demography and recovery from the financial crisis in finland€¦ · crisis can be described as the...

1

DemographyandRecoveryfromtheFinancialCrisisinFinland

RistoVaittinenandReijoVanne

RistoVaittinen(correspondingauthor)(Dr.Pol.Sc.),(risto.vaittinen@etk.fi)isanEconomistattheFinnishCentreforPensionsand

ReijoVanne(reijo.vanne@tela.fi)istheLeadingEconomistatTheFinnishPensionAllianceTELA.

ABSTRACT

Inthisarticle,weassessthesizeandscopeofthealreadyrealisedchangeindemographyformacroeconomicdevelopmentsinFinlandusing

NationalTransferAccounts(NTA).Itisamethodintobreakdownthenationalincomeanditsusebyage.UsingofNTAwedemonstrate

thatpopulationageinghasalreadyhadsurprisinglylargemacroeconomicimplications.Therelativelysizeablecurrentaccountsurplus,at

thebeginningofthiscentury,wouldhavebeensubstantiallyreducedbecauseofageingevenwithouttheconcurrentstructuralproblemsof

theexportindustry.Populationageingcreatespressuretochangethelevelandstructureofconsumptionaswellasrelativeprices.The

growingneedformainlypublichealthandoldagecareservicesisaconsiderablechallenge.There’saneedforextensiveincreaseinlabour

supplytosatisfythecurrentlevelofconsumptionwithprevailingageprofiles.Currentlevelandagepatternofconsumptionrelativeto

earningsneedstobeadjusted,inonewayoranother,tomakeitsustainableinlongerterm.

1. INTRODUCTIONAfterthefinancialcrisisoutputinFinlandhasbeendraggeddownbytheglobaldownturn,thedeclineofthe

electronicsandforestindustriesandtheRussianrecession.InrecoveringfromthefinancialcrisisFinlandhasbeen

performingpoorlyrelativetoitspeers.Finland’sgrowthperformancehasbeenweakerthanintheEUonaverage

orintheneighboringNordiccountries(OECD,2016).Inthisarticlewewillarguethatdemographicdevelopment

isapotentialcandidateinexplainingtheslowrecovery.Thecomingunfavourabledemographicdevelopmentis

widelyrecognizedinbothindomesticandinternationalassessmentsoftheprospectsofFinnisheconomy(MoF,

2013,EC,2013,orOECD2015).However,intheinterpretationoftheprolongedrecessionfollowingthefinancial

crisisdemographyhasreceivedonlymarginalattention.

ThebroadlysharedinterpretationofthemacroeconomicdevelopmentinFinlandfollowingthe2008financial

crisiscanbedescribedasthestoryoftheriseandfallofNokia,supplementedbycutbacksinthetroubledforest

industrycausedbydigitalisation(seeHolmström,KorkmanandPohjola,2014orOECD2016).Finland’sprice-

competitivenesshasfadedthroughoutthe2000s.Alongwiththefinancialcrisis,theICTclusterhasheadedintoa

productivitycrisis.Thishasescalatedtheproblemsoftheunfavourabledevelopmentthathascontinuedforquite

awhile.ThedeteriorationoftheexternalbalanceformorethanadecadeandthechangeoftheFinnisheconomy

fromaninternationalnetlendertoanetborrowerin2011areindicatorsoftheweakeningcompetitiveness

(Kajanoja2012;MalirantaandVihriälä2013).

Inourarticle,wefirstpresentaconciseandstyliseddescriptionofthedevelopmentsoftheFinnisheconomyin

the2000s,bothbeforethefinancialcrisisandduringtheprolongedrecessionfollowingit.Wepresentthe

establishedinterpretationoftheexport-drivencrisisandconsiderinwhichwaysthedemographicchangecould

belinkedtorecentdevelopments.Afterthiswedefinethenationaltransferaccountsandpresenttheage

2

decompositionofincomeandconsumptionintheFinnisheconomy.Withthehelpofthedecomposition,we

reviewtheconnectionbetweenthedemographicagestructureandthemacroeconomicdevelopmentinthe

2000s.Finally,weconsiderissuesraisedbythisreviewonthefutureoutlookofthedemographyandthe

economicdevelopment.

2. POPULATIONAGEING,EXTERNALBALANCEANDCOMPETITIVENESS

Deteriorationofexternalbalanceisageneralequilibriumphenomenawhereadverseshockstoexportindustries

hasanimpactbutalsofactorsdeterminingabsorptionrelativetodomesticsuppliesplaysarole.Inthisrespect

lifecycleconsiderationsareofimportance:workerssaveindividuallyandthroughthepensionsystemtosmooth

consumptionoverlifecycle,whileretireesdissavethroughthesamechannels.Thedecliningshareofworkers

reducesthesavingsrateand,foritspart,contributestothedeclineincurrentaccountsurplus.Obstfeldand

Rogoff(1996)showinanoverlappinggenerationsmodelthatageingcausedbyfertilitydeclinedecreasesnet

savingsofaneconomy.

Braude(2000)hasemphasizedthattheagestructureaffectsnotonlythroughthesavingsratebutalsothrough

thewealtheffect.Inadditiontotransferringincomefromtheworking-agedtotheretiredviathepensionsystem,

theelderlywillcovertheirconsumptionwithwealththeyhaveaccumulated.Theincreasingnumberofretirees

raisestheimportanceofassetincomeinformingthepurchasingpower.Thegrowingnumberofretireesincreases

thedemandforconsumptionthroughthewealtheffectwithoutincreasingthelaboursupply.Thiswouldbethe

caseeveniftheretireeswouldsaveashareequivalenttothatoftheworking-agedandiftheirconsumption

structurewouldresemblethatoftheworking-aged.Theindirectdemandforworkincreasesrelativetoitssupply,

Theasseteffectholdsananalogousimplicationasforeignincometransferinanopeneconomy(Obsfeldtand

Rogoff,1996).Inotherwords,itaimsatstrengtheningtherealexchangerate.

Takingintoaccountrelativepricechangesindomesticeconomygivesanadditionalmechanismhowdemographic

changeaffectmacroeconomy.Whenstudyingimpactsonexternalbalanceofaneconomyitisusefulto

distinguishindustriesthatareopentointernationalcompetitionandthosethatareshelteredfromit,since

demographicchangesaffectrelativedemandinthisrespect.Duetocompetition,tradableindustriesmusttake

internationalpricesasagiven,whilethedomesticindustriescanpassitsexpensestoitsprices.Whenthetotal

demandincreasesrelativetodomesticproduction,therelativepricesofthenon-tradablesectorrisesandthereal

exchangerateisrevalued.Howmuchthedomesticpricesreactdependsonthesupplyofforeignsubstitutes

(ObstfeldandRogoff1996).

Theweakeningofthesupportratiohasanempiricallyobservedincreasingeffectontherelativepricesof

non-tradables.Ithasbeenobservedtohaveasignificantimplicationineconometrictimeseries/cross-section

studiesoftherealexchangerate(Braude2000;GroneckandKaufmann2014).GroneckandKaufmann{2014)use

agroupofOECDcountriestoreviewthereactionofrelativepricestochangesinthesupportratio.Theyestimate

thatanincreaseinthesupportratiooftheelderlybytenpercentwouldraisetherelativepriceoftheclosed

3

sectorby6-13percent.Thedifferencesintheproductivitygrowthrates,whichtheymeasurewithlabour

productivity,alsoholdclearandexpectedimplicationsfortherelativeprices.Braude(2000),whosegroupof

reviewedcountriesismorecomprehensive,estimatesthatacountry'spriceswillriseby10-15percentifthe

dependencyratiogrowsby10percent.

Thechangeindemographyaffectstherelativepricebetweentheopenandtheclosedsectorsbychangingthe

balancebetweendemandandsupplyviasavingsandwealtheffects.lnadditiontothesemechanisms,thechange

inagestructureaffectsthestructureofdemand.Comparedtothatoftheworking-agepopulation,alarger

proportionoftheconsumptionoftheelderlyistargetedateconomicservicesprotectedfromforeign

competition.AmericanandEuropeanconsumptionstudiesbasedonindividual-leveldatasupportthisnation

(HojbinandLakatos2003;EwijkandVolkerink2012).EwijkandVolkerink(2012)haveassessedthat52percentof

theprivateconsumptionoftheunder-65-year-oldsintheNetherlandsinvolvesopen-sectorproducts.The

equivalentfigurefortheabove-65-year-oldsis44percent.Onefifthoftheclosed-sectordemandamongthe

under-65-year-oldsinvolvespublic-sectorserviceswhilethefigurefortheabove-65-year-oldswasmorethan40

percent.

However,consumptionstudiesbasedonindividual-leveldatadoesnotprovideacomprehensivepictureofthe

incidenceofconsumptionsincetheydonottendtotakepublicconsumptionintoaccount.Publicconsumptionis

targetedatserviceswithinhealthcareandlong-termcare.Aconsiderablepartofthisconsumptionisindividual

publicallysubsidizedorproducedconsumption,whichisnotincludedinthefiguresforhouseholdconsumptionin

consumersurveys.Amajorpartofthepopulationusingsuchservicesisexcludedfromthetargetgroupof

householdsurveys.Thehealthcareexpenditureaccountsfor,onaverage,10percentofGDPinOECDcountries.

Athirdoftheseservicesareprivatelyfinanced.HagistandKotlikoff{2005)estimatedtheageprofilesofhealth

careexpenditureandconcludedthattheper-personhealthcareexpensesoftheelderlyaremultifoldcompared

tothoseoftheworking-aged.

3. NATIONALTRANSFERACCOUNTS,LIFECYCLEDEFICITSANDDOMESTICABSORPTION

NationalTransfersAccounts(NTA)isamethodologyandaframeworkforcollecting,combiningandanalysing

intergenerationalandlifecyclereallocationvariablesthatareconsistentwiththeSNA,SystemofNational

Accounts(LeeandMason,2009andUN,2013).TheessenceofNTAistoestimateprivateaswellaspublic

consumptionandlabourincomebyage,andtocalculatethedifferenceofthetwo,calledlifecycledeficit(LCD).

Usingthedataonagespecificinformationofpublicandprivateassetincomesavingsandtransfers,thesources

offinancingthelifecycledeficitcanbederived.Ifnecessary,thevariablesareadjustedsothatcorresponding

economy-wideaggregatesintheNationalAccountsaresatisfied.

BothSNAandNTAsharethesamebasiceconomicconcepts:theproductionintheeconomyisequaltototal

factorincome,whichfurtherequalstototalspending.NTAmeasuresnational,notdomestic,values.Netnational

disposableincomeequalsspending:

4

l aY=Y Y T C S.+ + = + (1)

wherelaborincome( lY )includesalsonetcompensationofemployeesfromtherestoftheworld,andasset

income( aY )includesalsopropertyandentrepreneurialincomefromtherestoftheworld.Transfersarenet

currenttransfersfromtherestoftheworld.Netincomeequalsconsumption(C)andnetsavings(S)whichboth

havepublicandprivatecomponents.

ThecurrentaccountBisthedifferencebetweentheavailableincomeYandtheexpenditureintheeconomy.The

expenditureisusedforprivateandpublicconsumptionCorfornetinvestmentsI,makingthedifferenceas

follows:

B Y C I= − − (2)

Bydividingthecurrentaccountidentity(2)withY,andbymultiplyinganddividingthemiddletermbythelabour

incomeYl,weget

1 l

l

YB C IY Y Y Y= − − (3)

In other words, the current accounts are determined based on the labour income and the share of net

investmentsofthenationalaccounts,aswellasontheratiobetweenconsumptionandlabourincome(C/Yl).In

thefollowing,wewillreviewhowthelatterratiodependsonthedemographicagestructure.

TheNTAmethodologyoffersacomprehensiveapproachtomeasureincomeanditsusebyageandtoreallocate

incomeandchangesovertimebetweenagegroups(UnitedNations2013).Dividingthenationalaccountsinto

differentagegroupsismotivatedasthefinancialflowsbetweenagegroupsoccurmainlybecausepeopleinthe

beginningandfinalstagesoftheirlifecycletypicallyconsumemorethantheyearn.Thedifferenceiscovered

throughdirectorindirectincometransfersfromtheworking-agepopulation.Thefluctuationinthesizeoftheage

groupschangetheseflowsanddetermine,inthelastresort,inwhichdirectiontheincometransfersmoveonthe

ageaxis.Savingandtheamountofassetincomealsodependonthestagesofthelifecycle.

Currently,NTAisusedtodepictandanalysethefinancialinteractionsbetweenagegroupsinmorethan40

countriesatvariousdevelopmentstages(Lee2014).Thecombinedpopulationofthesecountriesaccountfor

morethan80percentoftheglobalpopulation.Themethodhasalsobeenappliedinthedepictionofthe

financialimplicationsofdemographyinFinland(VaittinenandVanne2011;Riihelä,VaittinenandVanne2011and

2014).

Thedifferencebetweenconsumptionandlabourincomedepictstheneedforfinancingrelativetothevarious

stagesofthelifecycle.Thisneedismanagedthroughpublicandprivatenettransfers,assetincomeandnet

5

saving.LeeandMason(2011)callthisfinancialdeficitalifecycledeficit.Therearrangedidentityofincomeand

expenses(1)forasingleone-yearagegroup(a)is:

( ) ( ) ( ) ( ) ( )Y Yl aC a a a S a T a− = − + (4)

Thevariationoftheincomeandconsumptionoverlifecyclemakestheidentityinteresting.Therightsideofthe

equationdividesthedifferencebetweenconsumptionandlabourincomeintonetassetincome ( )aY ,changein

assets ( )S andnetincometransfers ( )T offinancing.Ifthedifferenceisnegative,therightsideoftheequation

dividestheincomedeficitintothosequantities.

In international NTA comparisons or comparisons of different periods, the quantities of equation (4) are

standardisedby thewagesumof theeconomy.Whenequation (4) ispresentedwith thepercapita figures for

eachagegroup,thestandardisationismadewiththeaveragewagesofthe30-49-year-oldsinthestatisticalyear

(LeeandMason2011).

Thepresentationmodeoftheidentityemphasizestheviewofthelifecyclehypothesis.Initially,citizenshaveno

otherfinancialsourcefortheirconsumptionthantheirwagesandnettransfersfromothers.Partofthewagesis

saved,andthesavedamountandtherelatedreceivedprofitareavailableforuseatlaterstagesinthelifecycle.

Age-linked income transfers divide the income between age groups at a certain point in time. By saving or

dissaving,consumptionopportunitiesaretransferredacrosstime.

Numericalproportionsbasedonthesizeofagegroupsorthenumbersofemployedandothergroupsare

commonindicatorsofanageingpopulation.UsingNTA,theratiobetweenthetotalconsumptionandwagesum

oftheeconomycanbeinterpretedasamoney-weightedsupportratio(SR)(LeeandMason2011,75):

00

00

( , ) ( , )( )( ) ,( ) ( , ) ( , )

A

aA

l la

c a t P a tC tSR tY t y a t P a t

=

=

= =∑∑

(5)

inwhichc(a,t0)andyl(a,t0)areconsumptionandlabourincomepercapitainagegroupaattimet0.P(a,t)isthe

sizeoftheagegroupintheyearunderreviewt,andAisthehighestobservedageinthestatisticalyear.In

practice,thefiguresforthehighestagesaretheaveragesofafewhighestone-yearage-groups.

Byselectingc(a)andyl(a)oftheyearchosenasthebaselineyear–forexample,theyearofthemostrecently

calculatedNTA–andbyusingthedemographicweightsofdifferentyears,weseehowthesupportratiohas

developedasaresultofthedemographiceffect.Lookingbackthroughhistory,wecan‘test’howwellthe

demographyexplainstheratiobetweenconsumptionandlabourincome.Ontheotherhand,forfutureyears,we

canmakecalculationsonhowtheratiowillchangeduetothedemography(Lee2014;Leeetal2014;Prskawetz

6

andSambt2014).Inotherwords,accordingtoequation(3),thenetlendingoftheeconomyrelativetothe

nationalincomedependsontheweightedsupportratioderivedfromtheNTA.

4. SECTORSPECIFICPATTERNSOFFINNISHECONOMICDEVELOPMENTINTHE2000SBeforethefinancialcrisis,theFinnisheconomygrewbyanaverageannualrateofthreepercent.Thegrowth

wastwiceasfastcomparedtotheaverageEurozonegrowthrateandnearlyasfastasinrestoftheEU

(ConferenceBoard2016).Thetradablesector1oftheeconomygrewparticularlyfast,drivenmainlybythe

rapiddevelopmentofthetotalfactorproductivity2.

Theflipsideofthegrowingproductivitywastheslightlydecreasingemploymentrateoftheopensector.Within

thesametimeframe,thetotalfactorproductivityofthenon-tradablesectordidnotimprove.Productionwas

increasedbyexpandingthelabourforce.Theemploymentinthenon-tradablesectorgrewbyanannualaverage

rateoftwopercentin2000–2008.Measuredinthenumberofemployed,thepublicsectordidnotmushroomin

thisperiod.Althoughthenumberofprivate-sectoremployeesgrew,thegrowthwasslowerthantheaverage

growthoftheeconomy.

Therelativeproductivityofthenon-tradabledeclinedbeforethefinancialcrisis.Inordertocompeteforthe

labourforceinaprofitablemanner,thepricelevelofitsproductshadtoriserelativetothatofthetradable

sector.Therelativepricesoftheclosedsectorgrewbymorethanfourpercentannuallyintheperiod2000-2008.

Thestagnationfollowingtheinternationalfinancialcrisiscausedalong-termslumpinproduction.Measuredasa

flat-rateappreciation,theproductionleveloftheoveralleconomyhasnotyetrecoveredtothepre-crisislevelbut

hasremainedwellbelowit.Thetradablesectorhasbeenacentralcontributorinthisdevelopmentcausedmainly

bythedecreasingtotalfactorproductivity.Nokia’sstruggletokeepupwithitscompetitorsinconsumer

innovationswasreflectedtoaconsiderablepartinthedevelopmentofthepost-recessionopen-sectortotal

factorproductivity.

Theoveralldevelopmentofthetotalfactorproductivityhasbeennegativeduringtherecession.Alsothetotal

factorproductivityinnon-tradablesectorhasbeennegativesincethebeginningofrecession.Hence,the

productioninshelteredsectorhasalsofailedtoreachpre-recessionfiguresdespiteitsincreasedemployment.

Table1.EconomicdevelopmentinFinlandinthe2000s

1Theopensectorincludesagricultureandforestry,mining,heavyindustry,transportandstorage,aswellasinformationandcommunicationsservices.Inotherwords,itincludessectorsA,B,C,IandHaccordingtotheStandardIndustrialClassification(SIC).Theflat-rateaddedvaluehasbeenusedastheindicatorofchangeinproduction.Theappreciationdeflationhasbeenusedastheindicatorofchangeinprices.Thisisstandardprocedureincomparativeresearchthatexaminesthedeterminationofexchangeratesfromthepointofviewoftheopenandtheclosedsectors(BettendorfandDewachter2015;Canzoneri,CumbyandDiba1999;DeGregorio,Giovannini,andWolf1994;GroneckandKaufmann2014).2Overallproductivitydepictsthepartofthegrowthinoutputthatcannotbeexplainedbyachangeintheincome-shareweightedinput.Thetotalfactorproductivityfiguresfortheopenandtheclosedsectorshavebeencalculatedbasedonthefiguresoftheindustry-specificproductivitysurveysofStatisticsFinland(2011).

7

Period

2000–2008 2008–2013 2000–2013Averagechangeinproduction(%/year) Totaleconomy 2.8 -1.5 1.1Tradablesector1 3.7 -3.3 0.9Non-Tradablesector2 2.3 -0.6 1.2Averagechangeinprices(%/year) Tradablesector3 -0.9 -0.2 -0.6Non-Tradablesector3 3.4 2.1 2.8Relativepriceoftheopensector4 -4.3 -2.3 -3.4Changeintotalfactorproductivity(%/year)5 Totaleconomy 0.9 -1.4 0.0Tradablesector 2.5 -1.7 0.9Non-Tradablesector -0.1 -1.2 -0.5Averagechangeinemploymentrate(%/year) Totaleconomy 1.4 -0.5 0.6Tradablesector -0.1 -2.4 -1.0Non-Tradablesector(incl.publicsector) 2.1 0.3 1.4Publicsector 0.9 0.3 0.7

1Changeinflat-ratedappreciation(SICA,B,C,HandJ);2Changeinfixed-pricedappreciation(SICD,E-G,I,K-T);3Changeindeflationofappreciation;4Changeinopen-sectorpricerelativetoclosed-sectorprice;5Changeinoutput,whichcannotbeexplainedbygrowthininputuse.References:StatisticsFinland,AnnualNationalAccountsandProductivitySurveys.

Table2givesevidenceoncomparativemacroeconomicperformanceonEUcountrieswithinandoutsideof

theEuropeanmonetaryunion.IndicatorsinthegrowthofGDPpercapita,laborproductivityarepresented

foreuroandnon-euroareasonaverageandforFinlandandGermanyasindividualeuromembers,andfor

SwedenasanindividualEUcountrynotmemberinthecurrencyunion.GrowthinGDPpercapitabefore

financialcrisishasonaveragebeenmuchstrongerincountriesoutsidethemonetaryunion.Ithasbeen

basedmainlyonproductivitygrowthandlessonthegrowthinemployment.InFinlandgrowthhasbeen

almostasfastasoutsideEuroareaandsignificantlyfasterthanwithinitonaverage.Economicperformance

priortocrisiswasprettysimilarinFinlandandSweden,whereasGermanyresembledtheaverage

developmentinEuroarea.

Afterthecrisispatternsinperformancehavechangedsignificantly.FinlandandEuro-zoneonaveragehas

notbeenabletorecovertopre-crisislevelofoutputwithinsixyears.ForFinlandthismeansthatithasnot

jetregainedthelaborproductivitylevelprecedingthecrisis.OntheotherhandGermanyandSwedenhas

succeededtogrowafterthecrisis:GermanymainlybybeingabletoincreaseemploymentrateandSweden

morebygrowingproductivityandmaintainingaveryhighemploymentrate.

Table2: FinnishmacroeconomicperformanceinEuropeanperspective

GDP per capita Labor productivity

(Population 0-24 and 60+)

/Population 25-59

8

2000=100 2000=100 (%) (%) (%)

2008 2015 2008 2015 2000 2008 2015

Euro Area 111 109 108 114 104 103 107

Finland 123 116 116 115 103 110 122

Germany 112 119 111 116 99 102 105

Non-Euro EU 126 135 120 126 110 105 107

Sweden 118 122 117 123 109 117 122

Source:ConferenceBoarddatabase(2016),Eurostat.

Demographicdevelopmentmeasuredbytotaldependencyratiohasbeenrelativelydiverse.Conventionally

dependencyratioismeasuredasashareofpopulationbelow15andabove65toworkingagepopulation(15.64).

Lookingfromlife-phaseperspectiveinEuropeancontext,onaverage,populationbelow25ofageisconsuming

morethanitproducesandisgeneratinglifecycledeficit.Thesameappliestopopulationover60ofage(Hammer,

Prskawetz,andFreund,2015).Usingtheseagebracketsweseethatrelativeto100supportersthenumberof

dependantshasincreasedby19personswithin15yearsinFinland.ThisisthefastestchangewithinEurope

wheresupportratioswhereonaverageslightlyimprovingbeforethefinancialcrisisandonlymodestly

deterioratingafterthecrisis.

Thepopulationaged25-59yearsthatproducesthelifecyclesurplusamountedto2.5millionindividualsin2000.

Theshareofthepopulationgeneratingthelifecycledeficit,thatis,theunder-25-year-oldsandtheabove-59-

year-olds,amountedto1.6millionand1.1millionindividualsrespectively.Thismeansthattherewere103

dependantsper100providersinFinlandintheyear2000(Table1).Bytheendof2013,thenumberofindividuals

producingasurplushadbeenreducedby80,000whilethenumberofelderlyindividualscontributingtothe

deficithadgrownbymorethan400,000toanample1.5million(Figure2).Tocounterbalancethegrowing

numberofageingpeopleinthedeficitphase,thenumberofyoungindividualscontributingtothedeficitwas

reducedby60,000,thatis,byapproximatelyonetenthrelativetothegrowthinthenumberoftheelderly.Asa

resultofthedemographicchange,thedependantsnumbered122relativeto100providers.Thenetchange

equalled460,000individuals,whichmeansthatthenumberofdependantsrelativetotheprovidersgrewby18

percentagepoints.Thechangewasofsuchmagnitudethatithasinevitablyleftamarkonthemacroeconomic

development.

Changesindemographicsupportratiodonotnecessarilygivecorrectmagnitudeofthemacroeconomic

implicationsofageing,sincedifferencesinthegapofearningsandconsumptionvariesbyage.Macroeconomic

costsduetotheagestructurecanchangeevenwithstablesupportratiowhentherelativeweightsoftheyoung

9

andtheelderlydevelopinoppositedirectionsandoverturneachother.Increasingnumberofelderlyrelativeto

workingagepopulationrequiresalotmoreinter-agetransfersthanincreasingnumberofyoungdependants.

5. DEMOGRAPHICCHANGEANDAGEPATTERNSOFCONSUMPTIONANDEARNINGSINFINLAND

AgespecificconsumptionprofilesinNationalTransfersAccountsconsistofbothprivateandpublicconsumption.

TodivideprivateconsumptioninFinland,Riihelä,VaittinenandVanne(2011;2014)havemadeuseofhousehold

surveys.Thedivisionofconsumptionperagegrouphasbeenseparatelyreviewedintermsofconsumerdurables,

housing,healthcareandeducation.Educationandhealthcarecomewithaconsiderableage-linkedcomponent,

andtheirconsumptionissignificantlylinkedtopublicservices.Publicconsumptionhasbeenallocatedtotheage

groupsbasedonpublicadministrationdata.Theestimatesoftheage-group-specificlabourincomehavebeen

constructedbasedonincomedistributionstatistics.

Thelabourincomeincludeswageincome,theemployer’swage-relatedpaymentsandpartoftheincomefrom

self-employment.Theaggregatesofincomeandconsumptionitemshavebeenbalancedtocorrespondtothe

figuresofthenationalaccounts.

Inourreview,incomeandconsumptionhavebeenproportionedtotheaveragewagesofthoseinprimeworking

age(30-49-year-olds)(figure1).Thelabourincomecomeswithastrongage-dependencybothduetotheunit

wagesandtheage-linkednatureoftheemploymentrates.Consumptionhasbeendividedintototalconsumption

andprivateconsumptionpercapita.Theirdifferenceispublicconsumption.Thetotalconsumptionisfairlyeven

intheagesbetween15and75years.Tocovertheexpensesofthatconsumption,anincomethatcorrespondsto

theearningsofthepopulationinprimeworkingtimeforanaverageof0.6yearsisrequired.Consumptiongrows

fiercelyaftertheageof80yearsduetogrowingpublicconsumption,i.e.theuseofpublichealthandlong-term

careservices.

Thelabourincomeexceededconsumptionamongthepopulationagedabove26andunder58years.Thelowest

consumptionlevelamongtheadultpopulationwasforthe40-44-year-olds.Thelowestconsumptionlevelin2006

wasfoundamongthoseborninthemid-1960s.Thelowconsumptionlevelforthisagegroupispartlyexplained

bytheirchild-careburden,partlybythelongshadowoftherecessioninthe1990s.Thisagecohortwas

establishingitselfonthelabourmarketswhentherecessionhit.Theirweakpositioninthelabourmarketduring

therecessionresultedinaslowergrowthinearningscomparedtoyoungerorolderagecohorts(Riihelä2007).

Theconsumptionoftheworking-agepopulationin2006wasatitshighestamongthosearound60years,thatis,

amongthoseborninthemid-1940s.

Figure1.AgeprofilesoflabourincomeandconsumptioninFinlandin2006

10

Source::StatisticsFinlandandowncalculations(Riihelä,VanneandVaittinen,2014)

Theshareofpublicconsumptionofthetotalconsumptionisrelativelysmallandstableintheagerangebetween

30and65years.Theweightonpublicconsumptionisconsiderablyhighamongagegroupsyoungerorolderthan

that.Amongtheyoungagegroups,approximatelyhalfoftheconsumptionconsistsofpublicservices.Inolderage

groups,publicconsumptionformstwothirdsoftheirtotalconsumption.Theconsumptionofapersoninthe

olderagegroupsin2006equals,onaverage,1.2timestheannualearningsofapersoninprimeworkingage.

Publictransferarrangements,thatis,netpublicincometransfersandservicesdominatethefinancingofthelife

cycledeficitandtheuseofthesurplus.Intheolderagegroups,theshareofconsumptionreceivedandfinanced

aspublicservicesgrowswithageandfinallysupersedestheshareofreceivedpensions.Fromthepointofviewof

intergenerationalincometransfers,thesignificanceofage-dependentpublicexpenditureismajor.In2011,

approximatelytwothirdsofthepublic-sectorexpenditure,incometransfersandsubsidizedservicescanbe

classifiedasage-dependent.Thiswas32percentrelativetoGDP.

Theshareofage-dependentincometransfersofexpenditurewascirca18percentagepoints(Vaittinenand

Vanne,2013).Thenetincomeofthepublicsectorwasaccumulatedbytheabove25-year-oldsandthelessthan

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90+Percap

itavalue

relativ

etoaveragewages

AgeTotalConsumption Privateconsumption Wageincome

11

62-year-olds.Theagerangeissomewhatwiderbecausepartofthetotalconsumptionwascoveredbycapital

income.

Byexaminingtheratiooftotalconsumptionandwageincomeasaresultofdemographicchange,wecan

estimatetheconnectionofdemographicchangewiththemacroeconomicdevelopment.Thiscanbedoneby

weightingthepopulationpresentedinFigure1withthelifecycle-specificconsumptionandwageincome

accordingtoequation(5).Weascribemonetaryweighttodemographicchange,whichnaturallyconnects

demographicchangetotheannualnationalaccounts.

6. DEMOGRAPHYANDEXTERNALBALANCE

Theratiobetweenconsumptionandwageincomeandthedevelopmentofnetlendingthatdepictstheexternal

balancehavebeeneachother'smirrorimagesinthe2000s(Figure3).Intheearly2000s,netlendingrelativeto

thenationalaccountswasremarkablypositive.Finlandfinancedforeigncountriesor,inotherwords,saved9per

centinforeignclaimsrelativetothenetnationalaccounts.Consumptionrangedapproximately15percentabove

thewageincome.Thedifferencehadtobecoveredeitherbycapitalincomeorforeignnetincometransfers.At

theendofthereviewperiod,thisratiohadgrownbyapproximately10percentagepoints.Atthesametime,net

lendingturnednegative,whichmeantthatpartofthedemandsoftheeconomywascoveredbyforeigndebt.

TheratiobetweenconsumptionandwageincomeisreviewedinFigure3,bothbasedontheaggregatesofthe

nationalaccounts(unbrokenline)andwiththechangeindemographyweightedwiththe2006lifecycleprofiles

(dottedline).Thedevelopmentofthelifecycle-weighteddemographydepictsthesignificanceofdemographyfor

thechangeintheratiobetweenconsumptionandwageincome.Thedifferenceobservedintheratiobetween

consumptionandwageincomeandtheweighteddemographydepictsthedecision-basedreactionsoffinancial

actorstochangesintheeconomicenvironment.Thechangethathasoccurredduringthereviewperiod

correspondsalmostexactlywiththedevelopmentofthemoney-weighteddemography.

Figure3.ExternalbalanceandtheweightedeconomicsupportratiooftheFinnisheconomy

12

Source:StatisticsFinlandandowncalculations(Riihelä,VanneandVaittinen,2014)

Thecurrentaccountsarethecombinedsavingssurplusoftheprivateandthepublicsectorsinthenational

accounts.Finns’willingnesstosaveisaffected,inpart,bythesuccessoftheexportindustry,asincomegenerated

throughitcanbeusedtoaccumulateassets.Thecollapseinexportafterthefinancialcrisiscanbeseenina

growingconsumptionrelativetothewageincomeascitizenstrytobalancetheirconsumptionrelativetothe

changeinincome.Theattempttobalanceconsumptionispartlyevidentinweakercurrentaccounts.Thereaction

relatingtothisincomeshockisdampeningandwearereturningtothelevelofconsumptionrelativetowage

incomeprojectedbythedemographicchange.

Inadditiontochangesinincome,theeconomy’ssavingdependsonitsagestructure.Theageingofthe

populationreducesthesavingsrate.Peopleintheiractiveandmostproductiveworkingagearepronetosave–

inFinlandparticularlythroughthepensionsystem–whilesavings(bothprivateandthoseinpensionproviders)

aredissavedatretirement.Therecentdemographicchangehasfortifiedthisdevelopmentonamacroeconomic

level.Accordingtoanexport-ledeconomicdevelopment(Kajanoja,2012;MalirantaandVihriälä2013),the

changeintheexternalbalanceisseenastheresultofacontractedexportsector.Inourinterpretation,inwhich

thestartingpointofthereviewperiodisthesameasforKajanoja(2012),weemphasizetheeffectofdomestic

absorptionfactorsontheexternalbalance.Weparticularlyemphasizethesignificanceofdemographyinthe

-3.0

0.0

3.0

6.0

9.0

12.0

105

110

115

120

125

130

2000

2002

2004

2006

2008

2010

2012

Netfo

reignlen

ding

/Nationa

lincom

e(%

)

Econ

omicSup

portra

tio(%

)Co

nsum

ptionrelativ

etowagesum(%

)

Consumptionrelativetowagesum,SNAEconomicsupportratioForeignnetlending/NationalIncome(%)

13

determinationofthesefactors.Areductionorslow-downinthegrowthofthenumberofworking-agepeopledue

toageingreducestheinvestmentratesincetheupkeepofasufficientproductioncapacityperemployedperson

isreduced(Cutleretal1990).Thisimprovestheexternalbalance.Sincetheexternalbalancehasseverely

weakenedinthereviewperiod,theassessmentofthisimpacthasbeenignoredinthisconnection.Braude(2000)

hasemphasisedthattheagestructureaffectsnotonlythroughthesavingsratebutalsothroughthewealth

effect.

7. AGEINGPOPULATIONANDSTRUCTUREOFINDUSTRY

Thechangeindemographyaffectstherelativepricebetweentheopenandtheclosedsectorsbychangingthe

balancebetweendemandandsupplyviasavingsandwealtheffects.Inadditiontothesemechanisms,thechange

inagestructureaffectsthestructureofdemand.Comparedtothatoftheworking-agepopulation,alarger

portionoftheconsumptionoftheelderlyistargetedateconomicservicesprotectedfromforeigncompetition.

Therelativepriceoftheopenandclosedsectorsisacentraldeterminantoftherealexchangerate.Iftherateof

exchangeofexportandimportpricesisgiven,therelativeincreaseinpricesintheclosedsectorisdirectly

reflectedasarevaluationoftherealexchangerate.Alreadyinthe1960s,thedifferencesinthegrowthof

productivityintheopenandtheclosedsectorswereseenasimportantexplanatoryfactorsoftherevaluationof

therealexchangerate(Balassa1964;Samuelson1964).Asarule,itiseasiertoincreasetheproductivityinthe

productionofcommoditiesintheopensectorthanintheservice-intensiveclosedsector.Beforelong,thewage

differentialsbetweenthesectorswillbefixedduetothelabourforcemobility.Inorderfortheclosedsectorto

maintainitsprofitability,ithastoraiseitspricestocompensateforthegapsinproductivity.Assuch,thegapsin

productivityareinharmonywiththeeconomy'slong-termbalanceddevelopment(ObstfeldandRogoff1996,

204-209).Inadditiontothegapsinproductivity,thechangesinthestructureofdemandcanaffecttherelative

prices(Braude2000;GroneckandKaufmann2014).

Therealisedchangeinrelativeproductivityhasitsimplicationsforrelativeprices.Duringtherecession,theprices

oftheshelteredsectorhavecontinuedrisingcomparedtothepricesoftheopensector.Thepaceatwhichthe

comparativechangehasoccurredhasbecomemoremoderateduetothenarrowingofthechangeinthe

productivitygap.Ontheotherhand,ifthechangeinproductivityweretheonlyexplanatoryfactorofthechange

inthepriceproportion,therelativepricesoftheopensectorwouldhaverisenrecentlysincethetotalfactor

productivityhasdevelopedmoreunfavourablyinthetradablethaninthenon-tradablesector.Weoffera

complementaryexplanationforchangesinrelativepricesbasedondemographicchanceandlifecyclepatternsof

productionandconsumptionconstructedinNationalTransferAccountsforFinland.

14

Thereisacleardependencybetweentherelativeprices(v)3oftheopenandclosedsectorsandtheeconomic

supportratiointhereviewperiod(Figure4).Theeconomicsupportratiohasweakenedby10percentagepoints

atthesametimeastherateofexchangewasrevaluatedbynearly30percent.

Figure4.RelativepricesandeconomicsupportratioinFinland2000-2013

Source:StatisticsFinlandandowncalculations

Thepriceratiounderreviewhasbeenadjustedwiththerelativechangeinproductivityinordertoavoida

spuriouscorrelationbetweenthevariables.Theproductivity-adjustedrelativepriceoftheopensectorhasbeen

reducedbynearly30percentinthereviewperiod(Figure5).In2009,theyearfollowingthefinancialcrisis,the

relativepricefellbyapproximately10percentagepoints.Lateritrecoveredslightly,onlytocontinueitsdecline.

However,itwouldappearthatthefinancialcrisiscausedonlyasuddenshiftinanotherwisepredisposedchange

inthepriceratio.

3Therelativepricevistheopensector’spriceindexadjustedwithproductivityrelativetothatoftheclosedsector.Intheproductivityadjustment,priceindexhasbeendividedbythesector’stotalfactorproductivityindex.

2000

200820092010

2013

110

115

120

125

130

0.65 0.70 0.75 0.80 0.85 0.90 0.95 1.00 1.05

Econ

omicsu

pportratio(SR

),%

Relativeprice(v)2000=1,00

15

Figure5.Changeinpriceratioandproductionintheopenandclosedsectors

Source:StatisticsFinlandandowncalculations

Thereisastrongandanexpectedconnectionbetweenthechangeinpriceratioandproductionstructure.The

closedsectorwasapproximately30percentlargerthantheopensectoratthebeginningofthecentury,butnow

theclosedsectorismorethantwiceasbigastheopensector.Therelativechangehasbeenconsiderablylarge

takingintoconsiderationtheperiodinwhichithasbeenrealised.Ajumpresultingfromthefinancialcrisisisalso

visibleinthecovariationoftherelativepriceandproduction.Aswiththepriceratioandtheeconomicsupport

ratio,thecrisishasonlyacceleratedtheunderlyingtrend.

Whenwereviewtherelativesizesoftheindustries,agoodquestiontoaskiswhetherFinland'seconomywasin

balanceintheyear2000inthefirstplace(Sauramo2015).AccordingtoSauramo,theFinnishMarkkawaslinked

totheERMthroughtheEMUprocessataverylowexchangeratein1996.Duetotheresultingfavourable

competitiveness,theshareofexportofthetotalproductivityreachedarecord-highlevelintheearly2000s.Part

oftheadjustmentofthechangeinthepriceratioandtheproductionstructureinthe2000smaybeareaction

thatwasfreefromthepressureofchangeduetodemographyinadisproportionateproductionstructureatthe

turnofthecentury.Theratioofthesefactorsisanopenresearchquestion.

2000

2008

2009

2010

2013

1

1.3

1.6

1.9

2.2

2.5

0.65 0.70 0.75 0.80 0.85 0.90 0.95 1.00 1.05

Outpu

tintrad

ablesrelativetooutpu

tinno

n-trad

ables

Relativeprice(v)2000=1,00

16

8. PROJECTEDDEMOGRAPHYANDLIFECYCLEDEFICIT

Theresultsofthedemographicprojectionsbyvariousactorsmeanthat,inallprobabilityandmeasuredwithall

indicators,thetraditionaldemographicdependencyratiowillweakenatanacceleratedrateinthenexttwenty

years.Aroundmid-century,itwillstabiliseatalevelthatcorrespondstothatoftheearly1900s.Contrarytothe

early1900s,themajorityofthedependentswillnowconsistofelderlypeopleratherthanchildren(Riihelä,

VaittinenandVanne2014).

Howthecomponentsoftheagestructureaffecttheeconomicdependencyratiocanbeestimatedbyreviewing

thelifecycledeficitofequation(4)peragegroup.Asimplewaytoindicatedemographicchangesistoadjustthe

observedlifecycleprofileswithexistingdemographyprojectionsand,basedonthat,considertheeconomic

implicationsofdemography(Lee2014;Leeetal2014;PrskawetzandSambt2014).Utilisingthepopulation

projectionofStatisticsFinland(OSF2012)andthelifecycleprofilesofFigure1,wecanprojecthowthelifecycle

deficitwouldchangein2030asaresultofdemographyalone,withoutchangesinconsumptionortheage

structureofproduction.

Withthecurrentworkinglivesandageprofilesofwagesandconsumption,38percentofconsumptionwillbe

financedwithcapitalincomerelativetowagesin2030(Figure6).Thisequalstheaveragevalueofcapitalincome

proportionedtothewagesumofthe2000s.Intheprojection,thedeficitoftheyoungwillgrowbyanampleone

percentagepoint.Thegrowthinthesurplusoftheworking-agedwillcompensateforthisdeficit.The15-

percentage-pointgrowthofthelifecycledeficitisalmostcompletelyduetothegrowthinthedeficitofthe

elderly.This,inturn,isaresultoftheincreasingpublic-sectorhealthandcareservices(VaittinenandVanne,

2011).Thesituationissimilarinotherhigh-income-levelcountries,inwhichthepopulationisageing(Leeetal

2014).

Thelifecycledeficitisnotanactualsustainabilityindicatoroftheeconomicdevelopmentandcanthusnotbe

ascribedasingle-valuedtargetlevel.Howlargeaproportionoftheeconomy’stotalconsumptioncanbefinanced

withcapitalincomedependspartlyonhowtheincomeisdividedbetweenwageandassetincome.Inthe2000s,

theaverageshareofcapitalincomeofthedisposableincomeoftheeconomywas39percentrelativetothe

wagesum.

Inthecorrespondingtimeframe,thelifecycledeficitwasfinancedwiththesumofthecapitalincomewhich,

relativetothewageincome,amountedto19percentonaverage.Approximatelyhalfofthecapitalincomewas

thususedtofinanceconsumptionandhalfofitwassaved.However,inthelongrun,thelifecycledeficitcannot

besolargethattheeconomy,withthegiveninvestmentlevel,isrunintodebttoforeigncountries.In2011-2013,

theFinnisheconomyincreaseditsforeignnetborrowing,whichispossibleonatemporarybutnotpermanent

basis.

!X"

!"#$%&'9)'F"-&3?3.&'5&-"3"6'"2'78:8'>"6='5"--&%&26'>,%G"2#'."B&/'#

&

&

8%1-,*a&

I)&%1-&(7$*-)($":*&.-%B*,$"%)9&G*&-*:"*G&(&#"$1($"%)&")&G2",2&$2*&*?.7%H?*)$&-($*#&")&NOUO&G%17/&F*&$2*&#(?*&(#&

")&8G*/*)&")&NOPN&+>1-%#$($&NOP[35&cH&$(<")0&$2*&?%-$(7"$H&%=&$2*&G%-<")0\(0*&.%.17($"%)&+2*-*&(0*/&PV\i[&H*(-#3&

")$%&(,,%1)$9 $2*&*R.*,$*/&$"?*&")&*?.7%H?*)$&%=&(&NO\H*(-\%7/&.*-#%)&($&$2*&F*0"))")0&%=&2"#&%-&2*-&G%-<")0&7"=*&

+WH$$"&()/&'(7(#$*&NOOb9&UX3&,()&F*&,(7,17($*/5&`"$2&$2*&*R.*,$*/&7"=*&*R.*,$(),H&%=&@"))"#2&,"$"S*)#&()/&$2*&

*?.7%H?*)$&-($*#&%=&$2*&8G*/*#9&$2*&G%-<")0&7":*#&")&@")7()/&G%17/&F*&*R$*)/*/&FH&N5V&H*(-#5&

E&,%)$-(,$*/&7"=*,H,7*&/*=","$&/1*&$%&*R$*)/*/&G%-<")0&7":*#&"#&?(")7H&(&-*#17$&%=&$2*&=(,$&$2($&*R$*)/*/&G%-<")0&

7":*#&-*/1,*&$2*&/*=","$&($&%7/\(0*5&D2"#&"#&$2*&,(#*&=%-&$G%&-*(#%)#5&M)&$2*&%)*&2()/9&$2*&*R$*)/*/&G%-<")0&7":*#&

G"77&-*/1,*&$2*&)**/&=%-&"),%?*&$-()#=*-#&$%&$2*&(0*")0&.%.17($"%)5&M)&$2*&%$2*-&2()/9&"$&G"77&"),-*(#*&$2*&G(0*&

#1?&-*7($":*&$%&$2*&"),%?*&$-()#=*-#5&D2*&%7/\(0*&7"=*,H,7*&/*=","$&G%17/&F*&-*/1,*/&FH&(..-%R"?($*7H&i&

.*-,*)$(0*&.%")$#&")&NOUO&"=&$2*&G%-<")0&7":*#&G*-*&$%&F*&*R$*)/*/&FH&N5V&H*(-#5&I),%?*&$-()#=*-#&(,,%1)$&=%-&

(..-%R"?($*7H&N5V&.*-,*)$(0*&.%")$#&%=&$2*&-*/1,$"%)5&

I=&G%-<")0&7":*#&G*-*&*R$*)/*/&FH&N5V&H*(-#9&$2*&7"=*,H,7*&/*=","$&G%17/&F*&($&(..-%R"?($*7H&$2*&#(?*&7*:*7&(#&"$&

G(#&")&NOPN9&G2*)&$2*&,1--*)$&(,,%1)$&G(#&")&/*=","$&()/&$2*&7*:*7&%=&/%?*#$",&/*?()/&G(#&1.2*7/&FH&-1))")0&

")$%&/*F$&(F-%(/5&E,,%-/")0&$%&%1-&*#$"?($*#9&G%-<")0&7":*#&#2%17/&F*&*R$*)/*/&FH&=":*&H*(-#&FH&NOUO&+!""2*7_9&

N[5[ NV5Q NU5iNb5X

[U5b

Ui5P

\UO5[ \UP5U\U[

NU5X

UX5N

NQ5X

\[O5O

\UO5O

\NO5O

\PO5O

O5O

PO5O

NO5O

UO5O

[O5O

VO5O

NOPN NOUO&,1--*)$&7*)02$&%=&G%-<")0&7":*#

NOUO&G%-<")0&7":*#&*R$*)/*/&FH&N5V&H*(-#

U41"/*/5"+!"14/42MV'%"+7B#++NOP h%1)0&(0*&

/*=","$M7/&E0*&4*=","$

`%-<")0&E0*&/*=","$C"=*&,H,7*&/*=","$

18

VaittinenandVanne2014,74–77)inorderforthecurrentlifecycleprofilestobeharmoniouswiththeexternal

balanceoftheeconomy.

9. CONCLUSIONS

Thealreadyrealisedchangestodemographyhavehadperhapssurprisinglylargemacroeconomicimplications.

EvenwithoutthecrashofNokiaandthewaningforestindustry,thesurplusofthecurrentaccountswouldhave

beensignificantlyreduced.Itisalsopossiblethatwewouldhaveincurredmoreforeigndebtevenwithout

industrialstructuralchanges.

Theageingofthepopulationcreatespressurefor,amongotherthings,changesinconsumption,inthefinancing

anddemandstructures,andinthepriceratiosofconsumption.Theinitialadjustmenthasbeendonethroughthe

currentaccounts.Previoussavingintheeconomyisnotadequatetofinancethemorerapidlygrowinggap

betweenconsumptionandincomewithcapitalincome.Inthelongterm,theadjustmentmustbedoneby,onthe

onehand,extendingworkinglivesand,ontheother,adjustingconsumption.

Agreatpartofthefuturelifecycledeficitwillstemfromagrowingneedofcurrentlypublically-producedhealth

andcareservicesattributedtotheageingpopulation(VaittinenandVanne2013).Ithasbeenknownforalong

timethattheseliabilitiesaregrowing.Yet,inthe2000s,thegrosstaxrateandthepublicsavingsratiowiththe

givenexpenditurelevelwerereducedbyfivepercentagepointsrelativetoGDP.Nowtheaimistoreducethe

deficitbyextendingworkinglives.

Theaimofthepensionreformthatwillcomeintoeffectin2017istopostponeretirement.Thecurrent

governmentplatformalsoincludesanumberofmeasureswhicharebelievedtoincreaselaboursupply.Withthe

currentconsumptionprofiles,thechangeinlaboursupplymustbeextensiveinordertoavoidtheneedtoadjust

consumption,inonewayoranother,toasustainablelevelvis-à-visthelong-termdevelopment.

References

Balassa,B.(1964),“ThePurchasing-PowerParityDoctrine:AReappraisal”,JournalofPoliiticalEconomy72:584–596.

Bettendorf,L.andDewachter,H.(2015),"AgeingandtheRelativePriceofNontradeables."JournalofLaborEconomics33:269-296.

Braude,J.(2000),“AgeStructureandtheRealExchangeRate”,BankofIsraelDiscussionPaper2000:10.

Cutler,D.M.,Poterba,J.M.,Sheiner,L.M.,Summers,L.H.andAkerlof,G.A.(1990),“Anagingsociety:opportunityorchallenge?”,

Brookingspapersoneconomicactivity,1-73.

Canzoneri,M.,B.,CumbyR.,E.andDiba,B.(1999),"Relativelaborproductivityandtherealexchangerateinthelongrun:evidencefora

panelofOECDcountries."JournalofInternationalEconomics47:245-266.

DeGregorio,J.,Giovannini,A.andWolfH.,C.(1994),"Internationalevidenceontradablesandnontradablesinflation."EuropeanEconomic

Review38:1225-1244.

Eurostat(2014),LabourmarketandLabourforcesurvey(LFS)statistics.

EuropeanCommission,(2013)Ageingreport,EuropeanEconomy

19

vanEwijk,C.andVolkerink,M.(2012),“WillAgeingLeadtoaHigherRealExchangeRatefortheNetherlands?”,DeEconomist160:59–80.

Groneck,M.andKaufmann,C.(2014),“RelativeSectoralPricesandPopulationAgeing–ACommonTrend”,NetsparDiscussionPapers

2014:1.

Hagist,C.andKotlikoff,L.(2005),”Who’sGoingBroke?ComparingGrowthinHealthcareCostsinTenOECDCountries”,NBERWorking

Paper11833.

Hammer,B.,Prskawetz,A.,andFreund,I.(2015).ProductionactivitiesandeconomicdependencybyageandgenderinEurope:Across-

countrycomparison.Thejournaloftheeconomicsofageing,5,86-97.

Hobijn,B.andLagakos,D.(2003),”SocialSecurityandtheConsumerPriceIndexfortheElderly”,FederalReserveBankofNewYork,

CurrentIssuesinEconomicsandFinance9:1–6.

Holmström,B.,Korkman,S.andPohjola,M.(2014),”ThenatureofFinland’seconomiccrisisandtheprerequisitesforgrowth”,

memorandum,Primeminister’sofficehttp://vnk.fi/documents/10616/339615/The%20nature%20of%20Finland%E2%80%99s%20economic%20crisis%20and%20the%20prerequi

sites%20for%20growth%20-memorandum/07f3b69a-25cb-4347-a713-b0f91c23a931.

Hytti,H.andValaste,M.(2009),“TheAveragelengthofWorkingLifeintheEuropeanUnion”,KelaOnlineWorkingPapers2009:1.

KajanojaL.(2012)Finland’scompetitivenessanditsmeasurement,BankofFinlandBulletin52012:5p.87-96.

Lee,R.andMason,A.(2011),”IntroducingAgeintoNationalAccounts”,inLee,R.andMason,A.(eds.),PopulationAgeingandthe

GenerationalEconomy–AGlobalPerspective,EdwardElgar,Cheltenham:55–78.

Lee,R.,Mason,A.andmembersoftheNTAnetwork(2014),”Islowfertilityreallyaproblem?Populationaging,dependency,and

consumption”,Science,346:229-234.

Lee,R.(2014),”HowPopulationAgingAffectstheMacroeconomy”,paperpreparedforthePanelonDemographicsoftheJacksonHole

EconomicPolicySymposium,August21-23,http://www.ntaccounts.org/doc/repository/Lee%202014%20Jackson%20Hole%20Talk.docx

(citedon10.7.2015).

Maliranta,Mika&Vihriälä,Vesa,2013."TheNatureoftheFinnishCompetitivenessProblem,"ETLAReports9,TheResearchInstituteofthe

FinnishEconomy..

MinistryOfFinance,MoF(2013)EconomicSurvey2013,Helsinki.

Obstfeld,M.andRogoff,K.(1996),FoundationsofInternationalMacroeconomics,MITPress,CambridgeMassachusetts.

OECD(2015)EconomicSurveyofFinland2014;Paris.

OECD(2016)EconomicSurveyofFinland2015;Paris

Prskawetz,A.andSambt,J.(2014),"EconomicsupportratiosandthedemographicdividendinEurope."DemographicResearch30:963-

1010.

Riihelä,M.,Vaittinen,R.andVanne,R.(2011),“ChangingPatternsofIntergenerationalResourceAllocationinFinland”,FinnishCentrefor

PensionReports2011:1.

Riihelä,M.,Vaittinen,R.andVanne,R.(2014),”Väestörakennejatalouskehitys-IkäryhmätSuomentaloudessa”,Eläketurvakeskuksen

raportteja2014:7.

Samuelson,P.,A.(1964),“TheoreticalNotesonTradeProblems”,TheReviewofEconomicsandStatistics46:145–154.

Sauramo,P.(2015),”HowbadFinnishpricecompetitivenessreallyis?(inFinnish)Talousjayhteiskunta,2/2015:2–9.

StatisticsFinland(OFS)(2012):Populationprojection,http://www.stat.fi/til/vaenn/index.html(citedon10.7.2015).

20

StatisticsFinland(2016),Productivitysurveys,http://www.stat.fi/til/ttut/index_en.html(citedon26.4.2016).

Tung,A-C.(2011),“Consumptionoverthelifecycle:aninternationalcomparison”,inLee,R.andMason,A.(eds.)PopulationAgingandthe

GenerationalEconomy:AGlobalPerspective,EdwardElgarPublishing,Cheltenham:136–160.

UnitedNations(2013),NationalTransfersAccounts:Manual.MeasuringandAnalyzingtheGenerationalEconomy,PopulationDivision,

NewYork.

Vaittinen,R.andVanne,R.(2010),“NationalTransferAccountsforFinlandin2004”,NTAworkingpapers2010:3.

Vaittinen,R.andVanne,R.(2011),"NationalTransfersAccountsforFinland",inLee,R.andMason,A.(eds.),PopulationAgeingandthe

GenerationalEconomy–AGlobalPerspective,EdgarElgar,Cheltenham:297–312.

Vaittinen,R.andVanne,R.(2013)”PensionsandpublicfinancesinFinland:Agenerationalaccountingperspective”,PensionsandpublicfinancesinFinland:Agenerationalaccountingperspective.

Vaittinen,R.andVanne,R.(2013),”PensionsandpublicfinancesinFinland:Agenerationalaccountingperspective”,FinnishCentrefor

Pensions,WorkingPapers2013:1.