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2.5.1. What is the demographic trend in Europe, as compared with the World?

A “little promontory of the Asian Continent” (Paul Valery), Europe has seen its relative demographic weight in that landmass diminish sharply in the 20th century.

European Population (including Russia)	As a % of the Asian population	As a % of World population
1950	39	22
2000	20	12
2007	18,1	11,3
2050 (UN projections)	11	6,5

 

In a century (1950-2050), the demographic weight of Europe in the world will have dinminshed by more than two thirds.  As for the population of the 27 member EU, today, at 492.3 million, it represents 7.4% of the world population (6,624 millions).Whilst the demographic importance of Europe may seem to be decreasing ineluctably, bearing in mind its low birth rate, one of the biggest challenges facing the Union today is not this decline in numbers but the aging of its population.

 

2.5.2. What is the foreseeable trends in the demographic structure of Europe between now and 2050?

The aging of the population is at once the result of its increased longevity and the fall in the birth-rate which always seems to go with economic progress. It is measured by the trend in “ratios of demographic dependence”:  the denominator is the population of active age (15 to 64 years); for the “young” ratio the numerator is the population under 15 and  for the ratio of the “aged”, or old,  you use as the numerator the population over 65.  The total ratio is the sum of the “young” and “aged” ratios.

According to the demographic projections drawn up by the United Nations and Eurostat, between 2000 and 2050, the total population will increase by 70 million in the United States and fall by 16 millions in Japan and 10 millions in  EU-15 (as it was in 2000).  For this last, the decrease of 10 million covers an increase of 40 million in the aged population and falls of 12 and 38 million, respectively, in the young population and that of active age.

As a percentage of the total population, the over-65s will thus increase from 12% to 21% in the United States, from 17% to 30% in Japan and from 16% to 28% in the EU-15.  For this last, between 1960 and 2050 the young population will have gone from 78 to 52 millions, the active age portion of the population will have increased from 205 to 214 million and the numbers of the “aged” will have grown from 33 to 101 million.  So, at the outset there were more than twice as many young as old people (78/33), but at the finish there will be half as many (52/101).  As for the ratios of demographic dependence, the trend in them will be as follows:

Ratios	Young		Old		Total
	2000	2050	2000	2050	2000	2050
UE 15	0,26	0,25	0,24	0,47	0,50	0,72
USA	0,32	0,31	0,19	0,35	0,51	0,66
Japan	0,22	0,29	0,24	0,57	0,46	0,86

 

The ratio of the “young” is nearly stable (except in Japan), because the young population and the people of active age should develop along almost parallel lines (upwards in the United States and downwards in the EU of the 15) between 2000 and 2050.  But the ratio of the “aged” increases almost two-fold in  Europe and by a bit less than that the United States, while it is significantly more than doubled in Japan.The ratio of economic dependence  shows the number of the inactive who must be economically supported by 100 working people. According to the projections, between 2000 and 2050 this ratio should increase from 72 to 93 in the US, from 63 to 116 in Japan and from 85 to 124 in the EU-15. These projections incorporate plausible hypotheses concerning the trend in fertility rates and longevity, as well as migrations. In the so-called “central” projection, the figures of which are given here; the hypothesis is that of a net annual immigration of 600,000 people into the EU-15, that’s 1.6 per for  every 1,000 of its population.

 

2.5.3. Can the aging of the population be remedied by immigration?

The immigration of young adults should be able to improve the ratio between the old population and that of active age, for a while at least.  In the euro zone, the demographic dependence ratio based on the population aged 60 plus over the population aged between 20 and 59 increased from 35.2% in 1990 to 38.7% in 2000 and, according to the projection, will reach 72.9% in 2030,  that’s to say that it will have doubled in 40 years.

How many young adults (under 30 years of age) does the euro zone need for this ratio to be the same in 2030 as it was in 2000, so that the this aging may be kept, as it were, at the 2000 level?  The answer is 110 million between  2001 and 2030, or an annual average of 3.7 million. This last  figure represents 1.3% of the population of the euro zone.  As a comparison, in the United States, which is historically and traditionally a land of immigration, the net immigration over recent years has been in the region of 900,000 people a year, or about 0.33% of the total population.

Supposing there were such large numbers of people wishing to emigrate to the EU or the euro zone, it is obvious that such a mass of immigrants could not be absorbed without enormous difficulties.  By way of comparison, during a very large wave of immigration into the United States from Europe between 1849 and 1854, two million Europeans (mainly Irish and Germans) arrived in the United States, that is 400,000 a year on average, 1.6% of the 25 million American population  at the time.  Certainly, Africa and Asia offer a reservoir of young adults ready to emigrate, not just to Europe.  Many of them arrive in Europe by clandestine routes, taking the risks that we all know about.  Immigration from those continents would doubtlessly increase were it legalised, at least partially, but there would certainly be serious problems of integration.

People also wondered a few years ago whether immigration of young workers from the countries of Central and Eastern Europe couldn’t help to resolve the problem of the aging population in Western Europe.  In 2000 the European Commission estimated the potential flow of immigrants from the ten candidate countries after their accession at 335,000 each year (that’s 1 per thousand of the population of the 15-member EU).  This estimate was then revised downwards.  Anyway, the first figure is far below what would be needed to stop the aging of the populations of Western Europe.  Moreover, such a solution would only be moving the problem within the 25 member EU, since the new member states have got aging population problems of their own, their birth-rates having fallen particularly sharply in the 1990s.

So, wherever it comes from, immigration is not the panacea for dealing with the problem of aging in Europe. Neither is it, perhaps, the best way of attacking the labour shortages, as the employers’ organisations have suggested, since there is in the EU a continuing problem of unemployment disproportionately affecting immigrants (or their children) of non-European origin.  In most of the countries of the EU the rate of unemployment for non-European aliens is, on average, twice as high as the rate for everybody. In order to solve this particular problem of a shortage of labour, it would be better to concentrate our efforts on the education and training of youth, especially second generation immigrants, in order to get them out of unemployment or prevent them getting into it.

2.5.4. Possible consequences of aging on productivity and growth?

If aging diminishes the ratio of the active to the total population (let’s call this ratio A/T) and this is not compensated for by an increase in their level of occupation or productivity, this will naturally reduce per capita income in comparison with what it would have been if the A/T ratio had not changed. On the basis of the projections of the previous table, the per capita income of the population of the 15 member EU  in 2050  would, in this hypothesis, be13.4% less than it would have been if the A/T ratio had remained at its 2000 level.  Is the reduction in this ratio made up for in such a way as to cancel out or limit the negative consequences?

Growth in productivity depends essentially on technological development and on the accumulation of the factors of production which complement work, i.e. “physical capital” (equipment) and “human capital” (levels of education and training),  or the level of investment in the broad sense. Reflecting on economic matters does not tell us clearly how the aging of the population could influence these two variables.  As far as technological development is concerned, some people would have it that an aging population will be less dynamic and receptive to technological progress and to the adaptations it calls for.  Others assert that the growing sparseness of the population and young labour will provide the means to increase the quantity and quality of its “human capital”, which will make it more receptive to progress.

As far as the level of investment in the economy is concerned,  the traditional economic models concerning saving behaviour as a function of age, say that people save during their working life and they “unsave” – by consuming their capital - once they are retired. This leads one to the conclusion that the overall level of saving of an aging population drops, which could work against investment. Some people, however, reply that these models were formulated and verified statistically at the time of the baby-boom, and that present-day fears about the consequences of aging make for different behaviour and induce the active population, and even the retired, to save more, either as a precaution because they have doubts about the soundness of the pension schemes or because they are anxious to leave to their descendents a nest egg which will enable them to confront the consequences of aging better.

It would, then, be imprudent to count on an automatic acceleration in productivity following aging, because the opposite might well occur.  But this is no reason not to conduct voluntaristic policies and take measures to increase the propensity to save and encourage investment in equipment and human capital.  Another variable on which the policy can act is the level of occupation of the population of working age. This, particularly in the 55-64 age-group, has tended to diminish since the mid 70s, especially in Europe, as a result of the rise in the standard of living and also of policies which, for the purposes of  the “social treatment” of job-losses and the stated intention to safeguard the jobs of the young, have systematically encouraged early retirement through tax incentives and social security.  According to the OECD, doing away with these various incentives would enable the level of activity in this age group to be increased by 8 to 10 percentage points in the long term, so partially making up for the reduction in the A/T ratio.