Aging Challenges

in Central Europe

and the Baltics

and Policies to

Address Them

Victoria Levin, The World Bank

Sofia

June 22, 2016

Approaching the Aging Challenge

2

• Age as a “fixed” concept– Countries aging differently

– Aging as a challenge, but also an opportunity• Ensuring longer lives are productive, economically secure

and healthy

• Good health is a prerequisite

• New framing of aging policy– Moving away from the traditional measure of old-age

dependency

– Aging from below requires higher productivity to sustain growth

– Lifecycle approach

Demographic Challenge

3

Bulgaria Aging Differently: Shrinking Younger

Generations

Aging With Growth in Central Europe and the Baltics 4

Cumulative population change 1990-2010, in percent

Low fertility and high emigration have led to falling or stagnating populations in

Central Europe and the Baltics

Notes: The natural increase in the population is defined as births minus deaths. Net migration is the net total of migrants during the period, that is, the total number of immigrants less the number of emigrants.Source: Based on United Nations (UN) Population Division (2013).

Natural increase Net migration

Bulgaria is Aging Differently to Western Europe:

Lives Cut Short

Aging With Growth in Central Europe and the Baltics 5

Life expectancy gains lag behind the EU-15

Italy gained 14 years of life expectancy since 1960 and Bulgaria 5 years

60

65

70

75

80

85

Lif

e e

xp

ec

tan

cy a

t b

irth

, ye

ars

Life expectancy at birth 2012 Life expectancy at birth 1960

Source: Based on World Bank’s World Development Indicators.

Large Imbalance In Generation Size

Sources: World Bank staff calculations based on the Medium Variant of United Nations, Department of Economic and Social Affairs,

Population Division (2015). World Population Prospects: The 2015 Revision.

9Aging With Growth in Central Europe and the Baltics

Shrinking

middle-age

cohorts

Age Not A Concept Fixed Over Time: “60” As

The New “70”… But Not Everywhere

How old you have to be today to have the same mortality as a

person of 60 in 1959

Source: World Bank staff’ calculations for all ECA countries with data available using Human Mortality Database. University of

California, Berkeley (USA), and Max Planck Institute for Demographic Research (Germany), www.mortality.org

7

57

57

58

59

60

60

62

65

68

71

56 61 66 71Age

Males

France

Slovenia

Czech Republic

Poland

Slovakia

Bulgaria

Hungary

Lithuania

Latvia

Estonia

Age Not A Concept Fixed Over Space: Rural

areas often exhibit higher dependency

8

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0%

25%

50%

75%

100%

125%

150%

1,883100%urban

275100%urban

129100%urban

48100%urban

1690%urban

7.936%urban

5.310%urban

3.92%

urban

2.91%

urban

1.70%

urban

Ag

e d

ep

en

de

nc

y ra

teS

ys

tem

de

pe

nd

en

cy r

ate

Local dependency rates in Romania by level of urbanization / size of locality

System dependency rate (pensioners/employed)

Age dependency rate (65+/18-64)

Source: World Bank staff calculations based on Romania 2011 Census.

Aging With Growth in Central Europe and the Baltics

Productive Aging

6

1. …decreases the share of the labor force in

the total population (growth concern)

• Shrinking labor force

• Expanding inactive older population

2. …alters the structure of labor force

(productivity concern)

• Outdated skills

• Less dynamism: less job reallocation across

occupations, sectors, and places

Concern: An Aging Population…

10Aging With Growth in Central Europe and the Baltics

Dependency Ratios Not Fixed: Labor Force Size and

Composition Can Be Altered By Higher Participation

11

Note: Data are based on past estimates of participation rates in 1990–2010, projections of the International Labour Organization (ILO) for

2015–30 based on past trends, and scenarios for 2035–60 developed by the World Bank for this report (female participation convergence to

male participation rates and working life gradually increases by ten years)

Sources: Based on ILO (2011) and UN Population Division (2013)

Aging With Growth in Central Europe and the Baltics

Ratio of inactive to active population aged 15+

50

60

70

80

90

100

110

1990 2000 2010 2020 2030 2040 2050 2060

Ra

tio

of in

active

to

active

po

pu

latio

n

ag

ed

15

+

Constant participation

Increase work lives by 10 years

Female to male convergence

Dependency Ratios Not Fixed: Significant Potential

to Increase Youth Employment in Bulgaria

12

Source: Eurostat, EU-LFS.

Note: The NEET rate is the percentage of the population aged 15–24 who are not in employment, education, or training.

Aging With Growth in Central Europe and the Baltics

NEET Rates, European Countries, 2008 and 2013

21.6

13.0

0

5

10

15

20

25

Ital

y

Bu

lgar

ia

Gre

ece

Cy

pru

s

Cro

atia

Spai

n

Ro

man

ia

Irel

and

Hu

nga

ry

Po

rtu

gal

Slo

vak

ia

Un

ited

Kin

gdo

m

EU

- 2

8

Lat

via

Bel

giu

m

Po

lan

d

Est

on

ia

Fra

nce

Lit

hu

ania

Mal

ta

Fin

lan

d

Slo

ven

ia

Cze

ch R

epu

bli

c

Swed

en

Au

stri

a

Ger

man

y

Den

mar

k

Net

her

lan

ds

Lu

xem

bo

urg

Percent

2013 2008

Dependency Ratios Not Fixed: Significant Potential

to Increase Older Labor Force Participation in

Bulgaria

13

Note: Simulations based on the gap in labor force participation rates for older workers with levels observed in Iceland.

Sources: Based on ILO (2011) and UN Population Division (2013).

Aging With Growth in Central Europe and the Baltics

Potential to increase labor force participation among 45-64 year olds

0%

5%

10%

15%

20%

25%

30%

35%

Ge

org

ia

Kazakhsta

n

Sw

ed

en

Kyrg

yzsta

n

Ire

land

Esto

nia

Un

ite

d K

ingd

om

Latv

ia

Aze

rba

ijan

Ge

rma

ny

Lith

ua

nia

Fin

land

De

nm

ark

Mo

ldova

Po

rtu

ga

l

Ne

the

rla

nd

s

Sp

ain

Bu

lgaria

Ru

ssia

n F

ed

era

tion

Cze

ch R

epu

blic

Au

str

ia

Slo

va

kia

Ukra

ine

Luxe

mb

ou

rg

Ro

ma

nia

Gre

ece

Fra

nce

Ita

ly

Se

rbia

Cro

atia

Be

lgiu

m

Slo

ve

nia

Hu

ng

ary

Turk

ey

Po

land

45-49 50-54 55-59 60-64

• Deterioration in health

and ability to live

independently is

associated with exit from

work.

• Care responsibilities

interact with older

workers’ labor supply.

• Higher likelihood to work if

the spouse is working:

preference for joint

retirement.

• Changes in the official

retirement age or benefit

structure have potential to

incentivize later

retirement (Austria and

Germany)14

Myth 1: Older Workers Do not Want to Work and

Prefer Retirement

Perceived barriers for employment after 55 in Bulgaria:

% reporting each reason as very, fairly, not very, not at all important, 2011

Source: Eurobarometer 2012.

0% 20% 40% 60% 80% 100%

Retire with partner

Family care obligations

Pension/tax system

Workplaces not adapted

Lack of modern skills

No gradual retirement

Employers' attitudes

Exclusion from training

Very important Fairly important Not very important Not at all important

Myth 2: Older workers are less productive,

more difficult hires

Source: Daselaar and Cabeza (2004)

The Aging Brain Can Compensate: Better-performing older

participants compensated for age-related memory decline by

reorganizing the episodic retrieval network

15Aging With Growth in Central Europe and the Baltics

Myth 2: Older workers are less productive,

more difficult hires

Source: Calculations based on data in Cai and Stoyanav 2014; UN Comtrade.

16

-0.25-0.2

-0.15-0.1

-0.050

0.050.1

0.150.2

0.25

Central Europe and the Baltics (Oldcountries)

Central Asia and Turkey (Young countries)

Age-appreciating cognitive skills Age-depreciating cognitive skills Physical ability

Employers Can Take Advantage of New Strengths:

Change in the skill contents of exports, 2000-2010

Aging With Growth in Central Europe and the Baltics

Dynamics of the Stock Of Human Capital Can

Mitigate or Exacerbate Aging Challenge

17

Working-age population and stock of human capital, 1990-2060

Source: Calculations based on Lutz, Butz, and KC 2014.

40

50

60

70

80

90

100

110

120

130

1990

1995

2000

2005

2010

2015

2020

2025

2030

2035

2040

2045

2050

2055

2060

Ind

ex 1

99

0=

10

0

EU28

Working-age population

Stock of years of education

Aging With Growth in Central Europe and the Baltics

40

50

60

70

80

90

100

110

120

130

1990

1995

2000

2005

2010

2015

2020

2025

2030

2035

2040

2045

2050

2055

2060

Bulgaria

Working-age population

Stock of years of education

Preparedness of Bulgaria’s future workforce?

1

8

Distribution of students by proficiency level in

math, 2012

Source: PISA 2012 data.

Index of School Social Stratification

Bulgaria has the highest rate of

functional innumeracy in

Europe…

…and the

highest level of

school social

stratification

Policy Agenda

14

More Balanced Demographics Can Be Achieved

through Smart Family and Migration Policies

.

m. 20

• Families in some European countries do not have the second

child they want partly due to insufficient incomes

• A re-increase in fertility can be expected when countries reach

high-country income threshold

• Stable employment for mothers, family-friendly employment

policies, and availability of affordable quality childcare options

may play a role in promoting fertility

• Supporting families can also play a role in stemming out-

migration

Healthy Aging: Achieving the “Cardiovascular

Revolution”

21Aging With Growth in Central Europe and the Baltics

Notes: Data for 2010. EU-14 is Eu-15 group of countries excluding Luxembourg for which data is not available.Source: Based on the WHO Mortality Database.

Excess deaths due to diseases of the circulatory system

-100

0

100

200

300

400

500

600

700

800

Italy

Sp

ain

Fra

nce

Sw

ed

en

Ne

the

rla

nd

s

Ire

lan

d

Au

str

ia

Un

ited

Kin

gd

om

Gre

ece

Ge

rman

y

Fin

land

Belg

ium

Po

rtu

gal

De

nm

ark

Slo

ve

nia

Cze

ch

Rep

ublic

Po

lan

d

Cro

atia

Esto

nia

Slo

va

kia

Hu

nga

ry

Latv

ia

Ro

man

ia

Lith

uan

ia

Bu

lga

ria

EU-14 EU-11

Gap in deaths due to excess DCS

Total deaths in each country if it mortality from diseases of thecirculatory system (DCS) was at EU14 average

Employer Interventions: Age-specific Staffing

Strategies Can Help

• Firms have tried many approaches:

– Age-specific equipment or work place adaptation

– Age-specific tasks for old workers

– Mixed-age working teams

– Working time reductions/flexibility

– Age-specific training/human resource management

strategies

– Evidence that some do work (in orange)

• Adoption rates are unknown

– Scope for dissemination

22

Shared Prosperity Challenge: Pensions Protect

From Absolute Poverty, But Coverage Set to Fall

23Aging With Growth in Central Europe and the Baltics

61

71

72

53

70

69

71

68

74

83

0 20 40 60 80 100

Hungary

Czech Republic

Estonia

Romania

Croatia

Latvia

Lithuania

Bulgaria

Poland

Slovak Republic

Coverage of 65+, in percent

2010 2050

Source: Schwarz et al. 2014.

Share of Elderly Receiving Social Insurance Benefits

Stepping Up Response to Aging

24Aging With Growth in Central Europe and the Baltics

Increase labor force

participation at all ages

Increase healthy life

expectancy and reduce

health inequality

Invest in skills starting

from young age and

adapt to older labor

force

Reorganize social services to

take account of changing

demographics

Target those who will be

vulnerable to elderly

poverty early on