Queen s Global Markets A PREMIER UNDERGRADUATE THINK-TANK The Secular Decline of European Demography A Case Study Into the Unsustainable Demographic Challenges Dirong Wen, Gavrilo Randjelovic, Matthews Joy, Sasha Twardowski 02.01.2018
Agenda What we will be discussing today 1 Europe s Rise and Decline Post-WWII 2 Inverted Population Pyramid 3 Exercised Solutions with Mixed Results 4 Demographic Case Studies 5 Conclusion 2
Millions Post-WWII Europe The rise and decline of the European population Baby Boom Consistent Drop in Fertility Rate In the wake of the Second World War, the return of males to their homes and need for a workforce resulted in a high birth rate for a number of years People born between 1946 and 1964 are collectively known as the Baby Boomer Generation Gender inequality was a large contributor to the baby boom The Decline in Fertility Post-Baby Boom 9 8 7 6 5 4 3 2 1 Number of Live Births in the EU by Year Subtopic 0 1961 1967 1973 1979 1985 1991 1997 2003 2009 2015 As European nations re-industrialized and economic opportunity for women increased, fertility steadily declined Economic prosperity alone cannot entirely explain the drop in fertility rates Most new research suggests that disagreements within couples are a greater contributor to low fertility rates Sources: BBC, The Economist, United Nations 2.5 2017 Birth Rates 2 1.5 1 0.5 0 Sources: European Central Bank, Forbes, Quartz 3
Debt and Dependency Ratios Why Europe s increased debt and dependency is problematic for future generations Importance of Debt/GDP Rising EU Debt Ratio Sovereign debt is a means of financing a government and an economy. It can be effective in accelerating growth Typically a high Debt/GDP ratio above 90% is bad unless high growth is anticipated Demographic decline poses financial challenges when a country is indebted; a lower population implies a lower level of GDP which both increases the debt-gdp ratio and makes payments on the existing debt more difficult 100% 90% 80% 70% 60% 50% 40% Dependency Ratio EU Debt to GDP % Subtopic 2003 2005 2007 2009 2011 2013 2015 The dependency ratio is an often used metric to determine the burden of the non-working population on the working population Does not account for unemployment in the working population A high debt ratio, coupled with an increasing dependency could be potentially disastrous for a country Sources: BBC, The Economist, United Nations 60% 50% 40% 30% 20% 10% 0% Projected EU Dependency Ratio 2015 2020 2030 2040 2050 2060 2070 2080 Sources: European Central Bank, BBC, Quartz 4
Agenda What we will be discussing today 1 Europe s Rise and Decline Post-WWII 2 Inverted Population Pyramid 3 Exercised Solutions with Mixed Results 4 Demographic Case Studies 5 Conclusion 5
Economic Turbulence Ahead Aging population and falling birth rates create an inverted population pyramid A Population in Decline Youth Unemployment by Member State (2016) As nations grow wealthier, the middleaged working population possess a lower incentive to bear children The traditional method of immigration to replenish the working age population has been met with resistance in many countries When the depleted younger population is no longer able to support the older generations, problems include: - Unfunded social welfare for the old and disabled, leading to social unrest - High debt-to-gdp-per-capita causing unserviceable debt The 28 member states of European Union have a youth unemployment rate of 18.2%, highlighted by a staggering 48% in Greece By contrast, Canada and United States have youth unemployment rates of 10.8% and 8.9% respectively Greece Spain Italy Croatia Portugal Cyprus France Belgium Finland EU28 18.2% Sweden Ireland Poland Slovenia UK Hungary Denmark Czech Republic Austria Netherlands Germany 0% 10% 20% 30% 40% 50% Sources: Eurostat, Statistics Canada, Bureau of Labor Statistics 6
Economic Turbulence Ahead Aging population and falling birth rates create an inverted population pyramid EU Population Pyramid, 2010 Sources: Euromonitor 7
Economic Turbulence Ahead Aging population and falling birth rates create an inverted population pyramid EU Population Pyramid, 2050 Projected Sources: Euromonitor 8
Persistent Youth Unemployment European Social Fund launched Youth Employment Initiative in 2012 with mixed results Average Youth Unemployment Rate in the EU, 2016 Western Europe: 15.8% Eastern Europe: 16.8% Northern Europe: 17.1% Southern Europe: 36.6% Western Europe fares the best, with Germany enjoying the lowest youth unemployment rate at 7.1% - Dual education and training system, closest to the Canadian co-op system Eastern Europe and Northern Europe are close behind, with a relatively high proportion of youth that speak English ESF committed 6bn to the Youth Employment Initiative in regions with >25% youth unemployment rate - Introduce dual education and training - Start-up entrepreneurs could be supported with tax credits and consultation - Strengthen vocational training Some countries such as Greece have a mix of bleak economic prospects, poor English literacy among youth, and lack of knowledge in trades Sources: Euromonitor, Deutsche Welle 9
Agenda What we will be discussing today 1 Europe s Rise and Decline Post-WWII 2 Inverted Population Pyramid 3 Exercised Solutions with Mixed Results 4 Demographic Case Studies 5 Conclusion 10
Proposed Solutions: Immigration Give me your tired, your poor Justification and History Immigration provides both an immediate and medium term population boost - The majority of immigrants to European nations are from cultures with high Total Fertility Rates (TFRs); this raises the national TFR in the short to medium term Immigration has been the main source of population growth in rich EU countries Natural Growth vs Immigration 2.2 2.1 2.0 1.9 1.8 1.7 1.6 1.5 Differential TFRs France and the UK Subtopic France, native France, migrant UK, native UK, migrant Cultural Issues 8.0 6.0 4.0 2.0 0.0-2.0-4.0 Net natural increase and migration rate per 1000, 2016 Germany UK France Italy It has been observed that as generations of immigrants become more integrated, their fertility rates tend to converge with that of the native majority - This implies that immigration must be a short-term solution, as there are a finite number of potential immigrants There is significant popular opposition to immigration, especially in Eastern Europe Natural Growth Immigration Sources: BBC, The Economist, United Nations Sources: Princeton, The Office for National Statistics, World Bank 11
Proposed Solution: Parental Subsidies Cash for children Baby Bonus The idea of a baby bonus some sort of benefits or cash paid to parents upon the birth of a child has been a perennial option in richer nations and is embedded in many welfare programs Often times, the benefit is a subsidy for housing, education, or other child-related expenditures - Certain countries, such as Singapore, also issue pure cash bonuses Romania famously toyed with a combination of benefits and restrictions on abortion and contraceptives in the 1960s; the birth rate exploded but only temporarily Why Does This Seldom Work? Subsidizing parenthood has had mixed results; primarily they have been ineffective - Nations that subsidize parenthood often see a temporary increase in fertility which later reverses - The policy has been attempted to no avail at some point or another in most industrialized nations Factors that impact fertility are largely cultural; the desired number of children is relatively inelastic with respect to the cost of parenting - More important factors include national work culture, ideas of what constitutes a standard family, religious or nationalistic motivations Parental subsidies have shown promise in certain circumstances - Smaller populations easier cultural change. This has been observed in Japanese villages - Simultaneously reviving cultural disposition towards fertility Russia Sources: BBC, The Economist, United Nations Sources: World Bank, The Economist 12
Agenda What we will be discussing today 1 Europe s Rise and Decline Post-WWII 2 Inverted Population Pyramid 3 Exercised Solutions with Mixed Results 4 Demographic Case Studies 5 Conclusion 13
A Special Case: Ireland and Iceland A tale of two islands Ireland Ireland has historically had a high TFR - Until even the late 20 th century, Ireland was significantly poorer and less industrialized than most of Western Europe The TFR declined as Ireland rapidly industrialized in its Celtic Tiger phase, but bottomed out at a rather high ~1.9-2.0 Ireland has been and continues to be more conservative and religious than most Western European nations, although nations that surpass it in these regards (such as Italy) do not have the same high birth rate Iceland Iceland too has had a historically high TFR - Unlike Ireland, Iceland has been a highincome economy since the early 20 th century TFR has fluctuated between 1.9 and 2.3 since the early 1980s Iceland s population is far less conservative than Ireland s or continental Europe s - 65% of births occur out-of-wedlock, vs. 57% in France, 50% in the UK, 37% in Ireland Factors native to these island nations may be conducive to fertility; the nearby Faroe Islands also have a very high TFR of 2.40 2.0 TFR By Country, 2015 1.9 1.8 1.7 1.6 1.5 1.4 Ireland Iceland Norway Denmark Scotland Finland Sources: World Bank, OECD 14
A Special Case: Russia Not quite replacement, but closer Putin s Generation Following the collapse of the USSR, economic disaster struck Russia and the country entered what some commentators have described as a demographic crisis - The infamous Russian cross of skyrocketing death rates and shrinking births raised serious concerns about Russia s future as a nation - Massive emigration to the United States, Israel and Germany further fueled concerns As Russia recovered economically in the early 2000s, TFR grew significantly; yet it did not stop when growth faltered in the 2010s Putin has emphasized the importance of demographic sustainability; he has tied this inextricably to Russian nationalism and the general post-yeltsin revival of Russian pride and patriotism Russia provides a baby bonus of approximately 9000 USD for each child after the first Better than the Neighbours 1.9 1.7 1.5 1.3 Russia Poland Hungary Czech Republic Latvia Ukraine Belarus 1.1 1994 1998 2002 2006 2010 2014 Sources: BBC, The Economist, United Nations Sources: World Bank, Slate 15
Agenda What we will be discussing today 1 Europe s Rise and Decline Post-WWII 2 Inverted Population Pyramid 3 Exercised Solutions with Mixed Results 4 Demographic Case Studies 5 Conclusion 16
Conclusion Still a mixed bag regarding demographic changes Undetermined Long-Term Effects Is Abenomics Succeeding? Cultural identity is a big factor - Countries such as Russia seem to be more passionate about maintaining a strong bloodline versus more apathetic countries like Italy Long-term effects of incentives to boost fertility are still unknown Economic outlook remains important 5.0 Japan Fertility Rate 4.5 Under Shinzo Abe 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 1.38 1.42 Structural Youth Unemployment Northern European employers struggle to find candidates for vocational jobs, while Southern European youths are desperate for work Follow Germany s example in creating a EUwide dual education and training system Continuing the Youth Guarantee, offering employment, continued education, apprenticeship, or traineeship within 4 months of becoming unemployed or leaving formal education Sources: BBC, The Economist, United Nations Immigration Could Work Immigration provides both an immediate and medium term population boost In conservative countries lukewarm about outsiders, strict quota of skilled immigrants similar to North America could work - Provide language training in local and English language Providing easier access to work visas could also attract highly skilled workers Sources: World Bank, Quartz 17