Transcript Jukka Lassila

Demographic Uncertainty and
the Sustainability of Social
Welfare Systems
Jukka Lassila
ETLA
Finland
DEMWEL
• EU’s 5th Framework research project
• Partners from Belgium, Denmark, Finland,
France, Germany, the Netherlands, Spain
and UK.
• Utilizes population research in UPE
(another 5th framework project)
Population ageing in Europe
is due to
• Changes in fertility
– current fertility leads to negative growth
– baby-boom cohorts retire
• Decreases in mortality
• Forecasts made in the 1940's missed the
baby-boom in all industrialized countries,
• improvements in life expectancy have
been underestimated in most
industrialized countries,
• the decline in fertility in the 1990's in the
Mediterranean countries was not
anticipated by the national forecasters,
• migration has surprised forecasters in
many countries such as the Netherlands.
Quantifying demographic
uncertainty
• Use forecast errors
– too few actual forecasts
– generate baseline forecasts afterwards
• Fertility: assume the current value to
persist
• Mortality: assume the decline observed in
most recent 15 years to continue
Forecast of the Old Age-dependency Ratio in Finland
Expenditure on social welfare and
health care in Finland, % of GDP
If demographic projections are
uncertain,
• how uncertain are the ageing cost
projections?
• how should that affect policy targets? How
does it affect the use of policy
instruments? Can new instruments be
designed?
• how can economic methods deal with
demographic uncertainty?
Combining stochastic population simulations with
an economic model creates a useful tool
What if we are unlucky in future demographics?
– spell out now how sustainability will be upheld
What if we are lucky in future demographics?
– avoid too high taxes now (e.g. excess funding for
pensions)
Wise ageing policies
should be prepared
for a worse demographic future
than the expected one