Presentation at the TEDXNHH event organised in Bergen, Norway, 2010
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1. Is Immigration A Solution To Our Edward Hugh Long Term
Pension Problems? Bergen: October 2010
2. Global Ageing: An Irreversible Truth No other force is
likely hot shape the future of national economic health, public
finances, and policymaking as the irreversible rate at which the
world's population is ageing. U.N. figures show the proportion of
the world's population aged over 65 is set to more than double by
2050, to 16.2% from 7.6% currently. By the middle of the century,
about 1 billion over 65s will join the ranks of those classed as of
non-working age. The cost of caring for these people will
profoundly affect growth prospects and dominate public finance
policy debates worldwide.
3. Second Demographic Transition This process of rapid ageing
is due to the combined impact of two factors 1) Declining fertility
Spain Total Fertility Rate 0,0 0,5 1,0 1,5 2,0 2,5 3,0 2010 2005
2000 1995 1990 1985 1980 1975
4. 2) Steadily Rising Life Expectancy Spain Male Life
Expectancy (years, from birth) 40 45 50 55 60 65 70 75 80 2010 2005
2000 1995 1990 1985 1980 1975 Source: Eurostat
5. The pace of aging varies greatly across countries and
regions, Most pronounced and rapid in those countries that for
decades have had fertility rates below replacement levels - Japan,
German speaking countries, Southern and Eastern Europe. The median
age of populations in Europe as a whole will increase from 38 today
to 49 in 2050 (with significant differences between countries), and
at this point it will be over 20 years above the estimated median
age in Africa (which will be the youngest continent). Spain - with
half its population older than 55 by 2050 is expected to become the
oldest country in the world, followed closely by Italy and Austria,
where the median age is projected to be 54. Differential Rates Of
Ageing
6. Not only will populations get older, in many cases they will
shrink. According to the latest forecasts, Germanys total
population will shrink from its current 82 million to somewhere
between 69 and 74 million by 2050, while the proportion of people
aged 65 and older is projected to rise from just under 20% today to
just over 33% by 2050, depending on immigration. At the same time,
the number of very elderly (those aged 80 and over) will nearly
triple to as much as 15% of the total population. Shrinking As Well
As Ageing Latvia Total Population (annual, 1960 - 2010, millions)
2,0 2,1 2,2 2,3 2,4 2,5 2,6 2,7 2,8 2010 2005 2000 1995 1990 1985
1980 1975 1970 1965 1960 Source: Eurostat Hungary Total Population
(annual, 1960 - 2010, millions) 8,0 8,5 9,0 9,5 10,0 10,5 11,0 2010
2005 2000 1995 1990 1985 1980 1975 1970 1965 1960 Source:
Eurostat
7. Eastern Europe Especially Badly Affected Among emerging
economies, the situation in the East of Europe stands out as by far
the worst in the short term. In 2025, more than one in five
Bulgarians will be over 65 - up from just 13 percent in 1990.
Ukraines population will shrink by a fifth between 2000 and 2025.
And the average Slovene will be 47.4 years old in 2025among the
oldest in the world. Between 2000 and 2005, the only countries in
the world with population declines of more than 5,000 people were
16 countries in Eastern Europe and the former Soviet Union The
fastest aging countries on the planet over the next two decades
will be in those of Eastern Europe and the former Soviet Union.The
entire region is projected to see its total population shrink by
about 23.5 million. The largest absolute declines will be in
Russia, followed by Ukraine and Romania.
8. The magnitude of Chinas coming age wave, is simply
staggering. By 2040, assuming current demographic trends continue,
there will be 397 million Chinese over 65 - more than the total
current population of France, Germany, Italy, Japan, and the United
Kingdom combined. China Too Chinas ageing is characterised by the
unusual speed with which it is occuring. In Europe, the population
over 65 passed the 10 percent threshold back in the 1930s and will
not reach the 30 percent mark until the 2030s, one century later.
China, on the other hand, will traverse this same distance in a
single generation.
9. Norway Is Ageing More Slowly Than Most Fertility has fallen,
but never below the critical 1.5 tfr level Life expectancy is also
rising With the result that the medium growth Population pyramid
doesnt look like a nightmare
10. The secret is maintaining economic growth. Migrants have
been attracted by Norways recent rapid economic growth And seem to
follow pathways laid down during earlier waves of internal
migration.
11. As far as we understand the issue at this point, population
ageing will have impacts which could be categorised under four main
headings: i) it will affect the size of the working age population,
and with this the level of trend economic growth in one country
after another ii) it will affect patterns of national saving and
borrowing, and with these the directions and magnitudes of global
capital flows iii) through the saving and borrowing path the
process can influence values of key assets like housing and
equities iv) through changes in the dependency ratio, ageing will
influence pressure on global sovereign debt, producing significant
changes in ranking as between developed and emerging economies.
Impacts Of Population Ageing
12. Most of the literature on the impact of immigration on
ageing focuses on the impact of immigration on the labour market
and the welfare state. A drawback of this focus then is that the
impact of ageing and immigration on capital formation and economic
growth usually are ignored. Most overlapping generations economic
models assume that the younger generation works, borrows to buy a
house and pays pension contributions, whereas the older generation
lives from previous saving, pension benefits and (later) dissaving.
Modern economic growth is increasingly fuelled by either exports
and credit growth, and the latter implies that an ageing economy
experiences a decline in economic growth. Immigration then might
help counter this decline. Not Just Working Age Population Growth
Is Also Involved
13. Japan GDP 1965 - 2009 (annual % change - 10 year moving
average) 0 1 2 3 4 5 6 7 8 9 10 11 12 1965 1970 1975 1980 1985 1990
1995 2000 2005 2010 Source: Japan Statistics Office, IMF, Ow n
Calculations, 2010 IMF Forecast German GDP - 10 year moving average
1980 - 2010 (annual, % change) 0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 4,0
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
2006 2007 2008 2009 2010 Source: Federal Statistics Office Japan
and Germany are currently the two oldest societies on the planet.
With median population ages of around 45. They are both heavily
export dependent. Just a coincidence? Also trend GDP growth in both
these countries has fallen back strongly, and both countries are
now highly sensitive to the impact of external currency and demand
shocks. Germany And Japan: Examples (to try) Not to Follow?
14. The Counter Argument There may be many reasons to favour
increased immigration....But it would be wrong to advocate
increased immigration as necessary to deal with the fiscal
consequences of an ageing population, or as a means to avoid large
future tax increases or benefit reductions. Marty Feldstein - The
Effects of the Ageing European Population on Economic Growth and
Budgets: Implications for Immigration and Other Policies Two
Principal Points i) immigration is not necessary to deal with the
fiscal consequences of ageing populations ii) it is false that
immigration constitutes a way of handling ageing which enables you
to do so without large tax increases or benefit reductions since
increased immigration would do little to reduce the future fiscal
burden. The increased revenue from a large rise in immigration
would finance only a small part of the coming rise in the cost of
pension and health benefits.
15. My opinion - Feldstein is both right and wrong He is right
that immigration alone wont be enough to address the problems we
face. We also need structural reforms in labour markets to
encourage higher participation rates. We need to move away from
Paygo to fully funded pension systems. But he surely goes too far.
Migrants can help keep our welfare systems afloat as we transit
from one system hot the other. They help fill the gap of the
missing generation of contributors. Most migrants are in their 20s
and 30s, so they will also form homes and families, helping push
the birth rate up a bit.
16. Two Examples Of What Not Not Do From The South Of Europe
Italian - Non Italian Nationals Resident in Italy (annual,
millions) 0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 4,0 4,5 2002 2003 2004
2005 2006 2007 2008 2009 Source: ISTAT Italy GDP - 10 year moving
average 1980 - 2010 (annual, % change) 0,0 0,5 1,0 1,5 2,0 2,5 3,0
3,5 4,0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
2005 2006 2007 2008 2009 2010 Source: ISTAT Italy Significant
migrant inflows since 2000, but no net impact on the decline in
trend growth. Trend growth could now be below 0.5% per annum - and
could turn negative during this decade.
17. . Human Capital Loss Gives The Key To The Italian Problem
It is hard hot say why Italy has fared so badly in terms of growth,
given the recent strong immigration. A number of factors involved,
but one that stands out clearly in the annual brain drain out of
Italy. Each year somewhere between 5% and 10% of Italian university
graduates leave their country, never to return. So some of the
migration represents a bad swop of highly qualified people for
people with far lower education levels. Reform in Italys
insider-outsider labour market, and changes making it easier for
young people to start their own businesses would be a big step
forward.
18. Spain Number of Non-Spanish Residents 0 1 2 3 4 5 6 1998
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source:
Spanish National Statistics (INE) Spain GDP 1995 to 2010
(quarterly, volume index - 2000 = 100) 60 80 100 120 140 Q1 Q2 Q3
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 1995 1996 1997 1998
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 20092010 Source:
Spanish National Statistics (INE) Spains huge housing bubble lead
to a decade and a half of recession-free growth, growth which then
came to a dramatic halt after the bubble burst. During the boom
nearly five million migrants were sucked- in to keep the economy
afloat, but now the boom is over many are unemployed and the
authorities have no clear idea what to do about this problem.
Spains Construction Driven Boom-Bust
19. Spain Unemployment Rate (monthly, seasonally adjusted, %) 0
5 10 15 20 25 2010m8 2010m3 2009m10 2009m5 2008m12 2008m7 2008m2
2007m09 2007m04 Source: Eurostat Initially the new migrants became
contributors to the social security system, thus helping to make
the PAYGO pension system more sustainable. Spain - Contributors to
the Social Security System (monthly, seasonally adjusted, millions)
17,0 17,5 18,0 18,5 19,0 19,5 20,0 Jan Feb Mar Apr May June July
Aug Sept Oct Nov Dec Jan Feb Mar Apr May June July Aug Sept Oct Nov
Dec Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec Jan Feb Mar
Apr May June July Aug Sept 2007 2008 2009 2010 Source: Ministerio
de Trabajo e Inmigracin But as these very same migrants now queue
up at the labour offices many Spaniards are asking whether this was
the best way to do things.
20. Japan Gross & Net Government Debt (annual % GDP) 0 25
50 75 100 125 150 175 200 225 1998 1999 2000 2001 2002 2003 2004
2005 2006 2007 2008 2009 2010 Source: IMF, 2010 IMF Forecast Gross
Debt Net Debt The Price Of Doing Nothing Thank You For Your
Attention Credit rating agency S&Ps estimates that without
policy changes U.K. government debt would rise to over 430% of GDP
by 2050, while German government debt would rise to more than 400%,
French government debt to more than 403%, Italian government debt
to over 245%, and Spanish government debt to over 544%.