REPORT FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT - The demographic situation in the European Union - 1995
Date: 1996-02-23
Institutions: European Commission
Subjects: demographic analysis, employment policy, population ageing, population dynamics, population statistics

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 23.02.1996 
COM(96) 60  final 

REPORT FROM THE COMMISSION TO THE COUNCIL 
AND THE EUROPEAN PARLIAMENT 

The demographic situation in the 
European Union 

- 1 9 9 5-

Note to the reader: 

All the statistics presented in this report were supplied by the Statistical Office of the 
European Commission. The authors would like to thank their Eurostat colleagues for 
their help and hard work. 

TABLE OF CONTENTS 

INTRODUCTION 

1 

2 

THE POPULATION OF T HE  U N I O N:  OVERVIEW AND PERSPECTIVES 

THE DEMOGRAPHIC FUTURE 
2.1 

The demographic future and employment 

2.2 

The demographic future and social protection 

CONCLUSION 

ANNEX 
COMPARATIVE INDICATORS OF THE EFFECTS OF DEMOGRAPHIC 
AGEING AT NATIONAL LEVEL 

1 

2 

12 
13 

18 

29 

31 

INTRODUCTION 

The  1994 report on the demographic  situation  provided  a detailed description  of the  situation  in the 
European Union and analysed its origins. The Commission's intention was thus to  present  a general 
reference framework relating to the main aspects of European population trends. 

This  second  report  continues  this  approach  by  taking  a  look  at  the  medium  and  long-term 
perspectives.  It is, however,  more selective, in that the emphasis  is on  providing  a  first  Community 
study focusing on the dominant  factor  in our demographic  future: the extent  and acceleration  of the 
ageing process. 

Although  demographic  ageing  is  by  no  means  a  new  phenomenon,  it  has  now  assumed 
unprecedented  proportions  owing  to  the  post-war  "baby-boom",  and  the  "baby-bust"  which 
immediately  followed. Over  the  next  few  decades,  Europe  will  increasingly  be  confronted  with  the 
consequences  of these  past  demographic  upheavals.  The  recent  demographic  changes  mean  that 
Member  States will  experience  ageing  in different  ways and to differing  degrees,  but  in  all of them 
there will be numerous  effects  in fields such as the economy  (in its widest  sense), social protection, 
solidarity between generations, and the dialogue between the social partners. 

As a result  of the  interdependence  and the  balance  between the  various factors and, above  all, the 
specific situations in each country, there is no single answer to the question as to  how best to adapt 
our systems to the foreseeable demographic  changes. Nevertheless,  it  may  be useful to develop at 
EU  level  coherent  means  of  measuring  the  effects  of  ageing,  based  on  identical  methods  and 
consistent statistical data. This approach will make it possible to produce an initial draft framework for 
any discussion and analysis of the economic and social changes which the Commission  may seek to 
pursue in the future. In this context the aim of the report is to give an input both to the debate initiated 
by the Commission on the future of social protection (The future of social protection: a framework for a 
European debate COM(95)466 final)  and to the development  of the  European  employment  strategy 
(77ïe European employment strategy: recent progress and prospects for the future COM(95)465 final). 

This is the concept applied in the following report, where the question is to quantify the role played by 
purely demographic changes in various aspects of economic and social life in the EU. The report does 
not claim to provide the elements for economic forecasting, far from it; it merely  attempts to pinpoint 
the  constraints  which  future  demographic  changes,  regardless  of  any  other  factors,  will  impose  in 
related areas. 

1  - THE POPULATION OF THE  UNION: OVERVIEW AND PERSPECTIVES 

Economic  performance,  employment  and social  protection  are  currently  sources  of  concern  to all 
Member  States  of  the  Union.  At  Community  level,  the  situation  has  given  rise  to  extensive 
discussions, coordination  and even, in the  case of employment,  the formulation of specific  objectives 
such as those  set out at the Essen  and Cannes  summits. The European  Union  is now witnessing a 
specific type of demographic  change  requiring it to face  up to the  knock-on  effects of previous  major 
age-pyramid  irregularities.  This  development  imposes  new conditions  affecting  how questions  of 
employment  and social protection are to be approached.  It should certainly be taken  into  account, all 
the  more so because  it makes it possible to take  a long-term  view  and  evaluate  such  aspects as the 
likely  effects of the  Union's demographic  development  in these  two  areas.  Let one therefore  start by 
considering the parameters of this demographic future. 

Towards a shrinking population ? 

Regardless of the  development  scenario  adopted  by Eurostat,  future  population  growth would  be  no 
faster than in the past. A glance  at the figures since  1960 reveals that apart from the "spurts" resulting 
from the various enlargements of the Community,  population growth in the Union has been slow. 

No  sudden  changes  are likely  in the future.  Moderate  immigration  and the continuation  of  recent 
fertility trends might even lead to a fall in total population. 

Figure 1 

EUR15 

EUS12 

EUR12+ 
C =l 

EUR10 

EUS? 

500 

450 4-

400 

350 

300 

250 

200  |  EUR6 
150  -
100 

n 1957 

1972 

1981 

1986 

1990 

1994 

High 

Medium 

Low 

300 

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The moderate  growth of the Union's population and the effects of successive enlargements 

The slow growth experienced by the Union is not a worldwide  phenomenon. 

Although  mortality  and fertility are declining worldwide,  and even  more  rapidly than  initially  estimated 
by the United Nations Statistical Office  (which is revising its forecasts accordingly), the fall thus started 
is by no means giving rise to an absolute decrease  in numbers: fertility  is still very  high in developing 
countries, where it applies to very young populations  (many women of childbearing  age). The result is 
that during the next century the Union's demographic weight in the world will decline. 

Figure 2 

1993 

2025 

Other Med 
2.6% 

Other 
Med.2.8% 

7 3% 

1.5% 

NAFTA 
6.8% 
MERCOSUR 

'ndia 
16.3% 

MAGHREB  3.6% 

1.2% 

CEEC 
1.2% 

NAFTA 
6.1% 

MERCOSUR 
3.5% 

Rest of the 
world 
36.8% 

CEEC 
0.8% 

India 
16.8% 

'MAGHREB 
1-4% 

The declining demographic importance of the Union on a world scale 

HOW SHOULD THESE FORECASTS BE INTERPRETED? 

In order to estimate future trends within a population, three types of trends must be examined: the 
birth rate, death rate and migration. Moreover, each of these trends must be examined in terms not 
only of age group (fertility)  but also  in terms of age and sex  (mortality  and migration). There  is a 
definite,  if  rather  imprecise,  link  between  demographic  change  and  the  socio-economic 
environment:  working  conditions,  social  status,  standard  of  living,  education,  state  of  health;  all 
these factors may have implications on fertility, mortality and migration. This means there is a link 
between  economic  policies,  particularly  with  regard  to  employment,  or  social  policies,  and  the 
demographic  changes  envisaged  in  Eurostat's  three  scenarios.  In  these  scenarios,  the  links 
between demographic postulations and the socio-economic context can de described as follows: 

HIGH: 

LOW: 

MEDIUM: 

high  fertility  (approaching  2  children  per  woman  in  2025),  low  mortality  (rapid 
increase in life expectancy to 84-86 years in 2025 for women and 79-82 years for 
men); considerable immigration (800 000 persons/year). 
This  would  for  example  require: greater  support for women  and families,  less 
poverty  and  exclusion,  better  health,  fewer  immigration  controls  and  good 
employment conditions. 
low fertility (stagnation or continued decrease); high mortality (little improvement in 
life expectancy: 79-81 years for women and 74-76 years for men); low immigration 
(250 000/per year) 
This would  for  example  require: lowering of social-protection standards, slower 
progress in terms of living standards and health conditions, closure to immigration 
or less significant economic incentives. 
the average of the results of the two preceding scenarios. 

These projections have the advantage of permitting comparability  between all the Member States. 
Eurostat is currently compiling more detailed scenarios allowing forecasts up to 2050, a time scale 
needed if certain demographic processes are to be assessed. However, it should be noted that the 
results  of  projections  involve  a  certain  degree  of  uncertainty,  particularly  as  regards  age 
distribution. This  aspect  was  also  covered  in the  1994  report  on the  demographic  situation  (see 
Chapter  1.6). 

More  old  and  fewer  young  people: 

the  ageing 

process 

The most striking feature of Community demography  is the nature of ageing, as reflected by a faster 
increase  in  the  elderly  :  young  people  ratio.  The  extent  of  Community  ageing  takes  a  number  of 
forms. 

•  The  median  age  (the  age separating the  population  into two  groups  of  equal size)  increased  by 
only four years (from 32 to 36) between 1960 and 1995. Between now and 2025, a shorter period, 
it will increase by more than twice that, to 45. 

•  The proportions of the population aged less than 20 or more than 60 years respectively will reverse 
by  2025. The  younger  group  is  currently  larger,  but  the  relative  sizes will  approach  equality  by 
around 2025, after which the proportion accounted for by the older group will grow continuously. 

•  Over  the  next  30  years,  the  three  groups  broadly  corresponding  to  the  social  and  economic 
structure in terms of the role they play (children and students [i.e. those economically dependent]; 
active adults; retired adults) will undergo considerable changes in numbers. 

Between now and the year 2025: 

•  The number of young people aged under 20 will fall by 9.5 million, or  11%. This will have a direct 
impact  on  the  organisation  of  services  targeted  specifically  at  the  young  (educational 
infrastructure,  for  example)  and  attention  must  be  paid  to  ensuring  that  their  quality  of  life  and 
scope for fulfilment is preserved despite their decreasing number. 

•  The "adults of working age" group will also decline, but to a lesser extent (6.4%). Nevertheless, this 

age group will lose 13 million people, significantly altering human resource availability. 

Figure  3  (Based on the "medium" scenario) 

Growth in numbers between 1995 and 2025 

0-19 

M-M 

'  6fl+ 

Relative increase in the three groups 

Young and old people: reversal of the 
relative proportions of the population 

20-59 

60 years and  over 

M 

« 

N 

Retired  adults  will  see  their  numbers  increase  to  over  37  million,  a  rise  of  some  50%.  This 
spectacular  increase  is  the  result  of  "baby  boomers"  progressively  reaching  retirement  age. 
Against this background, how can funding for pensions and health services be guaranteed? 

DEMOGRAPHIC AGEING MUST NOT BE CONFUSED WITH A DECREPIT SOCIETY 

Demographic  ageing  should  in  no way  be  assimilated  to  the  concept  of  regression  occasionally 
associated with biological ageing. This process actually arises from two major trends characterising 
modem societies: 

- 

- 

the  scope  for  couples  to  decide  the  number  and  spacing  of  their  offspring  freely  and 
independently has led to a drop in fertility; 

social and medical progress has permitted a longer life-span in better health, resulting in a 
continued drop in mortality. 

However,  these  successes  are fragile, and care  is needed to  maintain  what  has  been achieved. 
Several fundamental questions immediately arise: 

- 

- 

Are couples really having the children they want? Many European surveys on this subject 
show, for example, that Europeans want more children than they actually have1. 

Where  are  the  limits  in  the  progress  of  health?  Victory  over  infectious  diseases  and 
improvements in living conditions have been the key factors in enhancing life expectancy. 
However, given the changes observed in certain pathogenic agents, there are doubts as to 
whether this advance can be maintained. 

- 

What does our society offer those ever-increasing numbers of very old people? 

BIRTH OF A NEW CATEGORY: THE "OVER 80's" 

Whereas  improved  life  expectancy  was  initially  achieved  by  cutting  infant  mortality,  further 
improvements are now principally due to falling mortality at advanced ages: death is occurring later 
and later.  Nowadays, children who  have  reached their first birthday  are  unlikely to  die  before the 
age of 60. 

This  means  that  the  concept  of  "the  elderly",  which  lumped  together  all  pensioners,  in  fact 
comprises two quite different categories in social and economic terms: 

- 

- 

retired  people who  are alert,  in full possession  of their  physical  and  mental  capacities  and 
are  well  integrated  in  the  economy  as  consumers  and  as  part  of  the  informal  economy 
(exchange of goods and services); 

those  persons  who  really  are  biologically  "aged", with  reduced  functional  autonomy  and 
dependent on external resources in order to be able to ensure good living conditions. 

Strictly  speaking, there  is no specific  age at which  one  passes from  one group to the  other. The 
boundary  between them does in fact vary and could be defined as the age at which, on average, 
there are only a few  years  left to  live. In any case, this category  includes the  majority  of  persons 
aged over 80, and especially the over-90s. Thirty years from now, there will be two or three times 
as many people in this age category as there are now, bringing with it a proportional increase in the 
specific infrastructure needed to cope with their particular requirements. 

See, inter alia, Eurobarometer Survey No 32 'The family and the number of children", August 
1990. 

Regional  differences  with  drastic 

consequences 

Regional disparities  in such demographic  characteristics  are becoming  a source  of serious concern. 
Highly  uneven distribution  of  ageing could completely  derail the job-creation  potential  in the  regions 
and increase the concentration of needs, and hence resources, relating to the infrastructure supplying 
specific  services.  This  could  give rise to  major  inequalities  in the  scope  individual  regions  have  to 
achieve economic and demographic growth. Against this background, the information shown on Map 
1 <NUTS 3 level) calls for specific comment. 

Towards spatial duality and bigger cities 

In several Member States, the data show both limited and extensive areas of depopulation and other, 
smaller, zones of demographic growth. A number of factors are common to these population-growth 
zones: 

the  attraction  of  the  southern  coastal  regions,  as  a  result  of  their  better  climate  and  the 
associated industrial development; 

the  increasing  density  of  metropolis  populations,  associated  with  depopulation  of  the  city 
centres (examples include the Paris region); 

population concentration in corridors more or less linking the major cities. 

Depopulation = disruption of the regional demographic structure 

A  population  decline  in  certain  regions,  such  as  in  the  former  East  Germany,  may  result  from 
emigration  and  a  decline  in  natural  growth.  It  generally  gives  rise  to  significant  imbalances  in  the 
population structure. 

These two  factors, the former  particularly  affecting  adults  and the  second,  by  its very  nature,  more 
often  young  people,  have  an  extensive  stimulatory  effect  on the  ageing  of  populations, with  all the 
consequences that this can have for the development of the regions concerned. 

THE IMPACT OF REGIONAL DIFFERENCES ON OVERALL POLICIES 

Issues such as employment or social protection are often examined in terms of an entire country. 
This is also true of demographic aspects. However, it is not unlikely that increasing disparities at a 
regional  level  might  be  responsible  for  the  trends  observed  at  a  national  level.  After  all,  the 
management  of  health-care, education  or housing  resources, or of the transport  or  labour-market 
infrastructure, depends largely on the age structure of the population at a local level. 

Moreover, regional disparities in demographic changes are also a potential source of specific social 
problem  which  are  more  difficult  to  resolve.  Certain  socio-demographic  situations  may  make 
populations  dependent  on their  place  of  residence,  for  example,  and  thus  reduce  the  scope  for 
minimising regional disparities through geographic mobility. This is true of great age, which makes 
people physically less mobile, the shortage of personal resources and the cost of housing. 

It would  be  useful to  analyse the  process  and future trends  of  regional  demographic  changes  in 
order to study their links with regional development and, above all, with employment trends. 

The two driving forces behind ageing 

1. 

The fall in fertility 

By reducing year  after year the  numbers of  new-bom children, the fall in fertility which  began about 
1965 has now produced an age pyramid steadily narrowing towards the base. 

Past  long-term  fertility  trends do seem  to  provide  some  evidence  for  the  spread  of  a  model  which 
would see the  countries  of  the  Union  converging  at  much  more  uniform  levels than  40 years ago. 
However, variations in the rate of decrease, and the considerable differences in the point of departure 
(see Figure 5) mean that Member States are experiencing the ageing process in very different ways. 

Four different fertility patterns can be identified: 

- 

The  northern  countries  (Sweden,  Finland  and  Denmark)  are  notable  for  the  upturn  in 
fertility towards the end of the 1980s: current levels are the highest in the Union (between  1.7 
and 2.1) despite a recent downward turn. 

The  central  countries 
the  Netherlands,  Belgium,  France  and 
Luxembourg),  where  since  about  1975  fertility  has  fluctuated  at  levels  lower  than  the  2.1 
threshold which would maintain the population (1.5-1.8). 

(United  Kingdom, 

Germany  and  Austria,  with  a  similar  demographic  history,  where  the  "baby  boom"  took 
place earlier and fertility levels have remained very low (1.4-1.6) for almost 20 years. 

The  southern  countries  and  Ireland  where the  fall  in  fertility  came  much  later,  but  was 
sudden and has not yet stabilised  (1.1-1.4). Accordingly, a significant disproportion  between 
the <45 and 45+ age-groups can be expected around the year 2025 in these countries. 

2. 

The fall in mortality 

Since 1960, life expectancy has increased in all countries, but it is interesting to note that the greatest 
progress has been in those countries where, initially, life expectancy was the shortest. In the past, this 
rapid progress was primarily due to reducing infant mortality.  Nowadays, it involves  particularly those 
aged  over  60,  thanks  to  the  progress  achieved  in  the  prevention  and  treatment  of  cardiovascular 
diseases and cancer. Another major contributor has been a shift towards a better lifestyle -  balanced 
diets, cessation of smoking, participation in sport and regular medical checks. 

When  it  comes  to  death,  men  and  women  are  not  always  equal.  On  average,  women  still  live 
approximately  six years  longer than  men, which  means that the  elderly  population  is  predominantly 
female. However, advances in life expectancy run parallel for both sexes. 

Figure 4 

Men 

Women 

DLift  expectancy in 1993 

•  Lift  expectancy in 19(0 

EU  93 

EU 60 

Longer life: progress and convergence within the Union 

à 

c  $ 

Figure 5 

Trends in the economic indicator of fertility over the past 40 years2 

2 

Data for Switzerland and Norway have been added to illustrate the geographical dimension of 
homogeneous demographic behaviour. 

9 

GREAT SOCIAL AND REGIONAL DISPARITIES IN LIFE EXPECTANCY 

Longer  life  is  not  a  self-evident  fact,  it  results  from  a  combination  of  behavioural  factors  (diet, 
smoking, sport, medical supervision) which are themselves strongly  influenced by socio-economic 
status  (education,  type  of  work,  income,  unemployment),  together  with  technical  progress  and 
advances in medical knowledge, the quality of the environment  (exposure to harmful agents) and 
social progress (access to appropriate care, prevention of disease and accidents, information). 

These  parameters  reveal  significant  regional  and  social  differences,  creating  major  health 
disparities. It would be worthwhile taking a detailed look at them at regional level. 

Migration: a major role in growth, but inadequate compensation for ageing 

Statistics  available  for  the  analysis  of  migration  flows  are  unfortunately  incomplete  and  often  not 
comparable  between the  Member  States. For example, some  countries  classify  asylum  seekers  as 
immigrants,  whereas  others  do  not.  Nevertheless,  the  information  we  do  have  on  flows  into  the 
European Union is sufficient to identify a number of background trends: 

Migration flows into the Union have, particularly in recent years, been very closely associated 
with particular historical events (German unification, the break-up of the Communist  Bloc and 
the  conflict  in  the  former  Yugoslavia).  It  is  unlikely  that  the  high  levels  of  immigration 
observed  between  1990 and 1994 (over  1 million  per year) will continue.  It should  be noted 
that  during  the  1970s,  the  annual  average  was  approximately  300 000,  turning  by  the 
beginning of the 1980s into net emigration. 

In  recent  decades,  controlled  immigration  of  workers  has  progressively  given  way  to  the 
immigration of migrants' families, and to asylum seekers. This is shown by the fact that the 
number of foreigners as a proportion of the entire workforce has remained steady. 

While  migration  between the  Union  and third  countries  is  highly  cyclical,  mobility  between 
Member  States  shows  a  fundamental  trend:  a  decrease  in  migration  flows  or,  at  least, 
stabilisation at relatively low levels. Unfortunately, data in this field are patchy and of varying 
quality.  More  detailed  investigation  would  help  to  understand  migratory  movements  at 
different geographical levels and thus to situate them in their own particular context. 

Given the fall in fertility and the ageing of the population, the migration balance will become 
an increasingly important factor in demographic growth in the Union. 

10 

COULD IMMIGRATION BE USED TO COMPENSATE FOR DEMOGRAPHIC AGEING? 

The question is often asked, and it is useful to have the facts to answer it. As noted above, ageing 
involves an increase in the proportion of the older generations in relation to the younger ones. The 
following  graph  shows  two  curves:  the  lower  one  comprises  the  migration  balance  (immigrants 
minus  emigrants)  estimated  in  accordance  with  a  "medium"  scenario;  in  other  words,  a  net 
immigration  of  525 000  per  year.  The  upper  curve represents the  net  immigration  to  the  Union 
which would be necessary to maintain the 60+ : 20-59 years ratio at its 1995 level. 

In comparison to current levels, net immigration to the Union would have to rise from half a million 
to 5-7 million for the "baby boom" effect to disappear completely - even though the  basic  method 
used  for  calculations  is  the  least  favourable  towards  ageing  in  that  it  ignores  ageing  among 
migrants themselves and instead regards them all as being in the active age category. The results 
of this simulation show just how inevitable demographic ageing in the Union really is. 

Figure 6 

Levels necessary 
to compensate 
totally for ageing 

Immigrants under the 
"medium" scenario 

S  S  s s a s s s s s s ss 

(N 

<N  M 

To compensate for the effects of the baby boom would require 8-14 times as many 
immigrants as is the case today. 

11 

2  - THE DEMOGRAPHIC FUTURE 

The demographic future of the Union is therefore determined by four major trends: a general, more or 
less imminent, fall in population; a decline  in the number of children and young  people, a significant 
drop  in  the  number  of  people  of  working  age  and,  finally,  an  explosion  in  the  number  of  people 
approaching  retirement  and  old  age. These  factors, which  as we  have  seen  are  structural  and  not 
curable  by  migration  (given the  tatter's  present  scale  relative  to  the  magnitude  of  these  changes), 
necessitate an in-depth study of their consequences on employment, education and social interaction 
in its entirety. 

The  demographic  trends  just  described,  and  whose  "time-bomb"  effects  will  have  a  varying  -  but 
always powerful - impact in the Member States, will be felt in a great many fields: 

1- 

The economy in its wider sense 

Hitherto centred around a certain type of goods and services, the labour  market will have to 
adapt  to  a different  kind  of  demand,  principally  in the  fields  of  education,  housing, health, 
transport and leisure. This will have to be done precisely at a time when those producing the 
resources  needed  by the economy  are steadily decreasing  in numbers  and when the future 
generations (who will have to be highly educated and trained if growth is to be achieved) will 
also be fewer and fewer in number. 

2- 

Social protection and solidarity between generations 

Around  the  turn  of the  century,  the  demographic  inflation  of  the  baby  boom  will  gradually 
begin to  affect  the  "retired" category.  This will  generate  new  problems  for  the  funding  and 
organisation  of  social  protection,  affecting  pension  systems  as  well  as  employment,  for 
example  through  the  need  to  create  new  services  as  the  number  of  very  old  persons 
increases. All  aspects  of social and family  life will  be thus dominated  by the  needs of older 
people. What  concessions will the elderly  be prepared to  make to the younger generations, 
and how will the latter finance pensions? There can be no doubt that the principle of solidarity 
between  generations  will  emerge  as a  key  factor  in the  adjustments  which will  have  to  be 
made. 

3- 

The conditions for dialogue between the social partners 

With ageing, and if present rates of economic growth are maintained, the average incomes of 
citizens  are  likely  to  be  affected.  Collective  agreements  will  have  to  take  account  of  new 
redistribution  models,  in  a  situation  in  which  the  reorganisation  of  work  in  terms  of  both 
structure and working hours may constitute a necessary response to demographic change. 

How  can  our  systems  be  adapted  to  demographic  change?  This  is the  key  question,  but  one  that 
cannot  be  answered  in  isolation. The  phenomena  involved  are  interlinked  and  strategies  must  ally 
purely  economic  imperatives  with  the  social  dimension  of  the  proposed  change.  It  is  mainly  by 
ensuring respect for and full use of its human resources that the Union will succeed in converting into 
an advantage what is currently seen as a problem. 

As  an  aid  to  analysing  the  situation, the  role  of  demographic  change  is  assessed  below  from  two 
points of view: employment and social protection. An attempt is made to provide preliminary figures to 
assist evaluation of the impact on these two areas of shifts in population structure in the medium and 
long term. 

12 

2.1 The demographic future and employment 

Activity: room for growth 

Among  all  the  possible  solutions  for  relaunching  economic  growth,  the  most  popular  is  a  general 
increase in the level of employment. In theory, and from the point of view of the population of working 
age, the pre-conditions for doing this are clearly in place: 

- 

- 

The proportion of active women over the age of  15 is significantly  lower than the  equivalent 
figure for men, especially among the older age-groups. In all cases there is still considerable 
scope for increasing activity and employment rates. 

The  young  are  particularly  affected  by  unemployment,  especially  when  we  consider  the 
proportion of the young active  population who are  unemployed. Integration of young people 
into the labour market represents a priority objective. 

The impact of early retirement  means that there are only  half as many workers in the 60-65 
age group as in the 55-59 group, although the difference in the sizes of these two age groups 
is  smaller.  The management of  retirement has  contributed to  the  fall  in  the  population in 
employment. 

Figure 7 

1994 

Women 

%  of total population 

Present demographic structure and structure of the active population 

The present demographic situation thus offers considerable scope for raising levels of employment. In 
this context,  one  might  consider  how medium-term  demographic  changes  could  perhaps  affect  this 
situation. 

13 

EFFECTS  OF  DEMOGRAPHY  ON  EMPLOYMENT  AND  SOCIAL  PROTECTION: 
METHODOLOGICAL ASPECTS OF THE SELECTION OF AGE GROUPS 

The normal convention is to consider people aged between 15 and 64 as the population of working 
age. Of course, this is not entirely correct, as on the one hand it does not cover all active  persons 
(some  persons over the  age of 65 continue to work), while  on the other  hand it  includes  a group 
(young people aged 15) which in some Member States is excluded from the labour market by law. 
However, the advantage of this convention is that it allows comparisons to be made. 

From the point of view of activity, it is known that the activity rates for the age groups at either end 
of the scale (15-19 years and 60-64 years) are well below that for the 20-59 age group and, above 
all, that the activity  of these groups is much less stable, in as far as the rates per year of age are 
distributed  in  a  non-uniform  manner  and  vary  considerably  in  time  (longer  periods  of  study  for 
young  people,  early  retirement  for  older  people).  Furthermore,  for  methodological  reasons,  the 
model  used  in  this  report  to  measure  the  impact  of  ageing  on  social  protection  (see  below) 
necessitates the selection of a more stable group, as demographic changes within the group must 
be correlated with changes in its active population.  This is why, in this report, the 20-59 age group 
is treated separately within the population of working age. In other words, analysis does not relate 
to the  population  of working  age in the stricter sense, but  only to the group within this  population 
which presents the optimum conditions from the point of view of measuring the impact of ageing. 

It should also be noted that the assessments presented below merely constitute the initial phase of 
modelling  and assume  a constant  activity  rate in the future.  Furthermore,  analyses of trends  and 
variations  in activity  and  employment  rates  and  of their  economic  and  social  consequences  are 
presented each year in the Commission's report "Employment in Europe". 

Within 10 years, significant changes in the population of working age 

At the present time, the population of working age consists of 249.1 million  persons, of whom 210.4 
million  are  aged  between  20  and  59. Within  a decade  it  is  likely  to  grow  by  between  1.5 and  5.5 
million  (Eurostat's  "low"  and  "high"  scenarios),  which  might  encourage  the  growth  of  employment. 
However, the internal structure of this group will be transformed significantly in both cases: 

the number of young people aged 15-19 will decline by just over one million (-5%); 
the number of persons aged 20-29 will fall on average by 9 million (-17%). These are the very 
groups which are currently worst  affected  by unemployment.  This gives rise to the  question 
as  to  whether  demographic  changes  might  reabsorb  some  of  the  employment  in  this 
category; 
the  30-49  age group will  increase  by  7.5 million  (+7%).  In  numerical  terms,  it  is this  group 
which is likely to see the most favourable increase in activity rates; 
the number of persons aged 50-59 will grow by 5.5 million (+12%), and keeping them in work 
takes on a particular significance in the context of achieving a high rate of employment; 
the  60-64  age  group,  i.e.  persons  approaching  the  upper  working  age  limit,  will  grow  by 
around  one  million,  compensating  for  the  fall  in  the  number  of  people  joining  the  15-19 
category. 

14 

Figure 8 

Growth 1995-2005 

1S-19 

20-29 

JO-49 

50-59 

SO-64 

15-19 

20-29 

JO-49 

50-59 

SO-64 

Ageing of the population of working age 

Decline in population of working age = decline in unemployment? 
An equation which is far from being confirmed 

In  order  to  assess  how demographic  changes  within  the  labour  market  could  themselves  reduce 
unemployment, it has carried out a very cursory simulation exercise for each of the three  age groups. 
This exercise is of course limited to analysis, the specific aim being to give an idea of the sensitivity of 
unemployment to demographic changes and possibly to changes in employment rates. 

In the following figures: 

- 

- 

line 3 indicates the number of persons in employment in 1995: 

the top curve (1) shows the trend in the number of active  persons if the  1995  activity  rate for 
this group were maintained: 

the middle curve (2) shows the trend in the number of employees if there had been an annual 
rise in the employment rate of 0.5% since 1995. 

The  fall in unemployment  resulting from  a rise in the employment  rate  of 0.5%  per year  since 1995 
varies  between  6 . 1% and  7.8%  over  the  last  11  years.  However,  owing  to  different 
initial 
unemployment levels, unemployment among the youngest group would still be nearly 9.9%  (originally 
16.6%), whilst unemployment among the 30-49 age group would be significantly lower (2.33%). As for 
people  at  the  end  of  their  working  lives,  the  demographic  effect  would  completely  cancel  out 
unemployment. 

15 

Figure 9 

95 000 000 T 

90000 000 

85 000 000  \  (2) 

80 000 000 

75 000 000 

70 000 000 

1995 

1997 

1999 

2001 

2003 

2005 

1995 

1997 

1999 

2001 

2003 

2005 

22 000000 

1995 

1997 

1999 

2001 

2003 

2005 

In the next 10 years, demographic changes alone will not solve unemployment problems 

QUESTIONS RAISED BY THE AGEING OF THE POPULATION OF WORKING AGE 

Like the  total  population, the  population  of working  age  is also  ageing,  i.e.  the  number  of  older 
workers  among  the  active  population  is  increasing  in  comparison  with  the  number  of  younger 
workers.  Furthermore,  in  the  overall  context  of  the  Union,  it  might  in  future  be  necessary  to 
increase  the  presence  of  older workers  on the  labour  market  to  meet  production  requirements. 
Even if these questions do not enter directly into the framework of this report, three of them should 
be mentioned and will necessitate more detailed analysis in the future: 

What is the link between the average age of workers and productivity? 

Since  average wages rise with  age, what will  be the  effect  of  working-age  demographic 
ageing on company  finances? 

As young workers trained in the most recent developments in their fields help to  improve 
the  average  skill  level  of  the  workforce,  how  can  this  level  be  maintained  or  even 
increased given the drop in the number of young people coming in? 

National disparities in variations in the population of working age 

The fact that  population structures  in the  Member  States differ  owing to the timing  and scale  of the 
demographic  changes  experienced  has a direct  effect  on  any  comparison  of  labour  market  trends 
over the next 10 years. 

With the exception of Italy, in all Member States where the decline in fertility has been more 
recent  (Ireland,  southern  Member  States)  the  effect  of  the  split  between  the  numbers  of 
young and old people is not expected to be felt  until later.  In these countries, the 20-29 age 
group would therefore decline only slightly in the short and medium term. 

However, in most Member States, the numbers likely to join the active population are likely to 
fall sharply, by between 10% and, in some cases, nearly 30%. 

16 

Among  the oldest  groups, the opposite trend  is expected:  in Member  States with  the  oldest 
population structures, increases in the number of older workers would vary between 10% and 
40%. 

These important changes, even over such a short period, would lead to a fall in the total 20-
59 age group population in Italy and especially  in Germany, thus requiring the labour  market 
to adjust rapidly. 

Figure 10 

Over tiie next 10-15 years, all these groups will reach 

retirement age 

_F=F 

In Germany and Italy,  even the total of 
the 20-60* group will decline 
TT 

______ 

I TOTAL 

•  20-29 

Q 25-49 

•  50-60 

The number of people likely to join the active population will 
decline everywhere,  except in Ireland and Finland 

40% 

30% 

20% 

10% 

-10% 

-20% 

-30% 

National differences in the impact of demography on employment between 1995 and 2005 

These  few  very  cursory  elements  illustrate  the  demographic  dimension  of  employment  trends. 
Eventually,  additional  in-depth  analyses  will  supplement  this  approach,  as  there  are  still  many 
outstanding  questions  relating  to  demography,  such  as  the  role  of  unemployment  in  dependency 
relationships, the impact of shifts in demographic structure on the process of labour force renewal, the 
economic  significance  of  the  increase  in  the  number  of  single  persons  based  on  the  effect  of 
differential mortality, or the association between labour force flexibility and age, by sector of activity. A 
draft monograph on the effects of demographic ageing in the Union is being prepared and within a few 
months should provide more extensive analyses as a basis for a reply to these questions. 

SPOTUGHT  ON THE REGIONAL DIMENSION 

The map of Europe today is a mosaic of areas of relative prosperity and others which are in decline. 
The  cause is a disturbance  in the balance between supply and demand at regional level,  formerly 
largely ensured by internal mobility.  The active population is becoming less and less mobile. 

Regional disparities between population mobility and the geographical distribution of jobs  may lead 
to disruptions which are accentuated by differences in population structure. 

But if a low level of development encourages emigration by potential workers, as was the case in 
certain  regions  of  Europe  in  the  past,  the  inevitable  consequence  is  the  intensification of 
demographic-structure  imbalances  between regions, with attractive ones becoming younger  while 
those suffering an exodus experience even faster ageing. 

17 

2.2 The demographic future and social protection 

Social protection is generally defined as the set  of transfer  mechanisms designed to  protect  citizens 
against  social risks, such  as sickness,  matemity,  work  incapacity,  unemployment,  old  age  and  the 
death  of  one's  partner,  dependence  and  family  responsibilities.  In  these  connections,  the  role  of 
demographic changes needs to be looked at from different angles, given that: 

- 

since  the  establishing  of  social  protection  systems,  demographic  changes  have  had 
fundamental effects on the very nature of the various social risks, thus altering the conditions 
for the functioning of transfer mechanisms; 
among  these  mechanisms,  demographic  changes  have  a  bearing  on  financial  aspects, 
affecting  both the balance of systems and, indirectly, economic growth, through the  incomes 
and behaviour of different categories of persons in society (consumption, saving); 
demographic  changes  have  implications  for  certain  societal  aspects,  through  the  social 
implications of the first two aspects (solidarity between generations, social cohesion). 

Over the next 25 years, the sustained increase in ageing which will  be produced as "baby-boomers" 
gradually  reach retirement  age above all raises the question  of financing. This aspect will be all the 
more crucial  in that, in contrast with the  increase  in the  number  of  retired  people, the  population  of 
working  age  will  be  declining  (-13  million  for  the  20-59  age  group).  Among  the  older  age  groups, 
demographic  changes will  lead to  a significant  increase  in the  number  of  very  old  persons3, whose 
health  service  consumption  is  well  above  the  average.  If  per  capita  spending  remains  the  same, 
health expenditure is thus likely to rise. In these two major sectors of social protection, funding needs 
will without any doubt go up sharply. But before attempting an evaluation  of these needs, let recall a 
number  of  fundamental  demographic  changes  which  have  affected  the  context  in  which  social 
protection has existed since its creation. 

The changing context 

Since the  establishing  of  most  social  protection  systems,  a whole  range  of  demographic,  economic 
and social aspects  have  undergone  radical and lasting changes, thus altering the framework  for the 
provision of social protection. These new elements include: 

- 
- 

different conditions for subsequent generations; 
changes in family structures; 
changes in the employment situation; 
changes in the relationships between family life and working life. 

Future demographic ageing could further accentuate these economic and social changes. 

The  changing  profiles of successive  generations 

There are major differences  in terms of numbers, and also in the social and economic  characteristics 
of  successive  generations.  The  incomes  and  living  standards  of  today's  retired  people  are  largely 
founded  on  employment  and  social  security  models  which  will  no  longer  fully  apply  to  the  next 
generations of retired people. 

Solidarity between generations,  from the point of view of the financial responsibility for retired people 
and old people in general,  will probably have to face up to the implications of this new variable. 

See Figure 18. 

18 

Changes within the family 

The social status of women has changed, but at the same time the family  model has disintegrated, to 
be replaced by individual patterns of great complexity. Not only  are certain social protection systems 
based  on the  traditional  concept  of  the  family  model  (families  mainly  dependent  on  the  husband's 
income alone, with marriages ending only on the death of one of the partners), but some of them also 
presume the provision of family support for the very old. 

Given  the  context  of  family  changes,  the  possibility for  families to  assume  such  support could 
necessitate certain adjustments to the labour man\et and the organisation of social protection. 

In this context, it would be interesting to look at the new possibilities offered  by the development  and 
spread of information technologies. 

Figure 11 

Single-parent families 
(%) 

Number of children per 
woman 

Divorces (gross rate 
per 1000) 

Single-person 
households (%) 

Families past and present 

DOES THE DECUNEIN  FERTILITY REDUCE "FAMILY/MATERNITY" EXPENDITURE? 

The decline in  fertility which is  behind the  ageing phenomenon might  at  first  sight be expected 
eventually to result in a fall in social protection costs under the heading "family/maternity".  However, 
several factors restrict the scope for savings: 

- 

- 

- 

family  and  matemity  benefits  account  for  only  a  small  proportion  of  social protection 
expenditure (less than 8%, as  against 45% for pensions/survivor's  benefits and 34% for 
health); 
changes in lifestyles (partnerships and families breaking up and reforming) could result in 
new costs; 
the  shift  in  fertility towards  the  older  age  groups  increases the  costs  associated with 
childbirth, as older mothers are considered to be more at risk and require more prenatal 
care; 
the fall in the number of children in the past has not automatically produced an equivalent 
fall in per capita expenditure on childcare and education. 

19 

Changes in the employment situation 

The employment scene has undergone fundamental changes, from three important angles, imposing 
a new order on social protection: 

- 

- 

the  population  of  working  age  is  becoming  more  vulnerable  to  unemployment.  The  social 
protection  implications  of  this  are  an  increase  in  unemployment  expenditure  and  a  fall  in 
contributions levied on wages; 
as a result of the combined effect of the prolongation of education (which means that people 
start  working  later)  and  early  retirement,  the  number  of  years  of  contributions  to  social 
protection per employee has fallen in the course of time; 
wage security  has been adversely  affected  by an increase  in temporary  and part-time work, 
thus  affecting  the  conditions  for  retirement  pension  insurance  and  increasing  the  risks  of 
exclusion. 

In  the  face  of  these  trends,  it  is  possible to  evaluate  the  benefits  to  the  Union  of regenerating 
employment.  For example, if an employment rate of 70% could be achieved throughout the Union (the 
level in the Member States in which it is highest,  and also in the  United States), 30 million  additional 
jobs  would be created. This would have a favourable effect on the basic scenarios for the funding of 
certain aspects of social protection. 

Figure 12 

Part-time work 
(men %) 

Part-time work 
(women %) 

Changes in employment 

The increase in female activity 

One of the most marked social developments of this century  has been the large-scale  investment  of 
women in the labour force. However, this trend still poses various problems in that: 

- 

the  organisation  of  work  and  services  in  general  (childcare  facilities,  timetables),  still  lack 
flexibility  and have  not yet taken sufficient  account  of the  increased  need to  reconcile  work 
and private life; 
within  couples,  women  still  tend  to  bear  primary  responsibility  for  "family  matters" 
(housework, looking after children), which places a dual load on most working women; 
access for women to the employment  market on an equal footing  as men has not yet been 
achieved, and general problems constituting de facto discrimination still remain; 
reconciliation  between  work  and  family  life  more  generally  poses  the  problem  of  the 
respective development  of  male  and female  roles. In this context,  attention  is drawn to the 
agreement  between  the  European  social  partners  (UNICE,  CEEP  and  ETUC)  on  parental 
leave, which constitutes an important contribution to the promotion of equal opportunities and 
reconciliation between work and family life. 

20 

60% 

55%  + 

2  50%  + 
>. 
> 
1  45%* 

I  40% 4» 
UL 

3 5 %* 

30% 

1 

Figure 13 

•F/W 

•  D 

• 

• 

E 
• 

•  OR 

•X 

4-
1.2 
Average number of children per women 

4-
1.8 

4-
1.4 

I 
1.6 

2 

There is no absolutely clear link between female activity and fertility in the Union. 

The population of working age - difference in the numbers joining  and leaving 

Figure 3 provided a first indication of the net variations up to the year 2025 in the various population 
age groups. It is interesting to note, again on the basis of the various scenarios, how the replacement 
of the working-age  population will progress, year after year, thus allowing  us to  assess and date the 
differences  between the  numbers  of  people joining  and  leaving  this  category.  This will  constitute  a 
useful piece of information for assessing the role of demographic ageing in the pensions sector. 

Demographic  ageing  as  found  in  the  European  Union  is  resulting  in  a  substantial  increase  in  the 
number of old people. This increase will be particularly marked soon after the turn of the century, and 
each  year  there  will  be  an  increase  in  the  number  of  persons  reaching  the  age  of  60.  Under  the 
"medium" scenario, their number will rise from 4.0 million in 1995 to 5.9 million in 2025. Growth will be 
particularly marked after 2006, with annual numbers of new pensioners never before encountered. 

This represents a sharp contrast with the future trend in the number of persons reaching the age of 20. 
The number of young people reaching the age of 20. 5.1 million in 1995, will fall to 4.2 million in 2025. 

Figure 14 

/ 
Persons  V-
V  aged 20 m*  J 

S 

3 

S 
3 
S  S 

5 
5  S 

S  S 
5 

Explosion in the number of sexagenerians 

The active population is not expected to be able to 
compensate for this 

21 

Initial spotlight on the analysis to be undertaken 

In order to assess the effect of demographic ageing on a per capita production basis, a first model has 
been designed, on which various parametric tests will subsequently  be performed. Of course, we are 
in no way talking about a model which would take account of the complexity of economic interactions, 
which have yet to be introduced. On the other hand, this much simplified model offers the advantage 
of  isolating  the  purely  demographic  impact  of  population  ageing  in  that  it  measures  the  effect  of 
variations in the numbers entering and leaving specific age groups. 

THE BASIC MODEL USED TO ASSESS THE IMPACT OF AGEING 

The model set out below constitutes a useful starting point for measuring the demographic  impact 
of  ageing  on the  cost  of  retirement  pensions.  From  an  initial  assessment  of  the  inevitable  costs 
(phase 1), various parametric simulations will be carried out to measure the effect and estimate the 
limits  of  each  variable  introduced.  The  model  is  based  on  a  distribution  scheme;  the  following 
parameters and hypotheses are involved. This initial model will subsequently  be fine-tuned to take 
account of additional aspects which exist in practice and to give  a more balanced reflection of the 
situation. 

For the moment, this model gives only a partial representation of reality, but is still very  useful as, 
in  addition to quantifying  the  inevitable  effect  of  ageing  on growth, it  also  allows  us to  measure, 
through  the  results  which  it  has  given  for  each  Member  State  (see  Annex),  at  which  point  the 
demographic differential  plays an important  role  in the  nature, extent  and timing of the  effects  of 
ageing. 

PARAMETERS 

ASSUMPTIONS 

Number of active persons 

•  Persons aged 20-59 have the characteristics 

of the active population 

Number of retired persons 

•  Persons  aged  60  and  over  have 

the 
the  retired  population 

characteristics  of 
(retirement at 60 for everyone) 

Average wage 

•  All active persons are wage/salary earners 

Average per capita production 

•  Production is entirely used for paying wages 

and pensions 

Average rate of pension contributions 

•  Variable dependent on wage and production 

Rate  of  transfer  (ratio  between  average 
pension and average wage) 

•  Fixed  at 0.75%  (it  is assumed that  average 
Fixed  at 0.75%  (it  is assumée 
pension is constant  and equivalent to three-
pension is constant  and equiv 
quarters of the average wage) 

The first results of this model are shown in the diagram below. They indicate, on an annual basis and 
as  an  average  for  the  EU  as  a whole,  how  much  of  annual  per  capita  productivity  growth  will  be 
cancelled out by the purely demographic effect on pensions. Over the next ten years, this will remain 
at a similar  level to the  past:  between  0.1%  and 0.3%.  However,  after  2005 the demographic  effect 
will  be  more  pronounced,  probably  giving  a  figure  of  more  than  0.5%  per  year.  For  a  better 
appreciation of this, it can be considered in relation to three GDP growth hypotheses. 

22 

Let take three  hypotheses  of  constant  annual growth of  1%,  2% and 3%  up to  2025.  Deducting  the 
"cost"  of  the  demographic  burden, the  model  gives  reduced  real  growth  of  0.5%,  1.5%  and  2.5% 
respectively, an effect which is far from negligible. 

Of  course,  these  initial  results  are  dependent  on the  hypotheses  adopted.  The  fact  that  these  are 
conservative  clearly  illustrates  the  order  of  magnitude  of  the  problem.  The  work  in  progress  in 
connection with the monograph on the effects of demographic ageing will make it possible to establish 
the sensitivity of the final response to the various parameters. 

0 9% 

Figure 15 

The need to improve productivity merely to meet the need of resources because of ageing 

Clearly, it is constantly becoming more of a priority to identify the best way of adapting our economic 
and  social  organisation  to  these  new  situations.  Appropriate  data  for  quantity  analysis  and  the 
development  of  models to test  the  effects  of the  various  variables  on the  different  systems  will  be 
extremely  useful in evaluating the different  options and understanding  exactly  how the differences  in 
the  previous  demographic  situations  in the  Member  States  are  at  the  root  of their  specific  features 
today, especially with reference to social protection. 

Procedure for parametric analysis based on the model 

Through  its variables, the  model  in question develops  options which  are  nevertheless  linked to  real 
circumstances.  Clearly,  if  average  per  capita  production  is  fixed,  output  under  the  model  will  be 
related to  productivity with employment  parity. It is precisely  by subsequently  varying this  parameter 
that  it  will  be  possible,  on  the  basis  of  a  given  demographic  scenario  and  in  a  comparative 
perspective,  to  test  how  productivity  should  increase  in  order  to  compensate  for  demographic 
changes. 

The  model  presented  here  makes  it  possible  to  vary  the  four  independent  parameters  which  it 
contains. To clarify  its use, it will be useful to explain precisely  how these different  parameters could 
be used to estimate how the inevitable effects of ageing, as previously  measured and presented, can 
be limited. 

- 

Variation of activity rates 

Under the first hypothesis, the model maintains parity between demographic changes and changes in 
the  active  population.  By  acting  upon  the  parameter  determining  the  active  population  under  the 
model, it will  be possible to measure the benefit to be gained from an increase  in activity  rates. The 
model  should  then  be  completed  in  order  to  distinguish,  within  the  active  population,  between 
unemployed persons and those in employment. 

23 

At the moment, there are major discrepancies  between the Member States as regards activity rates. 
Some have high levels approaching 70%, whereas others barely reach 58%. This differential  implies 
that the  margin  for  manoeuvre  under this solution will  have different  implications  depending  on the 
starting  point,  and this is why the solution  consisting of  increasing  activity will  have to  be studied at 
national level, where it will take on special significance. Moreover, the model needs to be fine-tuned to 
take account of the significant discrepancies which exist between men and women. 

Variation of retirement rates 

Officially,  retirement  age  in  most  Member  States  is 65  years. The  actual  pension  age  is  about  60 
years. A first question is how an increase in the actual pension age will affect the economy and public 
finances, even if there will be jobs enough for such an improvement  of  employment?  The first tests 
suggest that this solution would be very  profitable in the short term, producing  savings on two fronts 
(reduction in the number of pensioners and rise in the number of active  persons). The  repercussions 
of such a shift thus go well beyond a mere increase in activity rates. 

A second question is how much the actual pension age would in theory  required to be raised in order 
to keep the demographic ratio at its present level. According to simulations, the retirement age would 
have to be raised by at least six years throughout the Union, i.e. above the actual pension age.  This 
demonstrates the limitation of this option. 

Figure 16 

Test on the variation of retirement age to compensate for demographic ageing. 

- 

Variation in productivity 

At first sight, it might be thought that future demographic changes could be balanced out by increased 
productivity resulting from the development of new technologies and new forms of work organisation. 
The model shows that in the medium and long term, the rise in productivity would have to  be much 
greater  than  in  the  past,  particularly  from  the  year  2005  (Figure  15).  Without  such  an  increase  in 
productivity, room for improvement of the economic conditions for the active generation will be much 
more limited than ever before. 

Variation of transfer rates 

This solution, consisting in changing the sources of financing of the burden of non-active  persons, is 
drawing  an  increasing  amount  of  attention,  often  in  view  of  the  advantages  of  reducing  non-wage 
labour costs to ensure competitiveness and growth and increase employment. 

24 

The formulae discussed under this option may be summarised under two points: 

increase  in the  number  of  contributors;  In terms  of  the  model, this  can  be  represented  by 
variations in the ratio between active and non-active persons; 
changes the level of transfert rate between pensions and salaries; 

- 

These two  aspects  can therefore  be assessed  by the  model. At  the  moment  the  model  assumes a 
transfer  rate  of  75%  and  the  hypothesis  that  all  active  persons  are  employees,  with  wages  and 
pensions sharing their production. 

It will be possible to act upon the two hypotheses in order to measure the links between variations of 
the transfer rate and (a) the number of contributors and (b) demographic effects. 

By definition, the present model takes account only of the "distribution" formula and therefore does not 
permit  assessment  of the effect  of demographic  ageing  in a mixed system  or capitalisation system. 
However, it does have the advantage of providing a clear idea, even if a simplistic one, of the impact 
of ageing on the economic cost of pensions and on the limits to the different  solutions which could be 
envisaged  to  reduce  this  impact.  It  is  also  necessary  to  emphasise  the  fact  that  this  approach  is 
supplementary  to  detailed  analyses  of  social  protection  contained  in  the  Commission's  report  on 
"Social Protection in Europe". 

Health costs 

Experience has shown how difficult  it is to control the increase in health expenditure.  In the past, this 
increase  has  come  mainly  from  two  non-demographic  factors:  the  use  of  more  sophisticated 
techniques,  and  a  rise  in the  consumption  of  health  care  at  all  ages  (where  a  link  with  longer  life 
expectancy should perhaps be seen). 

Some studies on this subject  have also estimated that 60% of health expenditure on an individual is 
concentrated  in  the  year  preceding  death, whatever  the  person's  age.  It  is  therefore  interesting  to 
consider trends in future numbers of deaths, in order to estimate health cost fluctuations. 

According  to  the  medium  population  development  hypothesis,  demographic  ageing  will  cause  the 
annual  number  of  deaths  to  increase  from  3 725 000  in  1994  to  4  375 000  towards  2025.  This 
represents a relative  increase  of  17.5%, the amount  by which 60% of  health costs will  be  multiplied 
over the next 30 years solely as a result of the demographic effect. 

Figure 17 

Number of deaths expected 
(Medium scenario) 

4 4 00  000 

4  300  000 

4  200  000 

4 1 00  000 

4 0 00  000  -• 

3 9 00  000  -

3 8 00  000 

3 700  000 

i 

i  i 

i 

i  i  i  i 

O) 
.- 

o> 
»- 

o> 
*- 

Ô 
(N 

i 

i 

i  i  i  t  i 

i  i 
(o  <o  o 
O  Ô  S  Ô  o  o  o 
N 
N 
N 

CM 

N 

N 

N 

N 

i  i  i  t  i 

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i 

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*- 

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(N 
CM  CM 
o  o  o  o  o 
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More people at the end of their life. 

25 

A second factor must be taken into account with regard to ageing, namely the potential increase  in the 
number of dependent  persons. 

This subject  calls for  more  careful  investigation.  Nevertheless,  one way  to  approach  it is to  measure 
the  rise,  between  now  and  2025,  in the  number  of  very  old  people,  who  are  known  to  constitute  a 
higher risk of functional dependence. 

As becomes absolutely clear when such an indicator  is represented  in graphic form, it is above  all the 
number of very old people which is set to go up (to nearly three times today's figure). 

If  it  emerged  that  health  costs  for  old  people  were  correlated  with  age,  future  demographic  trends 
would thus increase health costs even  further. 

Figure  18 

aged >80 

aged >85 

aged >90 

The numbers of very old people doubled or tripled 

26 

Societal 

aspects 

The quantitative  approach to the effects  of demographic  ageing  on social  protection does  of  course 
necessitate  the  construction  of  multivariate  models  for  economic  and  demographic  forecasting. 
However,  under  no circumstances  should it exclude the social dimension  or  a qualitative  approach. 
One potential basis for the latter is the work done by the European Observatory  of the Elderly, which 
in some cases reveals major inequalities within the elderly population. Such inequalities are increasing 
and  are  closely  related  to  differences  between  individual  countries'  social  policies.  For  example, 
differences  between  pensioners' and workers'  incomes,  and  between  pension  incomes  for  men  and 
women, are  increasing. Given that  a rise  in the  number  of  inequalities  constitutes  a threat  to  social 
cohesion, this represents a major challenge to modem societies. 

At the same time  as demographic  ageing, the  present  precariousness  of  employment  and the  often 
high  rate  of  unemployment  affect  many  people's  pension  entitlement  conditions  and  could  lead  to 
major  discrepancies  among  future  pensioners.  It  might  even  cause  some  of  them  to  suffer  social 
exclusion.  Under  such  circumstances,  what  will  become  of  the  contract  of  solidarity  between 
generations? 

At an individual level, it has been shown that networks of interpersonal relations grow more fragile with 
age, with the loss of work-related contacts and the gradual disappearance of friends of the same age, 
not  to  mention  the  death  of  one's  partner,  which  affects  women  more  owing  to  the  difference  in 
mortality. Apart from the difficulties  relating to social integration or autonomy which these changes in 
relations can  give rise to,  many  older  people's  needs  in temns of  housing  or  psychological/physical 
assistance also change significantly. 

It is therefore  by no means superfluous to reiterate the fact that solidarity  between generations is still 
an  active  force  in  European  society.  This  solidarity  is  expressed  not  only  in  the  mechanism  of 
transfers between incomes, but also in much more subtle ways, which are difficult to quantify: the time 
spent looking  after dependent  persons, for example. Even in societies  in which family ties seem the 
weakest,  the  importance  and  intimate  quality  of  interpersonal  relations  "at  a  distance"  has  been 
observed in relations between generations. This represents capital built up over many years, and it will 
be essential to ensure that the phenomenon is preserved. 

27 jxi 

CONCLUSION 

These modest  attempts to quantify the  effects of demographic  changes  represent  a follow-up to the 
conclusions adopted by the Commission in its White Paper "Growth, Competitiveness,  Employment", 
in that they  emphasise  how,  in the medium  and long term, the  pressure  of demographic  ageing will 
require sustained efforts in respect of employment and economic growth. 

In this context the aim of the report is to give an imput both to the debate initiated by the Commission 
on the future on the social protection and to the development of the European employment strategy. 

One  of  the  key  aspects  of  coping  with  the  financial  burden  imposed  by  demography  is  better 
adaptation of the  labour market  and training to the needs  resulting  from these  changes. The  market 
requires significantly higher-level skills and, rather than seeking to reduce spending, it would be more 
beneficial to think along the lines of investment: investment in human capital, economic investment to 
create jobs, and social investment to encourage occupational activity, etc. 

The European social model must also evolve if its fundamental objectives are to be preserved. It has 
developed  in  a  context  of  mass  production  and  stability  in  terms  of  employment  and  skills, 
commercial  models, family  structures and working-age  population, a situation which no longer  exists 
today.  Very  significant  changes  have  taken  place  in  the  course  of  the  century,  in  terms  of 
technological  change,  specialisation,  and  equal  opportunities  for  men  and women  and  for  different 
social categories. 

Since  demographic  forecasting  helps  to  place  all  these  matters  in  a  medium  and  long-term 
perspective, the European Commission is intending to pursue its efforts in this field. One of its wishes 
is to  intensify  scientific  cooperation  with  the  national  authorities.  Such  cooperation,  which  must  be 
developed in line with available  resources, should cover  a whole range of clearly-defined  objectives, 
such  as  comparison  of  methods,  improvement  of  models  and  enhancement  of  the  statistical 
database. 

This cooperation would produce significant results and should make it possible to: 

1. 

2. 

increase  knowledge  of  the  impact  of  demographic  trends  on  employment  policies,  social 
policy and various other policy areas; 

stimulate discussion within the Union with all the  parties concerned  by the consequences  of 
demographic changes. 

The main objective of this procedure is to provide the Member States with a reference framework for 
more efficient comparisons, together with the necessary material for increased scientific cooperation. 

29 

fc 

COMPARATIVE INDICATORS OF THE EFFECTS OF DEMOGRAPHIC AGEING AT NATIONAL LEVEL 

ANNEX 

31 

Figure A.  Population growth (%)  between  1995 and 2025 for three age groups 
Medium  scenario 

Austria 

Belgium 

0-19 

20-59 

60+ 

0-19 

20-59 

60+ 

Germany 

Denmark 

0-19 

20-59 

60+ 

0-19 

20-59 

60+ 

Finland 

France 

0-19 

20-59 

60+ 

0-19 

20-59 

60+ 

Greece 

Ireland 

0-19 

20-59 

60+ 

0-19 

20-59 

60+ 

3X 

Italy 

Luxemburg 

0-19 

20-59 

60+ 

0-19 

20-59 

60+ 

Netherlands 

Portugal 

0-19 

20-59 

60+ 

0-19 

20-59 

60+ 

Spain 

Sweden 

80.0% 

80.0% 

60.0% 

40.0% 

20.0% 

0.0% f 

-20.0% 

-40.0% 

0-19 

20-59 

60+ 

0-19 

20-59 

60+ 

United-Kingdom 

0-19 

20-59 

60+ 

% 

3v 

S5 

ISSN 0254-1475 

COM(96) 60 final 

DOCUMENTS 

EN 

05 

Catalogue number  : CB-CO-96-072-EN-C 

ISBN 92-78-00610-6 

Office for Official Publications of the European Communities 

L-2985 Luxembourg 

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