print this

5. CONCLUDING REMARKS

There is broad agreement that population aging linked with low or negative population growth creates a major challenge for many countries and regions in the North, especially for Europe plus Russia, the high-income countries of East Asia and the Pacific, China, and, to a lesser extent, North America. Without further immigration, the total labour force in these countries is projected to decline by 29 million between 2005 and 2025 and by 244 million between 2005 and 2050. At the same time, population aging will accelerate, and the old-age dependency ratio will deteriorate further.

Although the full economic and social implications of such a dramatic shift in age structure are not yet clear, simple financial considerations suggest that a declining labour force and a deteriorating age structure will put further pressure on the financing of pension and health care programs. In addition, economic considerations suggest that a reduction in the implicit and explicit rate of return of pension and health programs could reach 1.5 percent and more annually.

To compensate for negative population and, in particular, labour force growth, countries have three main demographic policy options: move the total fertility rate back to replacement levels, increase the labour force participation of the existing population, and fill the demographic gaps through enhanced immigration.

Scenario calculations for the four potential-deficit regions suggest that each of these three options may assist in compensating for the demographic gap. Moving immediately toward a replacement level fertility rate in 2005 would create an additional labour force of some 17 million by 2025 and 187 million by 2050. Increasing labour force participation rates through three combined measures (moving toward benchmark countries, closing the gender gap, and raising the effective retirement age by 10 years) would add an additional labour force of 175 million by 2025 and 335 million by 2050 in aggregate (but would not fully compensate Europe plus Russia and the high-income countries in Asia). And enhancing net migration by 244 million people by 2050 to compensate for gaps in the labour force seems easy to achieve in quantitative terms but is only part of the story. One needs to consider “migration overhead,” which includes inactive migrant workers and family members in the range of some 50 percent—that is, think about total net migration on the order of more than 350 million (170 million in Europe plus Russia alone). The gross flows that take into account return and circular migration may more than double these already staggering magnitudes.

While the magnitudes involved are high and the underlying policy decisions drastic, even more limited numbers question the capacity of governments to create or accommodate the envisaged effects.

Empirical evidence suggests that governments have limited policy instruments with which to increase the fertility rate. Increasing labour force participation for all implies more successful labour market policies at a moment when many countries are struggling with the implications of a more globalized world. And accommodating a substantially larger number of migrants every year requires a major review of domestic policies and a rethinking of integration policies—an area where good practices have been little analyzed or broadly discussed.

This sobering assessment suggests that no single policy approach will, on its own, contribute significantly to covering the population gap, especially in high-deficit countries. It suggests that more knowledge is needed about the effectiveness and efficiency of policy measures to influence fertility and labour force participation and to better accommodate migratory flows. It also suggests the need to investigate measures beyond demography or simply prepare for a shrinking population in a number of countries, which some claim has advantages on its own.

References

Bjoerklund, Anders. 2002. “Does Family Policy Affect Fertility? Lessons from Swedish Policy Experiment.” Mimeo. Stockholm University.

Boeri Tito and Herbert Brücker. 2005. “Why are Europeans so tough on migrants?” Economic Policy 44 (October): 631-703.

Borjas, George. 1999. “The Economic Analysis of Migration.” In Orley Ashenfelter and David Card, eds., Handbook of Labour Economics, Vol. 3A. Amsterdam: North Holland: 69–133.

Caglar Ozden and Maurice Schiff (eds.). 2005. International Migration, Remittances and
Development. Palgrave McMillan: New York.

Caldwell, John, Pat Caldwell, and Peter McDondald. 2002. “Policy responses to low fertility and its consequences: A global survey”. Journal of Population Research 19(1): 1-24.

Card, David. 2005. “Is the new immigration really so bad?” NBER Working Paper No. 11547. Cambridge, Mass.: National Bureau of Economic Research.

Commander, Simon, Mari Kangasniemi, and L. Alan Winters. 2003. “The Brain Drain: Curse or Boon?” IZA Discussion Paper 809. Bonn: Institute for the Study of Labour, June.

Drago, Robert, Rosanna Scutella, and Amy Varner. 2002. “Fertility and Work/Family Policies.” Paper presented at the conference on “Opportunity and Prosperity,” University of Melbourne, April.

Drinkwater, Stephen, Paul Levine, Emanuela Lotti, and Joseph Pearlman. 2003. “The Economic Impact of Migration: A Survey.” FLOWENLA Discussion Paper 9. Hamburg : Hamburg Institute of International Economics.

Ehrlich, Isaac, and Jinyoung Kim. 2003. “Social Security, Demographic Trends, and Economic Growth: Theory and Evidence from International Experience.” Mimeo. State University of New York at Buffalo.

Harrison, Anne. 2004. “Working Abroad: The Benefits Flowing from Nationals Working in Other Economies.” Paper presented to the Roundtable on Sustainable Development, OECD, Paris.

Holzmann, Robert. 2002. “Can Investments in Emerging Markets Help to Solve the Aging Problem?” Journal of Emerging Market Finance 1 (2): 215–41.

Holzmann, Robert, Richard Hinz, and Bank team. 2005. Old-Age Income Support in the 21st Century: An International Perspective on Pension Systems and Reform. Washington, D.C.: World Bank.

Holzman, Robert, Johannes Koettl, and Taras Chernetsky. 2005. “Portability Regimes of Pension and Health Care Benefits for International Migrants: An Analysis of Issues and Good Practices.” Global Migration Perspectives. Geneva: Global Commission on International Migration. Forthcoming.

Holzmann, Robert, and Rainer Münz. 2004. Challenges and Opportunities of International Migration for the EU, Its Member States, Neighboring Countries, and Regions. Stockholm: Institute for Futures Studies. ———. 2005. “Europe, North Africa, and the Middle East: Diverging Trends, Overlapping Interests, Possible Arbitrage through Migration.” Paper prepared for the joint workshop on “The Future of Demography, Labour Markets, and the Formation of Skills in Europe, and Its Mediterranean Neighbourhood,” European Commission, World Bank, King Baudoin Foundation, and European Policy Centre, Brussels, July 4–5, 2005.

IMF (International Monetary Fund). 2004. World Economic Outlook: The Global Demographic Transition (September). Washington, D.C.: IMF.

Martins, Joaquim Oliveira, Frederic Gonand, Pablo Antolin, Christine de la Maisonneuve, and Kwang Yeol Yoo. 2005. The Impact of Ageing on Demand, Factor Markets and Growth. Economic Working Papers No. 420. Paris: OECD.

Meier, Volker, and Matthias Wrede. 2005. „Pension, Fertility, and Education“. CESifo Working Paper No. 1521. Munich: CESifo. Migration Policy Institute. 2005.

McKibbin, Warwick J. 2005. The Global Macroeconomic Consequences of Demographic Transition. Paper prepared for G-20 Workshop on Demographic Challenges and Migration, Sydney, 27-28 August 2005.

Münz, Rainer, and Heinz Fassmann. 2004. “Migrants in Europe and Their Economic Position: Evidence from the European Labour Force Survey and from Other Sources.” Paper prepared for the European Commission, DG Employment and Social Affairs, European Commission, Brussels, and HWWA, Hamburg.

Neyer, Gerda. 2003. “Family Policy and Low Fertility in Europe.” Max-Planck Institute for Demographic Research Working Paper 2003-021. Rostock, July.

OECD. 2004c. Aging and Employment Policies: United Kingdom. Paris: OECD.

Reitz, Jeffrey. 2005. “Tapping Immigrants Skills: New Directions for Canadian Immigration Policy in the Knowledge Economy.” IRPP Choices 11 (1, February): 2–18.

Sinn, Hans-Werner. 2004. “The Pay-as-You-Go Pension System as Fertility Insurance and an Enforcement Device.” Journal of Public Economics 88: 1335–57.

United Nations. 2005. World Population Prospects. The 2004 Revision. New York: UN.

World Bank. 2005. Global Economic Prospects 2006: Economic Implications of Remittances and Migration. Washington, DC.: World Bank.