New Publication | June 20, 2016

The demographic situation in Europe in 2060

© photocase: Marcel Drechsler / photocase.com

The MPIDR researcher Fanny Kluge has estimated how different the effects of an aging society will be on different European countries. One finding of her work is that the countries that have yet to recover from the Great Recession will face massive problems within a few decades.

The MPIDR researcher Fanny Kluge and her co-author, the former MPIDR Director Joshua R. Goldstein, drew upon data from the so-called National Transfer Accounts to estimate the taxes people in a particular age class pay, and the public expenditures on this same group of people. Using this approach, the researchers were not only able to determine the number of workers relative to the number of children and pensioners, but also to weight the economic variables. They were thus able to calculate the “demographic deficit,” or the degree to which the budget volumes of the individual countries decrease depending on the changes in the age structure of the population. “We don’t offer prognoses of the budget situations in individual countries, but are simply measuring the relative strength of the effects of the demographic transition on individual countries,” Fanny Kluge emphasized.

Their results, published in Population Development and Review, indicate that the countries that currently have a comparatively unfavorable age structure—such as Germany, Great Britain, and the Scandinavian countries—will no longer have such a large demographic deficit in 2060. The reasons for the existing deficit vary from country to country. For example, in Germany a decline in the birth rate in recent years is largely responsible for the growth in the share of the population who are older, whereas in Great Britain the relatively high number of older Britons alive today is largely attributable to a postwar baby boom.

The reverse situation can be observed in the European countries that have been less affected by the demographic transition because their birth rates fell comparatively late, such as Spain, Greece, and the eastern European countries. These countries will face a large demographic deficit in 2060. The reasons for the future deficit also vary considerably between countries: in eastern European countries like Poland, Romania, and Bulgaria the gap is mainly attributable to the abrupt decline in the birth rate after the collapse of the Eastern Bloc; whereas in countries like Italy, Greece, and Spain the Great Recession is largely responsible for the decline in the birth rate.

“The countries that are currently struggling with the effects of the Great Recession will be struggling with even bigger budget deficits in a few decades because of their aging population structure,” Fanny Kluge explained.

The researchers also estimated how large these deficits are likely to be: for example, by 2060 Romania will have to raise taxes by almost one-third, and Germany will have to raise taxes by around one-quarter; or these countries will have to reduce their public expenditures by the same orders of magnitude to offset their demographic deficits. 

The researchers noted, however, that raising taxes and slashing budgets are not the only ways to compensate for a demographic deficit, and that investing in the younger generations is at least as important. Yet they also observed that the countries that have been hardest hit by the Great Recession have made the deepest cuts to their educational sector, and especially to their universities. “To compensate for the demographic deficit, an increase in the productivity of the younger generations is essential. But that can only happen if we invest in education,” Fanny Kluge said.

More Information

Original article:  Joshua R. Goldstein and Fanny Kluge, Demographic Pressures on European Unity, Population Development and Review, Volume 42, Issue 2, June 2016, DOI: 10.1111/j.1728-4457.2016.00137.x