Challenges for Europe in the
World in 2030
Deliverable 4.3
WP#4
Global Development, Demography and Migration
Accademia Lincei, Rome, ITALY
AUGUR
Introduction
• Previous deliverables focused on inclusion of
demographic variables into CAM model
• In this deliverable we focus on concept of
Economic Dependency
• This includes not only demographic variables
but also employment and activity
• We test the impact of an employment-focused
fiscal expansion for each European bloc in
2030
Conventional Approach to Ageing
• Increasing and unsustainable ‘burden’ to
society of ageing population
• Reduce pensioner income; increase
contributions from wages; reduce other social
welfare spending; increase retirement age
• Implicit assumption that the elderly are
‘inactive’ and the working-age population are
‘active’.
Changes in working-age population…
Working-Age Population
(millions of persons)
North Europe
1,800
1,750
1,700
1,650
1,600
1,550
1,500
90
Central Europe
9,600
12,400
9,200
12,000
00
10
20
11,600
8,800
11,200
8,400
10,800
30
90
00
East Europe
8,400
8,200
8,000
7,800
7,600
7,400
7,200
90
South Europe
00
10
20
10
20
30
8,000
90
00
10
UK
4,400
4,300
4,200
4,100
4,000
3,900
3,800
3,700
30
90
Reduced government
China US intervention
regionalisation
multipolar governance
00
10
20
30
20
30
leads to rising demographic
dependency
Total age-based dependency ratio
(persons aged 0-14 and 65 and over per working-age person)
North Europe
Central Europe
South Europe
.80
.80
.80
.70
.70
.70
.60
.60
.60
.50
.50
.50
.40
90
00
10
20
30
.40
90
00
East Europe
.80
.70
.70
.60
.60
.50
.50
00
10
20
20
30
.40
90
00
10
UK
.80
.40
90
10
30
.40
90
Reduced government
China US intervention
regionalisation
multipolar governance
00
10
20
30
20
30
Dependency Reconsidered
• Need to include employment and activity
rates in our measure of dependency.
• While demographic dependency rising,
employment-related dependency is sensitive
to policy changes.
• Potential for increases in employment to
offset changes in population structure.
• Levels of employment among the young are
very low, especially in South and East Europe
Youth Employment and Activity
Economic Dependency Ratio
EDR =
Unemployed  Inactive  Old Age  Young Population
Employed
EDR = Demographic Dependency Ratio  WorkingAge Dependency Ratio
Demographic Dependency Ratio =
Old Age  Young Population
Employed
WorkingAge Dependency Ratio =
Unemployed  Inactive
Employed
EDR in CAM Blocs, 2009
CAM European
Bloc
Demographic
Dependency
Ratio
Working-Age
Dependency
Ratio
Economic
Dependency
Ratio
Central
0.76
0.48
1.24
East
0.76
0.78
1.53
North
0.72
0.38
1.10
South
0.84
0.69
1.53
UK
0.74
0.44
1.18
Development, Demography and Migration
SCENARIO PROJECTIONS:
ECONOMIC DEPENDENCY RATIO
EDR in Europe
Economic Dependency Ratio
North Europe
Central Europe
2.0
1.8
1.6
1.4
1.2
1.0
90
2.0
1.8
1.6
1.4
1.2
1.0
00
10
20
30
90
2.0
1.8
1.6
1.4
1.2
1.0
00
East Europe
10
20
30
2.0
1.8
1.6
1.4
1.2
1.0
00
10
20
90
00
10
UK
2.0
1.8
1.6
1.4
1.2
1.0
90
South Europe
30
90
Reduced government
China US intervention
regionalisation
multipolar governance
00
10
20
30
20
30
EDR in Japan, China, USA
Economic Dependency Ratio
Japan
2.0
1.8
1.6
1.4
1.2
1.0
90
00
10
USA
China
20
30
.92
.88
.84
.80
.76
.72
.68
90
2.0
1.8
1.6
1.4
1.2
1.0
00
10
20
30
Reduced government
China US intervention
regionalisation
multipolar governance
90
00
10
20
30
EDR in Central Europe
Economic Dependency Ratio and its components
Central Europe
Economic Dependency Ratio
2.0
1.8
1.6
1.4
1.2
1.0
90
00
10
20
30
Demographic Dependency Ratio
Working-Age Dependency Ratio
0.9
0.9
0.7
0.7
0.5
0.5
0.3
90
0.3
90
00
10
20
Reduced government
China US
Regionalisation
Multipolar governance
30
00
10
20
30
EDR South Europe
Economic Dependency Ratio and its components
South Europe
Economic Dependency Ratio
2.0
1.8
1.6
1.4
1.2
1.0
90
00
10
20
30
Demographic Dependency Ratio
Working-Age Dependency Ratio
0.9
0.9
0.7
0.7
0.5
0.5
0.3
90
0.3
90
00
10
20
Reduced government
China US
Regionalisation
Multipolar governance
30
00
10
20
30
Development, Demography and Migration
REGIONAL FOCUS: WEST ASIA AND
NORTH AFRICA
EDR North Africa and West Asia
Economic Dependency Ratio and its components
North Africa
Economic Dependency Ratio
3.2
3.0
2.8
2.6
2.4
2.2
2.0
90
00
10
20
30
Demographic Dependency Ratio
2.0
1.8
1.6
1.4
1.2
1.0
0.8
90
00
10
20
30
Working-Age Dependency Ratio
2.0
1.8
1.6
1.4
1.2
1.0
0.8
90
00
10
20
30
Reduced government
China US
Regionalisation
Multipolar governance
Economic Dependency Ratio and its components
West Asia
Economic Dependency Ratio
3.0
2.8
2.6
2.4
2.2
2.0
1.8
90
00
10
20
30
Demographic Dependency Ratio
2.0
1.8
1.6
1.4
1.2
1.0
0.8
90
00
10
20
30
Working-Age Dependency Ratio
2.0
1.8
1.6
1.4
1.2
1.0
0.8
90
00
10
20
30
Reduced government
China US
Regionalisation
Multipolar governance
Youth
Unemployment
in WA, NA
Youth
Unemployment
Unemployment Activity and Inactivity
Rate
Rate
Ratio
Middle East
Bahrain
Iran, Islamic Republic
of
Iraq
Jordan
Kuwait
Lebanon
Oman
Saudi Arabia
Syrian Arab Republic
Turkey
Yemen
North Africa
Algeria
Egypt
Libyan Arab Jamahiriya
Morocco
Sudan
Tunisia
32%
45%
68%
24%
17%
19%
31%
23%
32%
11%
24%
32%
26%
31%
29%
27%
35%
29%
40%
16%
30%
40%
37%
76%
83%
81%
69%
77%
68%
89%
76%
68%
74%
22%
25%
29%
30%
27%
23%
28%
34%
37%
36%
35%
33%
78%
75%
71%
70%
73%
77%
AN INITIAL POLICY SCENARIO
AN EMPLOYMENT-FOCUSED ECONOMIC
RECOVERY FOR EUROPE
Scenario Characteristics
 We construct a scenario that programs changes in
macroeconomic policies that can stimulate an
employment-focused economic recovery in
Europe (as well as in the US);
 We compare this scenario’s results with those of
a baseline scenario (note: we are using the past
set of scenarios applicable in Fall 2011)
 We are in the process of comparing this scenario
to AUGUR’s three European sub-variant scenarios
Specific Policy Assumptions
 Main Policy Changes:
 An increase in government expenditures
 These expenditures are programmed to modestly
stimulate private investment (ratio of 1 to 0.2)
 A modest stimulus is imparted to bank lending to
reinforce the desired increased in private investment
 Note: public expenditures and private investment are
marshalled explicitly to target an increase in the
employment rate, not economic growth alone
Employment Targets
 The Employment Target is based on a specific ratio of the
number of employed to the number of people of working
age
 Important Point: we calibrate the size of the fiscal
stimulus needed to achieve a desirable, but also feasible,
level of this ratio for each European bloc and the US
 The Specified Targets:
 North Europe, West Europe & the UK: 70 - 74%
 South Europe: 62%
 East Europe: 60%
 The US: 72%
 Note the lower, more ‘realistic’, targets for South
and East Europe
Supportive Policies:
Government Revenue
 In order to contain future government deficits, we boost
government revenue in conjunction with the projected
increases in expenditures (based on reverting to past
historical trends, before the crisis)
 Targeted Increases in Government Revenue (government
income as a ratio to GDP):
 West Europe and the UK: 25%
 South Europe: 23%
 East Europe: 21%
 The US: 20%
Supportive Policies:
The Real Exchange Rate
 In order to contain the possible negative effects of the fiscal
stimulus on each bloc’s current account, we set targets for each
bloc’s Real Exchange Rate (calibrated to offset the projected
effects on its current account)
 We set a ceiling ratio of 1 on the real exchange rate of the US
dollar as a global reference point
 We assume a break-up of the Eurozone since the targets for the
real exchange rate for the two major blocs differ:
 West Europe: 1.3 (appreciation)
 South Europe: 0.75 (depreciation)
 Targets outside the Eurozone also vary:
 North Europe: 1.7 (large appreciation)
 East Europe: 0.55 (large depreciation)
 UK: 0.9
Employment Growth Scenario:
Results Summary
 Core results:
 Economic growth is more rapid across the board compared to
that of the baseline scenario
 Growth of government expenditure is at first rapid but it
markedly slows down in most blocs after 2015
 Government deficits are eliminated or significantly improved
 Government net income as a ratio to GDP is increased in the
majority of the blocs
 Government debt falls dramatically in all blocs
 Domestic price inflation remains relatively subdued across the
blocs despite the fiscal stimulus
 Most importantly, employment markedly rises across the blocs
Economic Growth
Average growth jumps from 0.8% per year to 3.5% in South Europe, and
from 2.1% to 5.5% in East Europe
Moderate increases in North Europe, the UK and the US
Modest increase in West Europe
Average Growth Rate of GDP
Employment Scenario
Bloc
North Europe
West Europe
UK
South Europe
East Europe
USA
Bloc Code
eun
euw
uk
eus
eue
us
(2012-2030)
3.2
2.1
3.4
3.5
5.5
3.9
Baseline Scenario
(2012-2030)
2.4
1.7
2.0
0.8
2.1
2.8
Employment Rate (%)
 Employment Rate results:
In some blocs the employment outcomes by 2030 exceed our targets
Migration contributed to these increases in North Europe, UK, and South
Europe
Workers return to East Europe, a region that had suffered from marked outmigration after the mid-1980s
Employment Scenario: Employment Rate (%)
Bloc
North
Europe
West
Europe
Bloc
code
Employment Scenario: Net Migration as % of Employment
2009 2015 2030
Bloc
North
Europe
West
Europe
2000
2008
Eun
72.5
74.8
72.4
73.3
75.6
Euw
64.3
67.8
67.6
68.8
71.1
UK
South
Europe
East
Europe
uk
70.8
71.4
69.5
70.7
73.6
eus
56.3
61.7
59.1
59.5
64.1
eue
56.2
57.0
56.2
57.2
62.4
UK
South
Europe
East
Europe
US
us
72.3
69.7
66.2
66.6
71.9
USA
Bloc
Code
2000
2008
2009
2015
2030
eun
0.33
1.04
0.98
0.94
1.43
euw
0.38
0.36
0.34
0.31
0.15
uk
0.55
0.68
0.72
0.85
1.33
eus
1.29
1.73
1.61
1.43
2.02
eue
-0.24
0.09
0.08
0.15
0.42
us
1.20
0.65
0.68
0.61
0.60
Net Lending (% of GDP)
 Net Lending converges towards zero in all blocs
 Although this ratio dramatically improves in blocs such as South Europe and
the US, it remains negative
 Government deficits are improved due to the eventual slowdown in
government expenditure after an initial increase and an improvement in
government net income. (Also helping is the acceleration in the growth of
GDP, the numerator of the ratio)
Employment Scenario: Government Net Lending as % of GDP
Bloc
Bloc
Code 2000 2008 2009 2010 2011 2012 2015
2030
North Europe eun
6.7
7.7
1.3
-0.5
-0.3
0.1
-0.6
-2.9
West Europe
euw
0.2
-0.9
-4.7
-5.2
-4.3
-3.6
-1.4
0.8
UK
uk
1.3
-4.9
-11.3
-11.3
-9.4
-7.6
-3.6
0.9
South Europe eus
-0.9
-3.9
-8.6
-10.3
-10.3
-9.9
-6.5
-2.4
East Europe
eue
-3.6
-3.2
-6.2
-6.5
-5.2
-3.6
-1.4
1.0
USA
us
1.5
-6.1
-11.1
-11.4
-9.8
-8.3
-4.7
-2.2
Falling Debt: Two Examples
 Government Debt (% of GDP) falls dramatically in all blocs.
 South Europe’s debt burden is also reduced but not as
substantially as one would hope. In these circumstances, some
debt restructuring or relief is desirable (as is happening now)
UK
South Europe
160
110
140
100
120
90
132%
100
80
80
70
88%
60
60
50
40
20
1980
80%
1985
1990
1995
2000
2005
2010
2015
Employment Growth Scenario
Baseline Scenario
2020
2025
2030
40
1980
1985
1990
1995
2000
2005
2010
2015
Employment Growth Scenario
Baseline Scenario
2020
2025
50%
2030
Exchange-Rate Impact: 4 Blocs
 The current accounts of S. Europe, E. Europe and UK all progressively improve
 But the US continues to slide into deeper current-account deficits
East Europe
South Europe
4
2
2
0
0
-2
-2
-4
-4
-6
-8
-6
-10
-12
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
-8
1980
1985
1990
1995
Employment Growth Scenario
Baseline Scenario
2000
2005
2010
2015
2020
2025
2030
2020
2025
2030
Employment Growth Scenario
Baseline Scenario
UK
USA
4
1
3
0
2
-1
1
-2
0
-3
-1
-4
-2
-5
-3
-4
1980
1985
1990
1995
2000
2005
2010
2015
Employment Growth Scenario
Baseline Scenario
2020
2025
2030
-6
1980
1985
1990
1995
2000
2005
2010
2015
Employment Growth Scenario
Baseline Scenario
Domestic Price Inflation
 Despite the fiscal stimulus, domestic price inflation remains
subdued across the European blocs and the USA (with the
highest rates recorded in the UK and East Europe)
Employment Growth Scenario: Domestic Prices (Expenditure Deflator) annual % change
Bloc
Bloc
Code 2000-08 2008-09 2009-10 2010-11 2011-12 2012-15 2015-30
North Europe
eun
2.3
1.7
1.8
2.9
1.6
1.5
0.6
West Europe
euw
1.7
0.1
0.9
2.2
1.8
1.8
1.2
UK
uk
2.6
1.8
3.4
4.3
3.0
3.4
2.8
South Europe
eus
3.0
0.4
1.0
2.0
1.5
2.3
2.7
East Europe
eue
5.2
2.1
1.9
3.0
3.2
4.1
3.9
USA
us
2.8
0.2
1.7
2.7
1.3
0.9
1.7
Future Research and Modelling
 We will be re-running this scenario on the basis of the
modified baseline (for Deliverable 4.1) and including the
Economic Dependency Ratio as an outcome
 We will compare our results to those for the three
European Sub-Variant Scenarios: EU Breakup, Federal
Europe and Multi-Speed Europe (in some of which
employment rates are also targeted)
 In the latter two scenarios, regionalisation is the underlying
context so their results naturally differ from ours
 We will focus more in the future on such factors as youth
unemployment and net migration flows
 We will also devote more attention to the policy
implications of our findings, addressing the current debate
on growth strategies and employment policies for Europe