Demographics_ Economics and Migration The ______ Social Choices

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					Demographics, Economics and Migration
   The Fundamental Social Choices




             Adair Turner



             18th May, 2004
Three Dimensions of Demographic Change


• Increasing Longevity
• Declining Fertility
• Baby Boom Cohort




                                         1
     Life Expectancy at Birth(1) - Male


    80                                                                                                                                                                             80

    75                                                                                                                                                                             75
                                                                                                                             UK
    70                                                                                                                                                                             70

    65                                                                                                                                                                             65

    60                                                                                                                                                                             60
                                                                                                                                       World
    55                                                                                                                                                                             55

    50                                                                                                                                                                             50

    45                                                                                                                                                                             45

      0                                                                                                                                                                            0
               1910            1920             1930            1940            1950             1960            1970            1980             1990            2000
____________________
Source: GAD for UK; United Nations for World
Note: These are “Period” Life expectations, which actually underestimate the expected life span of a baby born in the year specified, but which are easier to calculate than the
        correct “cohort” figures and therefore frequently used in international comparisons. See footnote x in lecture text for explanation
                                                                                                                                                                                       2
  Life Expectancy at 60(1) - Male


 21                                                                               21


 20                                                                               20
                                                             France
 19                                                                               19


 18                                                                               18
                                                                      UK

 17                                                                               17


 16                                                                               16


 15                                                                               15


   0                                                                              0
                  1960                         1970   1980    1990         2000


____________________
Source: Eurostat demographic year book; GAD for UK                                    3
Note: On “Period” basis
 Total Fertility Rates – Europe and North America 1950-2000


 4.0                                                                                         4.0


 3.5                                                                                         3.5


 3.0                                                                                         3.0
                                     North America

 2.5                                                                                         2.5


 2.0                                                                                         2.0


 1.5                                                                                         1.5


 1.0                                                                    Europe               1.0


 0.5         1950 - 55   1960 - 65       1970 - 75   1980 - 85   1990 - 95       2000 - 05   0.5


____________________                                                                           4
Source: United Nations
  Total Fertility Rates – Asian Countries 1950-2000


  7                                                                                          7

                         China
  6                                                                                          6
                   Korea

  5                                                                                          5

                         Hong Kong
  4                                                                                          4


  3                      Japan                                                               3


  2                                                                                          2


  1                                                                                          1


  0         1950 - 55            1960 - 65   1970 - 75   1980 - 85   1990 - 95   2000 - 05   0


____________________                                                                         5
Source: United Nations
  Total Fertility Rates – Iran, Turkey, Brazil, 1950-2020


  8                                                                                      8

  7                                                                                      7

  6                                                                                      6
                                                         Iran
  5                                                                                      5
                                                Turkey
  4                                                                                      4
                                       Brazil
  3                                                                                      3

  2                                                                                      2

  1                                                                                       1

  0
  1950                   1960   1970              1980          1990   2000   2010   2020 0
    -55                  -65    -75               -85           -95    -05    -15     -25




____________________                                                                     6
Source: United Nations
From Pyramids to Columns

Age Group
            100 +
            95 - 99
            90 - 94
            85 - 89
            80 - 84
            75 - 79        B
            70 - 74
            65 - 69
            60 - 64
                      B
            55 - 59
            50 - 54
            45 - 49
            40 - 44
            35 - 39
            30 - 34
                      A    A
            25 - 29

            20 - 24
            15 - 19
            10 - 14
             5-9

             0-4




                               7
  Italy’s Population Structure 1970-2050

 Millions
                                                    1970                           2000                     2050
             Age
            Band
                                                   0.3 0.6                     0.8    1.5                    2.3 3.9
         80-100

           60-80                                   3.4 4.4                     5.1    6.5                  5.5    6.5


           40-60
                                                  6.1   6.6                  7.4          7.6              5.3   5.1

           20-40
                                              7.6          7.5               8.9          8.6              4.4   4.0
              0-20

                                             8.8           8.3                5.8     5.5                  4.1 3.8

                                     Male                    Female   Male                 Female   Male               Female

____________________                                                                                                            8
Source: U.N. Medium variant for 2050 projection
Support Ratio Dynamics


                          Ratio of Workers to Retirees,
                         Assuming Working From Age 20


Population       +0.5       3.5       2.8
Growth           Zero       3.0       2.25
% p.a.
                 -0.5       2.6       1.9


Life Expectancy at 65       15        20
Retirement Age              65        65



                                                      9
  Support Ratio Forecasts 2000-2050


 Ratio of 20-64 Year Olds to 65+

                                   2000   2050
     UK                            3.7    2.1
     Italy                         3.4    1.4
     USA                           4.8    2.8

     China                         8.8    2.4
     Korea                         9.0    1.7

     World
____________________
Source: UN Medium Variant
                                   7.8    3.6    10
  Demographic Change in UK and China – UN Medium
  Variant

 % Population by Age Band

                                      2000                                2050
                                         21                                30

    UK                                   60                                54

                                         19                                16



                                         10                               30

    China                                65                               54

                                         25                               16

                                                            60+   15-59          0-15 Years
____________________                                                                          11
Source: OECD Historical Statistics: OECD Economic Outlook
P.A.Y.G. Schemes: Three Alternatives




 • If support ratios for any given retirement ages fall,
   then three possible solutions
     – Increased retirements ages
     – Poorer pensioners
     – Bigger worker contributions




                                                           12
Support Ratio Dynamics under Different Demographic
Challenges



 Increase in longevity      Support ratio effect can be
 - no change in fertility   fully offset by
                            proportional rise in
                            retirement age


 Decline in fertility       Proportional rise in
 in addition to increase    retirement age
 in longevity               insufficient to offset
                            support ratio effect

                                                      13
Support Ratio Dynamics



                          Ratio of Workers to Retirees,
                         Assuming Working From Age 20


Population       +0.5       3.5       2.8       3.53
Growth Rate      Zero       3.0       2.25      3.00
% p.a.
                 -0.5       2.6       1.9       2.55


Life Expectancy at 65       15        20         20
Retirement Age              65        65        68.75


                                                        14
Are Funded Systems Different?

 • In any pension system today’s pensioners are
   dependent on resource transfer from today’s workers

 • Funded systems only help overcome demographic
   challenges if they increase savings – in current and
   future generations

 • Funded systems face demographic risks

 • The implications are closely similar for funded and
   non-funded systems

                                                          15
Key Choice: At Global Level


• Is world population stabilisation desirable?
          YES – environmental balance?
          NO – support ratio problems?

• Is world population stabilisation inevitable, if there is
  economic success everywhere?




                                                              16
Key Choices: At National/European Level


• Accept the deterioration of support ratios
         Poorer pensioners
         Later retirement ages
         Higher taxes
         Higher savings

• Offset the deterioration of support ratios
          Immigration
          Higher birth rate


                                               17
Immigration Only Responses – UN Migration Scenario


 • To maintain the ratio of 15-64 year olds to 65+ year
   olds constant requires:
                          Total Population – Millions

                              2000          2050


      UK                        59           136

      European Union           372         1,228


                                                          18
  Rising Longevity, Fixed Retirement Age and Stable
  Support Ratios




Retirement
Age




               Initial        Plus          Plus Immigration
             Structure       Rising         to Keep Support
                            Longevity        Ratio Constant



                                                               19
Support Ratio Dynamics



                          Ratio of Workers to Retirees,
                         Assuming Working From Age 20

                 +0.5       3.5       2.8        3.53
Population
Growth           Zero       3.0       2.25       3.0      ?
% p.a.           -0.5       2.6       1.9        2.55


Life Expectancy at 65       15         20        20
Retirement Age              65         65       68.75


                                                        20
  Population Density – US and Europe

 000s per Sq.km: 2000

        European Union                                              117

       US (excl. Alaska)                       35



                    England                                                     380

   NY, PA, CT,MT, NJ                                                      164

                      Florida                                      106

                   California                                 81

                        Texas                 29

                     Arizona             16




____________________                                                                  21
Source: United Nations, Statistical Abstract of the US 2002
  Europe and Its Neighbours – Population

 Millions

                   2000                              377             2000          126               2000           205
                                                                                         Russia,
 European                                                     Eastern
                                                                                         Ukraine
 Union             2050                              370      Europe 2050         104                2050       141
                                                                                         & Belarus




                   2000                                 421
 Western
 Asia*
                   2050                                                     923




                   2000                                              800
 Africa

                   2050                                                                                     1,800



____________________
Source: UN Medium Variant                                                                                             22
* Note: UN definition plus Pakistan, Afghanistan and Iran
Demographics and Geopolitical Weight


450                                                                        450

                                                                    USA
400                                                                        400
      European Union
350                                                                        350


300                                                                        300


250                                                                        250


200                                                                        200


  0                                                                         0
  1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050


                                                                                23
 Immigration: Pros and Cons

Arguments          - Support ratio improvement
 for:              - Big population gives geopolitical weight.

Arguments
                   - Population density: environmental & economic consequences
 against:          - Integration challenge
                   - Only a temporary solution if all the world is successful: shifting
                      the burden of adjustment to a stable population onto our
                      grandchildren but at a higher population density

Argument of     - It is going to happen anyway, so let’s ensure the integration
 inevitability:    is successful




                                                                                   24
Fertility Intentions of Women

England & Wales

                   Average Intended
   Women Aged        Family Size
       18-20             2.08
       21-23             2.16
       24-26             1.98         GAD
                                      Forecast of
       27-29             2.02
                                      Long-term
       30-32             1.97         Trend = 1.74
       33-35             1.97
       36-38             1.90

                                                     25
  European Fertility Rates - 2001


                                     TFR – Children per Woman
       France                                                                                        1.90
     Denmark                                                                                  1.74
       Finland                                                                                1.73
 Netherlands                                                                                1.69
      Belgium                                                                              1.65
            UK                                                                         1.63
      Sweden                                                                         1.57
     Portugal                                                                1.42
       Greece                                                        1.29
    Germany                                                          1.29
         Spain                                                     1.25
           Italy                                                   1.24

               0.00    0.20   0.40     0.60   0.80   1.00   1.20          1.40      1.60      1.80    2.00



____________________                                                                                    26
Source: GAD
Choices: A Personal View
World population stabilisation
                                 • Must at some time deal with
beneficial and inevitable if       column shaped demographics
whole world successful           • This requires revolution in
                                   attitude to retirement age
Major population decline –
beehives not columns – are       • Birth rates of 2.0 better long-
very economically and socially     term than 1.7
difficult                        • Family friendly policies vital


Britain faces a very rapid       • Manage the unavoidable level
adjustment over next 30 years      of immigration to ensure
                                   optimal integration
due to baby boom retirement
                                 • But mass immigration not
                                   “needed”
Significant immigration          • And not in the very long-run
unavoidable                        feasible or desirable
                                                                 27

				
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