Population ageing is very much in the news, as you may have gathered.
It is, amongst other things, part of the great package of reforms which is being forced upon the unhappy
people in southern Europe and elsewhere in the eurozone as a consequence of
trying to contain the costs which population ageing and previous rather overgenerous attempts to compensate for it have generated in their economies.
And so it's a matter of great topical interest.
And if you ever bother to turn on your televisions and look at the news or read a newspaper which I know some of your is doing,
then you will see it is all over. The front page is very much an issue of the present time has been engaging in for
quite a long time and will continue to do so for quite a long time into the future.
Important to realise that it is totally unavoidable, some degree of population ageing is absolutely inevitable.
There's nothing we can do about it short of bombing ourselves back into the Stone Age.
And it is a consequence of two highly desirable trends, that is to say, the achievement of control over over fertility to a very large extent,
to bring down birth rates to a manageable level, one where children be brought up in conditions of security and material comfort and and prosperity.
Also very desirable, effective control to some extent of mortality.
We haven't quite abolished yet, but mortality is now well into the future.
As far as you're all concerned. Babies born today have a 97 percent chance of surviving to to age 65.
Also, babies born today may well have a cohort life expectation only a few short years of 100.
According to these projections,
centenarians are going to be commonplace in the future unless something quite unexpected and disagreeable happens to the risks of mortality.
So two very good things which we hope we will keep for the rest of the history of humanity.
But they have a consequence the payoff of population ageing, and that is unavoidable.
Important to realise, though, that to begin with, population ageing is highly beneficial.
If we are talking about a simple society with a very high proportion of population aged under under age 15 dependent children.
And as is the case still in some parts of tropical Africa and was the case until quite recently, very widely throughout the world.
And then, of course, population ageing, which reduces the proportion of dependent children and increases the proportion of adults, is very beneficial.
Well, what happens is, of course, in the early stages of demographic transition, that the number of babies becomes more modest.
The number of old people does not expand because they are, of course, born 60, 70, 80 years ago, and therefore the numbers are still quite small.
So for a while, for some decades, we have this demographic bonus.
This concentration of population in the nominal working age is between, say,
50 and 60 or thereabouts, which, if there are institutions appropriate in the economy,
enable a very considerable improvement in living standards of a generation because
the workforce becomes a relatively high compared with the rest of the population.
That is what the industrialised and developing nations of Asia are in the middle of at the moment.
And many calculations suggest that perhaps perhaps a third of their prosperity increase
over the last few decades has been due to this demographic bonus in due course.
It has to be paid for. We've enjoyed our demographic bonus and a much more modest kind in the late 19th and 20th centuries.
We are paying for it now of the 21st century with population ageing, they will pay for it in turn in the coming decades.
For the moment they can as well enjoy it and contribute to their prosperity.
You can only do so, of course. Important to add, if the institutions are present to enable the workforce to be employed,
that this means stable government, the rule of law, enforceable contracts, workable infrastructure, roads.
South Sudan has 58 miles of metal road, not a very helpful precursor for enjoying a demographic bonus, a work ethic.
All these things have to be in place before this enlargement of the working age population can be usefully devoted to increasing national prosperity.
Otherwise it'll simply turn into disaffected, unemployed and possibly violent young men.
Also important realise that population ageing doesn't go on forever.
If we ignore the death rate for the time being, if birth rates stabilise at some low level below replacement or whatever it might be,
population ageing does not go on getting worse and worse and worse.
You will call perhaps from previous discussions about these matters that eventually the population age structure will stabilise,
are determined entirely by the current levels of birth and death.
And that's all that determines the age structure in the long run.
So if birth and death rates remain constant, the youth are quite different from what they were in the past.
Population ageing will proceed until until the New Age structure has become stable
and then it will remain constant for as long as the birth and death rates remain,
because it doesn't always get worse and worse, it does come to an end.
This is just a reminder. They knew about this back in the 1930s.
This is a diagram from the Population Investigation Committee,
which publishes population studies back in 1936 just to show what they thought might be happening up to 2055.
Very adventurously, long range projection here. The change in the proportion of young people in read the changes.
A portion of people of working age in white and unfortunately, the elderly in black, a very pessimistic projection, but they were aware of it,
even if then the primary concern in relation to low birth rates related to population decline and not population ageing,
of which more later, if we wanted to go back to previous patterns,
if he wanted to abolish population ageing because we thought it was it was too onerous,
too difficult, too expensive, then this is a kind of a structure we'd have to go back to.
This is a population age structure, about 70, 100 at that time before the demographic transition, population ageing wasn't a problem.
There was a certain element of youth dependency. Here we have the proportion of persons aged under 15 is about 60 is about 35 percent.
Proportion of people aged over 65 is about five percent. So no population ageing, some youth dependency, but that is bought at a cost of expectation,
of life, of birth, a 37 infant mortality rate of about 200 and a zero growth rate.
So it's not a very desirable population age structure to go back to.
Given the cost of being there in terms of low expectation of life at birth and high birth rates which have to be sustained.
Two processes of population ageing, two causes, up till now,
the most important cause of population ageing has been relatively low birth rates, so-called ageing from the bottom.
That is to say that fewer and fewer individuals are added at the bottom of the population
pyramid and that causes it to become narrower at the bottom than it is in the middle.
That's that so-called ageing from the bottom. And that always makes populations older, lower mortality also can make populations older because,
of course, it means more people are living to a longer ages. But to begin with, it always makes populations younger.
It's very important to grasp this apparently paradoxical fact that in traditional societies that when the when the death rate starts to go down,
as the death rate is going down generally across the board, then that makes the population younger.
Because, of course, in traditional societies, the high proportion of deaths are concentrated in the younger age groups, infant mortality,
maybe 200 or 300 infant deaths per thousand live births per year, survival to age 15,
maybe nearly 50 percent in the nature of things, even if mortality is improved at all at all ages.
The great effect is going to be at the younger ages. It will be more children surviving, more young people surviving,
more young women will survive to complete their families more births and consequently reducing the death rate.
Making people live longer will make the population younger, not older, until the population reaches an exploding life of about 60.
Once you go beyond that threshold,
then and only then will further improvements in mortality actually do what you expected it would do at the beginning,
that is to say, make populations older and younger. Here is the basic process involved,
the transition from from these are crude birth and death rates of about 35 back in 1750 to much lower levels at the present time,
the sort of pattern which has been followed throughout Europe, more or less,
and which is being followed by the greater part of the of the developing world in all developing countries, the death rates gone down.
The problem, of course, is that in some of them, birth rate has not gone down.
So we still have two or three percent population growth, as you know, in some parts of Africa.
And we have got yet to have the final stages of transition, not we know exactly what the final stages are because it is not yet stable.
But that's another question for another time.
Just an example of two contrasting populations, a traditional one here which has experienced some reductions in mortality.
This is Uganda, 1991, but not yet a reduction in fertility, very youthful population.
No, no trace of population ageing there because no trace of fertility control.
And a contrast with Italy, which could be replicated in many other developed developed countries in Spain, Portugal,
Greece and elsewhere with a very severe population ageing arising from two sorts of processes, primarily as you from the bottom,
as you see that the birth cohorts being successively smaller than the preceding ones,
but also the case of Italy, Spain and the other countries in southern Europe,
ageing from the top, at the same time becoming more and more important as time goes on, because the expectation of life at birth is is so favourable.
And we're now in a position where further improvements in mortality are mostly concentrated in survival of those regions because survival,
Ottway, 60, is nearly perfect anyway.
If you abolished mortality up to age 60, it really wouldn't make much difference to the structure that all the impetus is happening here.
The patterns of fertility are well known, just rehearsing very briefly,
because patterns of fertility appear to be stabilising to some extent in a highly differentiated pattern.
This is generating, unless things change very radically,
very significant differences in expected patterns of population ageing in the developed world.
Generally speaking, of course, the higher the birth rate up to the limit to around two, as you can see here is two on the graph.
Up to about two gives you a reasonably favourable future in population ageing.
It doesn't stop population ageing, of course,
but it's less severe here in terms of the burden of old age dependency down here where the birth rate is about,
the TFR is equal to about one point four.
That implies a much more substantial levels of population ageing and also by very high levels of immigration.
Population decline as well, which has already begun, as you'll recall, in Germany,
in Japan, in Ukraine, in various other countries and in Europe and elsewhere.
Some are doing better than Europe, Scandinavia, the UK.
Some are doing less well here in the Far East,
with rather little improvement in fertility yet apparent and right down at the bottom with with Taiwan, the lowest at about one point nought TFR.
Important to realise that birth rates can go up. Here are some selected ones approaching the TFR of two point, not nearly replacement rate.
No one really expects the birth rates in developed countries will go much above to.
In fact, most of my colleagues feel that they probably won't even reach that and say they
may be a bit disconcerted by this this this trend to a somewhat higher birthrate,
partly to do with fertility recuperation, partly to do with immigration.
Expectation of life at birth, of course, has been increasing impressively as time goes on, rather falteringly to begin with, this is 1850, 1860, 1870.
Only very modest improvement of the population moved into the high risk urban areas,
very rapid improvement between the two world wars and then steady change to a more modest kind up to the present time with of particular improvements.
As I mentioned above, age 65 in recent years, from 1850 to about 1920 or so,
almost no improvement in survival, at least 65 very, very, very modest changes.
And then, first of all, amongst the females than amongst males, progressive improvements in in survival.
This is where all the action is these days, given that mortality really is very modest indeed, up to about age 65.
And this keeps on going up and up and up. And we don't yet know what the limits are going to be.
These are the latest projections of expectation of life at birth for the UK of the actual figures from 1985 up to 2010,
projected figures in 2010 onwards. This is fairly typical of developed countries.
And as you can see, the pattern is, as always, different between males and females,
with females having the females in red and in in orange experiencing more favourable survival than males in dark blue and pale blue,
the pale colours, the orange and the blue at the bottom are period expectations of life at birth.
This is, as you know, simply the the calculation of the of the expectation of life of birth,
which you would get if a person experienced the current age specific mortality rates of the particular calendar year in question.
You imagine, for example, that someone is living through the age specific mortality rates which are obtaining any of the whales at the present time.
And that's and that's what this period of calculation is. If, however, you build in assumptions about future improvements in survival, survival,
improving by about two percent per year in the life table, then you can create a projected cohort life table.
What would be the expectation in life at birth of children born in a particular year?
Were they to experience age specific mortality rates improving at, say, two percent per year as they have been over the last few decades?
And if you do that, this is what you get, that if you take babies born about 2010,
according to the projected cohort expectation of life, which are these two lines for females and four males,
then then you already have a figure of about 90 for the females and about 80 about 90 for males are projected to 2035,
which is not that far in the future, to about ninety seven for females and about 94 for males.
So really approaching the possibility of a normal expectation of life at birth for babies born around now very close to 100.
This may not come to pass. It's a projection. Projections are always wrong, but nonetheless, I would be very wrong.
And this opens up all sorts of really interesting possibilities for for for ageing at the top.
From what? From the reduction of mortality at older ages and therefore for for the questions of old age care, very much dependent,
of course, upon the extent to which these additional years of life are going to be years of active life.
If you people continue to work older and older as they live long, longer and longer, or alternatively, if they're going to be confined,
drooling in wheelchairs for a high proportion of this expectation of life increase, it's got to be the former, not the latter.
This is just an historical sequence to show the sort of pattern change which we've experienced in many European countries,
particularly those with low birth rates over the last 100 years or so.
This is Austria going from 1869 to a two in these three to 1934.
This is a traditional kind of Christmas tree, a structure before much has happened in the demographic transition.
This is 1869. This is 1910. By 1934, things have started to happen, first of all, that there's been damage.
The old structures of European countries in the 20th century are all terribly damaged, with a very few exceptions, but by warfare and by depression.
You can see here the bite taken out of the male age structure in 1934 arising from military deaths in the First World War from 1914 to 18,
not paralleled by a reduction on the other side.
These are the death of births, the reduction in the birthrate occasioned by the First World War, 1914 and 1980.
These these these big now about 18 in 1934.
And here is a reduction in the birthrate after the First World War causing causing
ageing from from the bottom in in the manner that I described earlier on.
This is the middle of the of the 20th century fighting 1951, we've experienced more damage, his hair, the military casualties, the First World War.
Here is the birth death of the First World War.
Here is the birth death of the Second World War and his further reductions in infertility, causing more ageing from the bottom.
Then we have a partial reversal.
By 1971, we have the evidence of the baby boom and the baby boom, this one's for all transient increase in the birth rate,
rising partly out of the greater popularity of marriage, which began in the 1950s and in the 1970s, a one off event.
Quite impossible to repeat, I think, but creating this bulge of further disruption in the population structure.
What this bulge does is to work up through the age structure, causing problems wherever it arises,
problems here for maternity hospitals and for and for overcrowded primary schools.
And then it moves upward, causing problems for youth unemployment.
I mean, it could be an advantage if the economy can expand fast enough to absorb the extra workforce was difficult because the bulge was so big.
One might like this in terms of shape to a fat python swallowing a goat.
Here's the goat here, moving up the gut, as it were, as it ages and causing difficulties in digestion, as it were.
The socio economic kind, whatever it goes here is here is the goat approaching retirement age in 2015,
starting to provoke an accelerated form of population ageing.
And here it is in 2030, well established in retirement age and adding to the reversal of of the ratio of people to reproductive age,
to people of consuming age who are retired.
And eventually, of course, like all goats in pythons, it passes out of the system classes at the pearly gates.
And we have a more stable a structure of 2050 showing a transition from a Christmas tree of 1890 to a kind of coffee in the shape of 2050,
while appropriately so because this population is, of course, also declining.
That's a typical pattern of a low fertility country in in like Australia to about one point five, not like north west Europe.
This is a different kind of evolution world, not like it's the same kind of evolution, but one which is less dramatic.
Here's the UK 2006, still sitting in the middle of a of a sort of demographic bonus.
This bauscher from the baby boom is still in the working ages, although the older working age is in 2006.
In due course, it'll pass up to retirement age, of course, and reverse the advantage.
Here it is in 2056, not quite as bad as the Austrian one, partly because the fertility rate is assumed to continue higher than in Austria,
partly because of migration, which helps to contribute this bulge here in these Middle Ages.
So not all patterns are the same. Here's a severe case.
This is an extreme example of population ageing in Japan, very low birthrate, about one point three five TFR,
very high expectation of life, the highest in the world of any national population,
both conspiring to make the Japanese population evolve from from here, which is the year 2000,
still quite favourable to having the demographic bonus to to here where the balance has turned into the illness and a very unfavourable structure.
This, of course, is a typically pessimistic Japanese projection of the Japanese projections invariably assume that TFR will
remain fixed in concrete at about one point thirty five for the foreseeable and even unforeseeable future.
I think it's very unrealistic nonetheless. That's the pessimistic outlook.
By the way, don't be fooled by this, that there isn't a particular concentration of individuals age 100.
The top age category of all these pyramids is an open ended one.
So the whole population, age 100 and above, not not a five year one.
It's a 15 or even 20 year one. That's why it sticks out in this unrealistic fashion.
Don't be fooled by it. It's not real. It's it's cumulative. Here's another possibly even worst case population, Korea.
So it's very rapid evolution from a traditional population age structure in in nineteen sixty,
very rapidly growing high TFR at that time through recent years.
The demographic balance again and here it is projected to 2040, just 28 years into the future,
showing the movement of the boomers into old age again, a pessimistic projection.
But the TFR in Korea is, if anything, even even lower, considerably lower than it is in Japan.
What this means, of course, is that in geopolitical terms, neighbouring rival countries, if one can call India and China, are rivals.
I think in many ways you can because they've had demographic transition at different times, will experience the bonus and the onus.
If I can use these, these terms are different at different periods and therefore,
at any given point in time, one will have an advantage over the other. Here is China and India are projected to 2050 with a structure.
This is like a pyramid half on its side, if you could rotate it by 180 degrees.
You see here the Chinese population in red. Smaller birth cohorts coming along here.
A peek of people about to move into into retirement and worsen the dependency ratio already quite bad at 64 in China.
Here you are in India, dependency ratio, just 49 in blue with with the majority of the population in the working age,
these smaller numbers of youth dependents coming along,
because by that time, it's projected the Indian birthrate will have fallen even further at the moment,
just above replacement the first time so far, not yet.
Very many people in old age. So an advantage of an economic kind, if it can be exploited in India over China by 2050,
which may reverse the advantage which those two countries currently have on the world economic and political scene.
It doesn't take too much imagination to see there are lots of difficulties arising out of population ageing.
I don't want to exaggerate them.
An awful lot of writing about population ageing is devoted to gloom and doom and exciting tabloid headlines of economic disaster,
which I don't believe in because these tend to discount the possibility of any
kind of adaptation of a human population is not a normally rather good act.
But more of that in a moment. But this is a list of the sorts of problems which quite logically follow from population ageing.
The dependency ratio of elderly goes up. There is a relief from a lower level of youth dependency,
but it's generally reckoned as a very coarse rule of thumb that an elderly dependent is about three times as expensive as a youth dependent.
This is a controversial estimate, but that's a very frequently used rule of thumb.
And so there isn't a perfect compensation. The reduction of youth dependency doesn't compensate for the increase in old dependency.
For this reason, this is generally thought to affect the economy because the productive part of the population,
which is in work, generating money, paying taxes,
is relatively diminishing compared to that part of the population,
which is spending money and receiving welfare to various different degrees that goes hand in hand with with a relative labour shortage,
either an absolute one or relative one increased need for care, arrangements for the elderly, adequacy of pension provisions,
particularly as we will see if they're based on the pay as you go system where money
is taken out of the pockets of workers and put into the pockets of pensioners.
If the numbers of workers is going down the number of pensioners, then of course pension systems on a pay as you go system start to become insolvent.
You've either got to increase the contributions of workers, reduce the pension entitlement to pensioners or both of these.
Not neither of these things are ever popular, as we will see in a little while.
Just a brief reminder of the dependency ratios, how they are calculated, perhaps an unnecessary reminder,
the total dependency ratio is merely the population of notionally dependent age nought to 14 and 65 and over,
divided by the population of notionally working age 50 to 64 times 100.
These are traditional boundaries that are no longer realistic.
Many people don't enter the workforce until their 20s. Until recently, many have retired before age 60.
The Eurostat, for example, uses the boundaries 20 to 59 as working age population.
And also remember, these are nominal demographic calculation is not an economic one.
One way to remember this, you making an economic calculation that quite a lot of the people of nominal working age are not in fact working.
Quite a lot of them are retired. And also, to some extent, quite a lot of people have normal retirement age, aren't retired like me, for example.
More interesting, I think, is the the number at the bottom here, the aged potential support ratio,
these just very different age structures from from Yemen, U.K., Italy and 2025, 2050.
The problem of dependency in the government, of course, is a youth dependency because almost half the populations age not aged under age 15.
The problem in Italy is an elderly and elderly population dependency because in 2025 reconvert 26 percent by 2050, projected to be 36 percent.
I think the more intuitively useful way of looking at penalty is to reverse
that if you turn it upside down and look at the number of people of normal,
productive age that are per pensioner.
And so you get a figure like this in Yemen, it's astronomical, 21 people of normal working age for every pensioner,
God knows how many are working and God knows how many are getting a pension. That's a different matter in the UK.
It's about for the present time for people, a normal working age for every person of nominal pensionable age.
And that's par for the course for European countries at the present time,
going down in the case of Italy to two and a half by 2025 to one point four by 2050.
So an example of the projected severity of population, ageing, low fertility country.
I've dealt with that already. What's going to happen to this potential support ratio?
Well, of course, it depends upon the future pattern of fertility, mortality and migration.
Here are some projections made by the government actuaries department based upon slightly old demographic policies in 1998,
not not current, but illustrates the point.
The fat black line is the essential projection of the potential support ratio going down from the just over four, which I mentioned earlier on,
down to a stable level of about 2.5 to 2.5 knows, as I said before, that the population ageing doesn't go on forever.
It goes on for about 40 or 50 years and then will stabilise other things being equal.
These current lines on on each side of the the the black,
fat black line indicate what will happen given the application of the government actually departments assumptions about different levels of fertility,
migration and mortality. This one here in red is high fertility and high migration, for example,
improving the support ratio because of course, it means that there are more people of working age.
Here is low fertility, a low migration arrival, a rather less favourable support ratio arising for the reverse reasons.
Naturally, different levels of fertility generate different levels of future support ratio.
These two bars here show the support ratio, the year 2000 in pale blue,
the support ratio in the year 2050 in a dark maroon colour for UK, France, Germany, Spain and Italy.
These data aren't quite up to date, but they they give some basic picture of the of the change,
which is likely as a consequence of the different birth rates in these different countries, primarily the different birth rates will in due course.
Of course, as birth rates have stabilised, improvements in survival will become more and more important.
As you see, with the exception, they all start off at about four on this projection, going down to six in the UK,
two point one in the case of France, two in Germany, one point five in Spain, one point four or five in Italy.
These are quite current anymore, but they give you a picture of the sort of level of difference which one can expect.
And generally speaking, lower birth rates bring more severe ageing.
Here is a graph showing the projected support ratio in 2060, according to the United Nations, compared with the total fertility rate in 2010.
At the present time, as you see, generally speaking, the higher the TFR, more favourable to support ratio.
Belgium, the Netherlands, USA, Norway, France, U.K., down here we've got South Korea, Japan, Italy, Poland, Germany, the usual suspects, in fact.
We can forget that. Can we solve population ageing, the reforms we know we can't,
for reasons expressed right at the beginning, only by going back to to a traditional population,
these structures involving quite disagreeable levels of mortality and fertility, can we solve population ageing?
That would not be desirable. We can manage it. We can moderate it.
We can't solve it. I think is quite important to keep that firmly in mind. First of all, what about immigration?
It's clear that migration does moderate population ageing as long as most migrants are moving into that part of the population,
which is of working age. Typically speaking, this this is correct.
In most countries receiving migrants, most migrants are on average about age about 35 or so or 30.
They are younger than the average age of the population into which they are moving. There are a few exceptions.
The movement of retired people from Germany and England into the cost of geriatric care in Spain, of course, makes that population older.
But that's rather an unusual kind of circumstance. Not not more so.
Migration can moderate a population. Ageing can't solve it. Well, unfortunately, it can't.
Despite some excitement generated by a very famous United Nations publication in 2000, which we set the world ablaze with,
with stories of Europe meeting 40 million new migrants to in order to save itself from population ageing.
The problem is, of course, that migrants themselves age. What it can do is to without too much of its stock population declining.
Here are projections by Eurostat showing various different European countries their population change between 2008 and 2025,
over half a century or so, with migration and without migration.
Again, please remember, these are only projections, but these are the the implications of what would happen if the assumptions turn out to be correct.
The blue bars are the percent of projected population change, either increase above the line, decrease below the line with migration.
The dark bars are the percent projected population change, increase above the line, decrease below the line without migration.
As you can see with migration, Norway, UK, Sweden, Spain, France, Denmark, Finland, Netherlands and even Italy increase somewhat, but not very much.
Germany declines even how much migration you get. It seems Germany will decline even with migration.
And it lives on on the on the cusp. Without migration, Norway increases.
UK increases a bit as we not much of France increases.
All the others decline because their birthrates are assumed to remain low and so migration can stop population decline at an appropriate level.
Of course, it does mean the population coming in is different, the population which is there,
and it will mean eventually replacing that population in the very long run.
If the birthrate doesn't increase, that's a different story. This is the the reason why migration typically helps the moderate population ageing.
This these hollow bars are the age structure of migrants into Europe around about 2008.
This is the population age structure of the overall EU population.
Please note, these are percentages. These are not absolute numbers.
The number of migrants coming into Europe is not colossal compared with the population of working age in Europe.
This is just a percentage distribution show, the way in which migration, generally speaking, has this favourable effect upon population ageing.
But as I mentioned, migrants age.
You can see this ageing happening in the in the Indian population structure here from 2001 in the UK,
not yet in the Pakistani population where the birthrate remains, remains higher.
The previous home secretary said he saw no further limits to immigration because this was at a time when immigration was being encouraged.
This is the effect based on some calculations by the government actuaries department about the effect upon the UK population sorry,
potential support ratio of migration at different levels.
Here is the black line that I showed you before going down from for the present time, roughly speaking, to about two and a half.
That was on the assumption of ninety five thousand migrants per year. If you jack that up 10 times per million migrants per year.
And in net terms, that indeed you you boost the support ratio for a bit after five, if not much.
If you assume that it goes down inexorably and starts converging with the original projection,
even a million migrants a year, it doesn't solve the problem.
This is the annual immigration,
which you would require to keep the UK population support ratio at four point one in millions for the rest of the century,
as you see, it is highly variable because of fluctuations in the age structure.
It averages just over one million per year by mid century.
And then it comes with much higher levels, five million per year by the end of the century with very considerable consequences of population size.
The red line here shows the consequence of population size of that level of migration, which will keep the PSR at about four point one.
As you can see, it would take the population from about 63 million in time to this is about 120 million by mid century.
This is three hundred and six million by the end of the century. And as you can see, it is increasing exponentially at two very, very high levels.
Indeed, it has already almost overtaken the population of the US and will enable us.
Of course, with that many will do all sorts of things we can't do by ourselves.
With three hundred and six million people, we could invade Iraq all by ourselves, for example.
But it might not be very nice to have a population where the population density was six times the present level.
The reductio ad absurdum of this was calculated by the United Nations in that 2000 publication.
What they calculated was what would be the consequences of migration sufficient
to keep the support ratio in the Republic of Korea at the then high level.
And the answer would be that we'd all have to pack our bags and go there because it would take more
than six billion people to move to Korea by mid century in order to preserve the support ratio.
And that probably isn't going to happen. Likewise, can fertility solve population ageing once again?
It can moderate it, as in the case of immigration, but can't solve it.
If the replacement total fertility, which I think is about the most you can expect given modern levels of mortality,
would raise the PSR to about three years, not not not unfavourable.
And without without migration, there'd be a population growth,
which I think would be a bonus if you wanted to preserve the PSR for you have to increase the TFR
to three and a half ladies in England and France and the US has had three and a half babies each,
which I think is probably not regarded as being very desirable.
And of course, it would generate almost two percent population growth of a bit like the migration assumption.
So neither of those options is is is possible.
It seems to me that there are aspects of the fertility increase are easier to manage than the migration increase,
but neither of them will actually solve the problem. We can probably avoid that.
I think I've made these points already. I regret to say give my profession that the Morphy in this matter is not everything.
There are many, many other highly important aspects of the social and economic structure of countries and their politics,
as well as the demography which affects population ageing and the impact of population ageing.
This is an impact of an estimate, rather,
of the vulnerability to population ageing of various different countries estimated by Jackson and how from the CSIS think tank in Washington,
DC, as you see published in 2003. What they did was to.
Look at the demography at the current and projected level of population ageing
arising out of assumptions about birth and death rates as we dealt with already,
and then they also looked at the various other aspects of of the population,
the extent to which the elderly had savings, the extent to which the retirement age was high or low,
the extent to which the solvency of the of the the the country's pension schemes were high or low.
The extent to which. To which the pension schemes required required support from general taxation, as in Italy,
which of course makes the country more vulnerable as we've seen in the euro crisis, and they created this pattern here,
which we should rather gratifyingly the English speaking world being at the top in
terms of low levels of vulnerability and various other countries at different levels,
levels below these in the danger area. And while curiously, when you take into consideration these these aspects of the retirement age,
of fiscal solvency, of the form of pension, of the extent which people save for old age and so on,
then countries which you might have thought would have done well because of their demography do badly like France,
for example, very favourable demography, very unfavourable. A system of high pay as you go pension costs.
Japan, which has got very unfavourable geography,
does much better than you would expect because of its high propensity to save late retirement and other aspects of Japanese culture and social habits.
What this leads to, of course, is the realisation that population ageing can be managed as long as birthrates aren't too disastrously
low by all kinds of changes to workforce participation and retirement age and productivity.
And the idea that these will not happen seems to be highly unrealistic.
One sometimes thinks when presented with disaster scenarios in the papers about population ageing,
that it's assumed that no further rational decision making is possible on the part of the human species or its individuals or as governments.
It's as though it's as though a person should be driving a car in broad daylight,
along along a clear road and season in front of a big sign saying danger a cliff ahead, turn right.
Instead of taking the steering wheel and doing the obvious thing, which is turn right,
he carries straight on to the billboard and goes over the cliff.
That's the kind of assumption on which disaster scenarios and population ageing are based.
There will be no increase in retirement age, no increase in workforce participation,
no increase in labour productivity, no possibility of adjustment through market forces, rational decision making,
the price mechanism and all the rest will occur, will occur, which of course it will occur,
although sometimes with considerable pain of these possibilities, the most efficient one is increasing the average age of retirement.
Because what that does, of course, if people cease working later,
is to reduce the dependent part of the equation and at the same time increase the productive part of the equation.
So you've got a double double effect.
And one can see that that the retirement age has really quite an impressive effect upon calculated levels of population dependency.
Productivity is going to be an important change as well and may well follow naturally, if workers become scarce,
then the rational response by employers and capitalists ought to be to improve the ratio of capital labour, to increase increased productivity.
In other words, which will be a beneficial thing to happen anyway,
because Europe has got rather low productivity compared to other parts of the industrial modern world.
The increase in productivity required to compensate for population ageing is nonetheless quite high at the moment.
Productivity increases by something like two or two and a half percent per year.
The European Commission calculated that an annual increase of productivity of an additional
nought point six percent will be required to compensate for the costs of population ageing.
That may seem like a small number is nought point six percent compared with, say, two point five percent,
which is in percentage terms of the increase of the total is is really rather a lot.
I think I've discussed all of this,
if we could increase the labour force of the EU 15 by applying Danish participation rates to the whole of the E.U. 15,
a traditional European Union, then you would add 32 million people to the workforce,
which is calculated to be the deficit, which which is likely to arise by 2050.
You do that once. Of course, you can't get more than 85 percent workforce participation rate,
but that is another approach to moderating the effect of ageing now where you can get the whole of the European Union in the south of Spain,
in the Algarve or even in parts of the UK, to work like Danes and retire like Danes is a different matter.
Nonetheless, that's what would happen if it were possible. This is what happens to the UK potential support ratio with higher retirement ages.
The fat black line is the one we saw before the population gain from what, four point one two point.
If retirement is increased to 68, which is this purple line here, then the PSR is is improved to just over three.
It can't go back to four point one, but three is a good deal better than two and a half if retirement is at seventy two,
which of course is a lot more than that.
The first time is ten years older than the current actual retirement age, then indeed remains at at four point one.
That's a long way off. And we're not most people some people do work 72 and beyond.
But most people would not want to do so, it's no longer beyond the calculus of conscious choice, as it were just recently,
the Swedish Labour minister was cited as saying that that retirement age will have to
go to 70 in due course in order to compensate for population ageing to some extent.
And so what was previously fantasy may well not be in due course.
No, yes, the actual age of retirement at the moment is worthwhile,
keeping in mind these blue bars show the age of retirement in the middle of the last decade is now somewhat higher.
This is this is 55, 60, 65 and 70. And you see this is Mexico.
Korea, either Iceland, Japan, New Zealand, Israel and Portugal have quite high retirement ages.
In reality, the blue dot is the official pension entitlement, age four for the federal state pension.
And you can see that in some cases, people work longer than the official retirement age, particularly in Japan and Korea and Iceland.
In other cases, they they still retire early.
And over here we have the potential casualties where the official retirement age is about 65 or in some cases lower.
It's lower here in France. It was 60 at the time this graph was produced.
And all these countries here are people who are retiring early retirement age.
And so here this is this is this is Greece, Finland, Germany, Spain, Italy, Hungary, Belgium, France, Austria and Luxembourg.
So you can see where the vulnerability lies. Important to have a brief word about pensions.
I've been speaking mostly so far about pay as you go pension.
This is a normal system of pension applying on the continent where the state, not only the state, can run pay as you go.
Pension schemes confiscates money. It takes money by taxation.
In our case, it's called national insurance out of the pockets of workers and transfer transfers via bureaucrats into the pockets of pensioners.
Very simple, achievable the a system which is perfectly fine as long as the age structure isn't changing.
And when the systems work were invented, of course, many decades ago, the structure was quite favourable.
And pay as you go. Pension schemes work fine. Two problems.
One is the highly vulnerable to changes in the age structure arising out of population ageing for reasons which are entirely obvious.
Secondly, because that government control, there's a powerful moral hazard in the sense that governments are strongly inclined when it
comes to election time to start promising about increasing pensions because the pensions are,
as it were, in their gift.
And what they have tended to do quite often is to say we will we will increase the pension by X without saying to the workers,
we will increase your contributions by Y because the former gets the votes and the latter will lose them votes.
And that's one of the several reasons why pension systems of this kind of nominally insolvent because of
the liabilities are considerably greater than the current and projected payments coming into the scheme.
That means they've got to be funded from general taxation.
That reduces the amount of tax money for other purposes, and it means of borrowing has to go up.
And that's part of the problem of the eurozone crisis. On the other side of it is occupational or other kinds of funding schemes whereby money
is contributed either by a self-employed person entirely by themselves to a pension pot,
or in the case of occupational pensions, contributed both by the employee and by the employer.
That used to be the normal deal in the Anglo-Saxon countries, where the pay as you go system, the state pension is in your kind of top up.
That's generally regarded as much more favourable, despite the fact that, of course,
it does include management charges and does mean that the investments into which the Mr Pot
is based are naturally vulnerable to economic change because they are in the stock exchange,
in shares, in government debt, various things of that type.
Those have fallen on even days in the last decade or so, partly because of turmoil in stock exchanges,
partly because in this country of tax raids by the previous government on the tax relief available to pensions,
and partly because actuaries consistently underestimated the extent of survival in older age, that's had a bad effect on page.
Obviously, it's also had a bad effect on funding schemes. So what was in the case of the UK, a highly enviable,
very favourable system of of a pension system from funding schemes is now very much less desirable.
And if you read the papers on the matter, you'll see there's very considerable disquiet about the level which people are no longer saving.
In a way, it may be adequate to pay for their their retirement.
So there's a problem there. And reform is certainly needed, but difficult.
And in particular, whatever happens at retirement age is really got to go up and keep pace to a considerable
extent with the increase in expectation of life at birth that is being tried in many,
many European countries is invariably encounters serious opposition, an understandable kind.
But in the end of the day, a short sighted cut.
This is just an illustration of the way in which funded pensions assets have fallen below their liabilities in the in recent years.
They were fined up to about 10 years ago. And now the liabilities,
the projected costs of paying out pensions to existing contributors has gone up and the value of the assets has gone down and therefore,
in many cases no longer technically solvent. Well, this is what happens when you try and put up pension age.
This is 2008. You will have seen more excitement on your telly last night where as part of a reform package, protest against reform package,
50 buildings were burnt in the centre of Athens, although that was not just a question of pension and welfare.
Are some here some more, more more recent ones protest against austerity.
Here is Italy protesting against pension and retirement reform.
Back in 2004, a general strike here is France.
Of course, protesting against government decisions is a normal part of politics.
And you can see what's going on here. The people here aren't actually dead.
There are people waiting in the departure lounge of Charles de Gaulle Airport for the airline pilots and traffic
control people graciously to return to work in one of the more recent strikes against pension entitlement.
And this is in a country where the pension age is 60, not 65, which it ought to be.
And this is a protest of last year.
So two years ago, arising out of President Sarkozy's attempt to increase the pension age from a very, very low sixty to a very low 62.
And still, the nation grinds to a halt, as usual in protest.
Germany, likewise,
slightly more decorous if grumpy protests going on against the socialist government's attempts to reform pension in their so-called agenda 2010.
And eventually, of course, people may forget all these things as population ageing really takes a grip, but that's perhaps a little way off.
So in conclusion, just remind you that there's no solution.
It can be managed.
It's not, I think, going to be a disaster as long as birthrates remain reasonably high or can be encouraged to become reasonably high,
and as long as rationals systems of improvement in pension or increase in pension age will expose those fossilisation,
pension reform and so on are implemented,
this seems to mean something which will follow naturally from the rational behaviour of governments which are somewhat rational and also individuals.
Some parts of Europe much more affected by population ageing than others because of a
very unfavourable combination in Southern Europe and in East Asia of very low fertility,
very long, long life, particularly Italy and Japan, in the case of southern Europe, also traditional high level.
Those of early retirement, low levels of official pension age until recently and very high levels of compensation
raised whereby the official pension was up to 80 percent of average wage,
which is not an affordable level and has to come down. Hence the pain of adjustment.
That pain will pass. And I'm reasonably optimistic about about the future, given rational changes of the kind that I've outlined here.
Thank you.