2015 population projections, Eurostat LFS, Eurostat National Accounts

11 EU with implications for growth! 2.0 GDP growth annual growth in % Productivity growth Employment growth Own calculations based on Eurostat 2015 population projections, Eurostat LFS, Eurostat National Accounts

12 EU with implications for growth! 2.0 GDP growth annual growth in % Productivity growth Employment growth Own calculations based on Eurostat 2015 population projections, Eurostat LFS, Eurostat National Accounts

13 EU with implications for growth! 2.0 GDP growth annual growth in % Productivity growth Employment growth Own calculations based on Eurostat 2015 population projections, Eurostat LFS, Eurostat National Accounts

14 EU with implications for growth! GDP growth annual growth in % Own calculations based on Eurostat 2015 population projections, Eurostat LFS, Eurostat National Accounts

15 EU GDP growth.. with implications for growth! annual growth in % Own calculations based on Eurostat 2015 population projections, Eurostat LFS, Eurostat National Accounts Employment growth (LOW scenario)

16 EU with implications for growth! Necessary productivity Growth (LOW scenario) 1.5 GDP growth annual growth in % Own calculations based on Eurostat 2015 population projections, Eurostat LFS, Eurostat National Accounts Employment growth (LOW scenario)

17 EU with implications for growth! Necessary productivity Growth (LOW scenario) annual growth in % Own calculations based on Eurostat 2015 population projections, Eurostat LFS, Eurostat National Accounts HIGH scenario Employment growth (LOW scenario)

18 Employment will decline sooner or later. To maintain GDP growth, we need to raise productivity growth. Three scenarios for future productivity growth Growth decline No acceleration of productivity growth Growth scenario I Higher productivity growth through capital deepening (only) Growth scenario II Higher productivity growth through innovation: invest in skills and education

19 Conclusions Qualification matters: Cedefop skills forecast Forecast employment change > % -10% 0% 10% 20% 30% All qualifications Low Medium High Managers Professionals Technicians and associate By qualification By occupation

20 Own calculations based on Eurostat 2015 population projections No reform: Pension level at 47%: 30% 25% 20% 15% 10% Contribution rate in rate year... in year

21 Imagine the EU is one country, one pension system with one single contribution rate. everybody is working and everybody 65+ receives a pension (47% of wage). Then today's pension contribution rate would be 14% of that wage. Can we keep those levels?

22 Index 2015 = 100 Hardly Population > 65 Population Source: Eurostat 2015 population projections

23 Own calculations based on Eurostat 2015 population projections Full reform: contribution rate at 14% 50% 45% 40% 35% 30% 25% 20% Pension level level in year... in year

24 Own calculations based on Eurostat 2015 population projections Most probable scenario Probably : Higher CR inevitable, but we limit the increase. (say: 20%) 50% 40% 30% 20% 10% Pension level in year Contribution rate in year

25 Own calculations based on Eurostat 2015 population projections Most probable scenario This implies: 'Double burden' for today's young workforce and those not yet born 24% 22% 20% 18% 16% Average lifetime contribution rate for a person born in year... 50% 48% 46% 44% 42% 40% Today's pension level 14% 12% 10% 38% 36% 34% Average lifetime pension level for a person born in year % of gross wage Today's contribution rate COHORT COHORT

26 Labour market policies can help. Model simulations presented in ESDE: Policies targeted to older workers Reforms in the pension system (FI): coupling pensionable age, pension level to life- expectancy Better labour market matching trough LM integration support (DE) Tax incentives (SE): payroll and income tax cuts Main transmission channels: Ø Strengthen employment incentives Ø Improve employability Ø Contain increase of labour costs.

27 Conclusions Today's young generations remain disadvantaged on the labour market. This is a concern because... young people and future cohorts will need to speed up productivity and bear the 'double burden' of demographic change. How to strengthen the EU's transformative capacity for better long-term resilience? à Engage in pension reforms à Activate people on the labour market, fully using available human resources à Invest in people's employability (skills, education) to enhance their productivity

28 Thank you for your attention! Link to ESDE 2017 report