Measuring ageing and the need for longer working lives in the EU. CEPS Working Document No. 417/February 2016 Wednesday, 24 February 2016

This study considers different ways of measuring the ageing of societies and their implications for public policy. The first part characterises the ongoing ageing of the population in the EU28 by relating it to past and future longer-term demographic trends for broad groups of countries. It goes beyond traditional chronological measures to include recently suggested prospective measures of ageing. The second part of the study is concerned with economic dependency ratios; a more relevant measure for summarising the economic challenges related to ageing. Three main findings emerge: first, prospective indicators of ageing reveal the challenge of population ageing to be less onerous than traditional chronological measures would suggest. Their relevance, however, will depend on the degree to which policy changes can respond to the changing age structure of the population. Second, substantial increases in the length of working lives are necessary to maintain current economic dependency ratios. Taking a year-2000 perspective view of the economic challenges of ageing shows that substantial progress has been made. Third, looking towards 2050, education will have limited direct impact on the scale of the ageing challenge.

Cyclical dimensions of labour mobility after EU enlargement. Bruegel Working Paper 2009/03, May 2009

At a time of symmetric global slowdown, migration cannot contribute as much to absorbing economic shocks as it could if the shock were asymmetric. • Early evidence suggests that the crisis has led to a drop in immigration and even net return migration from some countries. This has helped the adjustment of former EU15 host countries and has exacerbated adjustment in former source countries in the new member states. In the short run, the stock of new member-state migrants in the EU15 will fall owing to diminished job opportunities for migrants. • Changes in the unemployment rate in the host country are found to impact migration more than that of changes in the unemployment rate in the source country. In part, this can be explained by the disproportionate risk of migrants losing their jobs in the downturn. • In the longer run, the crisis is set to increase migration from the new member states compared to what would have been the case without the crisis. This is because the crisis has undermined the economic growth model of those new member states that relied heavily on external financing to fuel their growth.

Measuring Dependency Ratios using National Transfer Accounts. CEPS Working Document No. 420/April 2016

It is now widely recognised that the socio-economic changes that ageing societies will bring about are poorly captured by the traditional demographic dependency ratios (DDRs), such as the old-age dependency ratio that relates the number of people aged 65+ to the working-age population. Future older generations will have increasingly better health and are likely to work longer. By combining population projections and National Transfer Accounts (NTA) data for seven European countries, we project the quantitative impact of ageing on public finances until 2040 and compare it to projected DDRs. We then simulate the public finance impact of changes in three key indicators related to the policy responses to population ageing: net immigration, healthy ageing and longer working lives. We do this by linking age-specific public health transfers and labour market participation rates to changes in mortality. Four main findings emerge: first, the simple old-age dependency ratio overestimates the future public finance challenges faced by the countries studied – significantly so for some countries, e.g. Austria, Finland and Hungary. Second, healthy ageing has a modest effect (on public finances) except in the case of Sweden, where it is substantial. Third, the long-run effect of immigration is well captured by the simple DDR measure if immigrants are similar to the native population. Finally, increasing the length of working lives is central to addressing the public finance challenge of ageing. Extending the length of working lives by three to four years over the next 25 years – equivalent to the increase in life expectancy – severely limits the impact of ageing on public transfers.