Demographics: The Vulnerable Heel of the European Achilles

Alexandra Tragaki1

Abstract Europe is currently under pressure from both the economy and

demography. Six years after the onset of the global financial crisis, there are still no

signs of a strong recovery. Moreover, demographic shifts have affected the size and

structure of the European population, which is the fastest ageing in the world. These

trends are inexorable and will be very hard to break unless major changes take place

in the mentality of both policymakers and society at large. This article explains how

the mixture of these adverse economic and demographic prospects puts the whole

continent at high risk and will undermine its economic and political influence in the

years to come.

Keywords Demography – Population ageing – Economic recession – Europe

Introduction

Despite the somewhat more optimistic reports recently released about the current

economic climate, most European countries are still suffering from the ramifications

of the latest and particularly severe financial recession. The economic crisis has not

been evenly experienced across the continent, yet hardly any country has been

sheltered from its consequences. Moreover, most macroeconomic indicators suggest

that the recovery is going to be prolonged and thorny: GDP growth is sluggish,

unemployment remains discouragingly high and alarming volumes of national debt

prevail in almost all EU member states. Even for well-performing countries, the

medium-term economic prospects are unsatisfactory.

The current economic recession risks being deeper and longer lasting than previous

ones. This is far from a surprise, as the prospects for economic recovery are

threatened by the non-economic parameter that lies behind the forthcoming

1 A. Tragaki

Associate Professor in Economic Demography, Department of Geography, Harokopion University of Athens; e-mail: atragaki@hua.gr.

challenges. Demographics, the factor whose importance has been downplayed since

the onset of the crisis, is the game changer in our recovery process.

At global level there is an ongoing debate about the relationship between the

economy and population dynamics. It has been shown that the transition from a high

mortality–high fertility to low mortality–low fertility status is beneficial to economic

development. In all the more developed regions the ‘demographic dividend’ (Bloom

et al. 2004) initiated by the above demographic shift has created a favourable

population age structure that has facilitated rapid economic growth with little or no

budgetary stress. This favourable population structure has been the key to the

‘economic miracles’ that have occurred in many regions at different times. However,

today, as fertility rates remain low and life expectancy keeps increasing, Europe, as

well as most of the industrialised world, is facing the aftermath of demographic

transition. The disproportionately high number of older people relying on shrinking

younger generations undermines the tools traditionally used to drag economies out

of stagnation. Once again the complex nexus between economy and population

dynamics is brought to the fore.

This article highlights the magnitude of demographic dynamics in the global

economy. It starts by contextualising shifts in the population age structure and

presents their consequences. It claims that, although overlooked, population ageing

is the most serious and complicated of all European concerns, with major

implications for some fundamental European values.

From a growing to a greying population

The last century has been an era of major demographic developments. Within the

twentieth century, and especially during its second half, the global population

experienced an amazing increase in volume and registered historically

unprecedented high growth rates. From roughly 1.6 billion in the early 1900s, the

world’s population rose to 3 billion in 1959, before further accelerating to exceed 6

billion just 40 years later, in 1999. At times, the annual population growth rate was

above 2%, and in the 1970s the population doubling time2 became less than 33

years. This rapid population growth gave rise to concerns about population dynamics

and fears about resource sustainability. In the early 1980s, newly emerging notions

of a ‘population bomb’ or ‘population explosion’ implied that demographic

development was putting socio-economic progress in peril and was responsible for

environmental degradation.

Since the beginning of the twenty-first century, concerns about the global population

have been moderated as growth rates have been steadily declining (UN 2013).

Fertility transition has been gaining momentum, and the long-term decline of fertility

rates towards the replacement level 3 has become a virtually universal process

(Wilson and Pison 2004). Long-term population projections have been repeatedly

revised downwards and humanity seems to have escaped the nightmare of

overpopulation, at least for the time being. During the first decades of the new

century, the major demographic concern has shifted from population growth to

population age composition (Lutz et al. 2004).

The decline in mortality rates for all ages—the primordial factor behind population

dynamics—is a major achievement. The increase in life expectancy is a great

success story for humanity: the twentieth century witnessed significant and sustained

progress in reducing mortality rates all over the globe (Table 1). Today, the average

newborn baby is expected to live for 68 years, more than 20 years longer than

average global life expectancy at birth in 1950. Even though global averages always

mask considerable variations across large regions or countries, this spectacular

upward trend concerns all human beings, regardless of their place of birth.

Table 1 Life expectancy at birth (both sexes), 1950–2010

1950–5

(1)

1975–80

(2)

2005–10

(3)

Difference

(3)-(1)

2 Population doubling time corresponds to the number of years required for the total population to

double in size if the annual rate of population change is kept constant. 3 Replacement fertility is the minimum average number of children per woman required to ensure that

a generation replaces itself in size. This number is conditioned by mortality rates (especially at young ages) as well as the sex ratio at birth. Currently, at a global level, a total fertility rate of 2.1 children per woman is used as a rough approximation of replacement fertility.

World 47.7 62.1 67.9 20.2

Africa 38.2 50.1 55.2 17.0

Asia 42.9 61.6 69.0 26.1

Europe 65.6 71.7 75.4 9.8

Latin America &

the Caribbean 51.3 65.2 73.4 22.1

Northern America 68.7 74.5 78.2 9.5

Oceania 60.5 70.1 76.6 16.1

Source: UN 2013.

It is, however, common knowledge that for every benefit there is always a price to

pay; the greater the benefit, the higher the price. Increased longevity followed by

falling fertility rates4 reshapes population pyramids and shifts volumes towards older

age groups: the median age increases (Figure 1) and so does the share of those

above 65 years old, to the detriment of the younger age groups (Figure 2). This

demographic process is widely known as population or demographic ageing.

4 Things might be even worse if this was not the case. Declining mortality coupled with steadily high

fertility would have led to uncontrollable population growth rates.

Figure 1 Median age by great areas: 1990–2015–2030

Source: UN 2013.

Figure 2 Old age dependency ratio, 1950–2050

Source: UN 2013.

Population ageing is a global phenomenon that is more pronounced in industrially

advanced countries where the process started earlier; it is growing at a much faster

pace in developing regions. All over the world people are living longer, growing older

and having smaller families. Nevertheless, Europe is by far the oldest part of the

world. The European population enjoys especially high levels of life expectancy and

records particularly low fertility rates (Lutz et al. 2003; van de Kaa 1987). With the

exception of just a few countries (Denmark, France and Ireland), fertility rates are

well below replacement levels. For certain countries in Central (Austria and

Germany), Mediterranean (Greece, Italy and Spain) and Eastern Europe (Bulgaria,

Romania and Hungary), fertility rates have reached the lowest levels ever registered

globally, below 1.5 children per woman. Due to the above-mentioned long-lasting

combination of increasing longevity and low fertility rates, half of the European

population is already above 41 years of age. This is twice as high as the African

median age and almost 40% higher than the global median age.

Population ageing: as much a challenge as an achievement

Not unlike biological ageing, demographic ageing does not come in isolation. Skills,

capacities and potentials vary with age, for both individuals and societies. Compared

to a population with a young age structure, an aged population is by default more

experienced and mature, but less innovative and creative; more conservative and

less adaptable to change; more risk averted and less open-minded. Far from simply

enjoying a longer and healthier life, members of an ageing society have to face the

critical implications of that progress. Population ageing has a direct effect on all

aspects of everyday life through its economic, social, health, budgetary and political

consequences (Burniaux et al. 2004).

Economic prosperity is directly linked with the size and capacity of the labour force;

both decrease when a population ages. Investments, tax revenues and asset prices

fall as well, as older people do not create wealth but mainly rely on their savings;

purchasing power falls and consumption patterns change. The operation and

financial sustainability of pension and health care schemes are jeopardised by

escalating old-age dependency ratios (Börsch-Supan and Ludwig 2011). Whether

based on a pay-as-you-go system or privately funded, future pensions are equally

exposed to demographic developments: the former is threatened by the rapid

deterioration of the ‘beneficiaries to contributors’ ratio, while the latter is vulnerable to

lowering return rates. Research and innovation is an additional crucial area where

aged societies lag behind their younger counterparts. Moreover, public and private

services and infrastructure age with a population when the number of users or

beneficiaries shrinks below the minimum level required to economically justify the

maintenance and/or provision of a particular service.5

Demographic shifts happen slowly, and this is both a blessing and a curse. There is

usually enough time to see things coming, but it takes a long time for changes in

demographic behaviour to materialise. Changes are gradual but difficult to turn

around. Therefore, current population trends are irreversible for the next couple of

decades, even if fertility rates rebound. Yet, as repeatedly mentioned in relevant

studies (see, among others, Burniaux et al. 2004; Zaidi 2008; Börsch-Supan and

Ludwig 2011), no matter how inexorable or unprecedented this challenge may be, it

is definitely not insurmountable. This is very true: an aged world is a different world;

not worse, just different.

Policy options and limitations

Since the early 1990s, adaptability has been considered as the key tool in dealing

with the forthcoming changes (Eberstadt and Groth 2007). The decreasing labour

force could be partly offset by increasing female participation and/or by active ageing

(Bagavos and Tragaki 2011); a well-measured mixture of private and publicly funded

pension systems could provide a solution that guarantees the schemes’ future

financial integrity. European governments have agreed that adaptability needs to

mobilise all societal and economic forces to invent and implement viable solutions to

the new demographic status quo. And that is exactly where the current problem lies.

Adaptability is at stake as reforms became harder and more onerous to implement

under the present austere budgetary policies.

5 This mostly applies to areas of low population density where demand for transportation, medical

care, emergency services and leisure activities will be hard to justify under strictly financial criteria.

In the currently adverse economic environment the above-mentioned options are not

easy to implement and alternative solutions for how a shrinking and ageing

workforce can escape the ‘high debt–low productivity–high unemployment’ trap are

hard to find. It can hardly be argued that the recent economic recession has not

been a considerable setback to the absolutely necessary adaptation effort.

Budgetary instability and high unemployment rates put additional pressure on social

security systems and do not allow for increasing productivity. To make things worse,

as economic indicators have become the main preoccupation, interest in

demographic trends and their implications has lessened and the issue has been

downgraded on the European agenda. However, Europe’s main problem is at least

as much demographic as it is financial.

The demographic profile of a region is determined by the interplay of just three

factors: fertility, mortality and migration. Manipulation of mortality rates is not only

undesirable but also ethically unacceptable. Interventions aimed at increasing fertility

levels would only bring results in at least twenty years’ time, when the first ‘new

baby-boomers’ would start to enter the workforce (Bermingham 2001); meanwhile

the growing volume of both young and inactive populations would put additional

pressure on the total dependency ratio. Nor could massive migratory flows offer a

realistic solution to Europe’s shrinking workforce (Alonso 2009). The number of

immigrants necessary to stabilise the European working-age population in the years

to come is huge, estimated at 3.2 million entrants per year. The number of

immigrants needed to keep the old-age dependency ratio at sustainable levels is

even bigger: it would require nothing less than 27 million immigrants every year for

the next 45 years (UN 2001). It is clear that, despite the African and Asian youth-

bulge, such levels of net migration would be extremely hard to reach and maintain

for such a long period. Additionally, so massive a population inflow could hardly be

described as desirable, taking into consideration the ethnic lines on which all

European nations have been established. Instead of alleviating disadvantageous

demographics, such an option risks inciting serious social turmoil and political

instability.

Nevertheless, even if in the long run immigration is not sufficient to fully replace the

anticipated vacuums in population pyramids, controlled 6 migratory inflows are

undeniably an answer to labour force shortages. This option should be decided and

designed at a European level and all EU member states should shoulder the costs

and enjoy the benefits. A common, well-planned and centrally financed integration

policy is the prerequisite to successfully addressing such a complicated and thorny

issue without compromising European objectives such as security, justice, social

cohesion and a unified labour market.

Is there a way out?

Europe is simultaneously facing two major issues: economy and demography.

Population ageing is a historically unprecedented demographic event, the major

implications of which are still to be fully gauged in size. Our currently available tools

rely on the full use of all economic (and social) forces to surmount near-future

population challenges. Ironic though it may seem, experience from previous

recessions shows that demographic dynamics is one of the horses that can pull the

economy out of its misery. It is as difficult to drive economic growth within an ageing

demographic environment as it is to cope with demographic ramifications when

budgetary constraints are strict.

There is a huge challenge ahead and European policymakers must take decisive

actions to alleviate demographic and economic problems. European values such as

solidarity, human rights and well-being risk being questioned in the near future.

Achievements such as social welfare and equity are in peril if insufficient measures

are taken. Moreover, due to the combination of a recession with migration pressures

the unified labour market is currently more divided than ever. The freedom of

movement for workers—one of the main aspects of the acquis communautaire—may

jeopardise regional cohesion within the EU, as highly qualified southern Europeans

move to the northern and better-performing economies.

6 Current experience shows that in times of political and social tension, such as that currently being

experienced by countries in North Africa and the Middle East, ‘controlled’ or ‘selected’ migration is more wishful thinking than an actual policy option. It goes without saying that additional measures, along with all the necessary resources, should be taken to address the highly acute issue of illegal border crossings.

Against the backdrop of a shrinking workforce, new sources need to be tapped to

increase productivity 7 and specific population groups 8 need to be mobilised to

achieve higher participation rates. In other words, investing in people is the only way

out. Some of our best options for the future are supplementary public and private

spending on education and skills formation, investing in health and quality of life, and

making the best use of migration and the diversity of the population. What the

creation of relevant policies needs more than financial resources is a radical change

in mentality. New tools and approaches need to be applied to solve these adverse

and unprecedented conditions. Both policymakers and European citizens should

acknowledge that tomorrow is definitely going to be different from today: to ensure

that it is not going to be worse, demographic challenges should be managed in an

innovative, efficient and coordinated way. We simply cannot afford to treat

demography as a peripheral issue any longer.

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Alexandra Tragaki is Associate Professor in

Economic Demography at Harokopion University and

holds a Ph.D. in Demography Economics from the

Institut d’Etudes Politiques in Paris. Her field of

expertise comprises the economic impact of

demographic changes, and economic policy issues

with an emphasis on social security, migration, labour market developments and

statistical analysis.