DEMOGRAPHIC DYNAMICS AND INTERGENERATIONAL FAIRNESS Loukas Stemitsiotis Head of Thematic Analysis Unit DG Employment, Social Affairs and Inclusion, European Commission
Why intergenerational fairness? Real GDP per capita, 2005 prices, since 1949 Living standards keep rising since generations. Can we take that for granted?
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.
Europe continues its recovery
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.
EU-28 Employment will face its limits. 307 Working-age Population (20-64) millions 89.0 % of working Age Population (20-64 years) 287 84.0 267 79.0 247 227 Active population 74.0 207 69.0 Employment Employment rate 187 2000 2002 2004 2006 2008 2010 2012 2014 2016 2020 2022 2026 2028 2032 2034 2038 2040 64.0 Own calculations based on Eurostat 2015 population projections, Eurostat LFS 2000 2002 2004 2006 2008 2010 2012 2014 2016 2020 2022 2026 2028 2032 2034 2038 2040
EU-28 Employment will face its limits. 307 Working-age population millions 89.0 % of working Age Population (20-64 years) 287 84.0 267 247 227 Active population 79.0 74.0 LOW activity scenario 207 69.0 Employment Employment rate 187 2000 2002 2004 2006 2008 2010 2012 2014 2016 2020 2022 2026 2028 2032 2034 2038 2040 64.0 Own calculations based on Eurostat 2015 population projections, Eurostat LFS 2000 2002 2004 2006 2008 2010 2012 2014 2016 2020 2022 2026 2028 2032 2034 2038 2040
EU-28 Employment will face its limits. 307 Working-age population millions 89.0 % of working Age Population (20-64 years) 287 84.0 267 247 227 Active population 79.0 74.0 LOW activity scenario 207 69.0 Europe 2020 : 75% by 2020 Employment +1.1% p.a. Employment rate 187 2000 2002 2004 2006 2008 2010 2012 2014 2016 2020 2022 2026 2028 2032 2034 2038 2040 64.0 Own calculations based on Eurostat 2015 population projections, Eurostat LFS 2000 2002 2004 2006 2008 2010 2012 2014 2016 2020 2022 2026 2028 2032 2034 2038 2040
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
EU-28 3.5 2000-08 3.0 2.5 2008-13 2013-15 16 with implications for growth! 2.0 GDP growth 1.5 1.0 0.5 0.0-0.5-1.0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2020 2022 2026 2028 2032 2034 annual growth in % 2038 2040 Productivity growth Employment growth Own calculations based on Eurostat 2015 population projections, Eurostat LFS, Eurostat National Accounts
EU-28 3.5 2000-08 3.0 2.5 2008-13 2013-15 16 with implications for growth! 2.0 GDP growth 1.5 1.0 0.5 0.0-0.5-1.0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2020 2022 2026 2028 2032 2034 annual growth in % 2038 2040 Productivity growth Employment growth Own calculations based on Eurostat 2015 population projections, Eurostat LFS, Eurostat National Accounts
EU-28 3.5 2000-08 3.0 2.5 2008-13 2013-15 16.. with implications for growth! 2.0 GDP growth 1.5 1.0 0.5 0.0-0.5-1.0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2020 2022 2026 2028 2032 2034 annual growth in % 2038 2040 Productivity growth Employment growth Own calculations based on Eurostat 2015 population projections, Eurostat LFS, Eurostat National Accounts
EU-28 3.5 2000-08 3.0 2.5 2008-13 2013-15 16.. with implications for growth! 2.0 GDP growth 1.5 1.0 0.5 0.0-0.5-1.0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2020 2022 2026 2028 2032 2034 annual growth in % 2038 2040 Productivity growth Employment growth Own calculations based on Eurostat 2015 population projections, Eurostat LFS, Eurostat National Accounts
EU-28 3.5 2000-08 3.0 2.5 2008-13 2013-15 16.. with implications for growth! 2.0 1.5 GDP growth 1.0 0.5 0.0-0.5-1.0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2020 2022 2026 2028 annual growth in % 2032 2034 2038 2040 Own calculations based on Eurostat 2015 population projections, Eurostat LFS, Eurostat National Accounts
EU-28 3.5 2000-08 3.0 2.5 2.0 1.5 2008-2013 -15 13 16 GDP growth.. with implications for growth! annual growth in % 1.0 0.5 0.0-0.5-1.0 2000 2002 2004 2006 2008 2010 2012 Own calculations based on Eurostat 2015 population projections, Eurostat LFS, Eurostat National Accounts 2014 2016 2020 2022 Employment growth (LOW scenario) 2026 2028 2032 2034 2038 2040
EU-28 3.5 2000-08 3.0 2.5 2.0 2008-13 2013-15 16.. with implications for growth! Necessary productivity Growth (LOW scenario) 1.5 GDP growth annual growth in % 1.0 0.5 0.0-0.5-1.0 2000 2002 2004 2006 2008 2010 2012 Own calculations based on Eurostat 2015 population projections, Eurostat LFS, Eurostat National Accounts 2014 2016 2020 2022 Employment growth (LOW scenario) 2026 2028 2032 2034 2038 2040
EU-28 3.5 2000-08 3.0 2.5 2.0 1.5 2008-2013 -15 13 16.. with implications for growth! Necessary productivity Growth (LOW scenario) annual growth in % 1.0 0.5 0.0-0.5-1.0 2000 2002 2004 2006 2008 2010 2012 Own calculations based on Eurostat 2015 population projections, Eurostat LFS, Eurostat National Accounts 2014 2016 2020 2022 2026 2028 2032 2034 HIGH scenario Employment growth (LOW scenario) 2038 2040
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
Conclusions Qualification matters: Cedefop skills forecast Forecast employment change 2015 -> 2025-20% -10% 0% 10% 20% 30% All qualifications Low Medium High Managers Professionals Technicians and associate By qualification By occupation
Own calculations based on Eurostat 2015 population projections No reform: Pension level at 47%: 30% 25% 20% 15% 10% 2015 2019 2023 2027 Contribution rate in rate year... in year. 2031 2035 2039 2043 2047 2051 2055 2059 2063 2067 2071 2075 2079
Imagine the EU is one country, one pension system with one single contribution rate. everybody 20-65 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?
Index 2015 = 100 Hardly. 170 160 150 140 130 120 110 100 90 80 Population > 65 Population 20-65 2015 2019 2023 2027 2031 2035 2039 2043 2047 2051 2055 2059 2063 2067 2071 2075 2079 Source: Eurostat 2015 population projections
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. 2015 2021 2027 2033 2039 2042 2045 2048 2051 2054 2057 2060 2063 2066 2069 2072 2075 2078
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% 2015 2019 2023 2027 2031 2035 2039 2043 Pension level in year Contribution rate in year 2047 2051 2055 2059 2063 2067 2071 2075 2079
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... 1997 2001 2005 2009 2013 2017 2021 2025 2029 2033 1997 2001 2005 2009 2013 2017 2021 2025 2029 2033 % of gross wage Today's contribution rate COHORT COHORT
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.
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
Thank you for your attention! Link to ESDE 2017 report