Abstract
The European Union is facing a fundamental demographic transition. Centuries of scientific, economic and social progress have helped reduce mortality among the young and middle-aged and have expanded our choice of lifestyles. Today the average European lives a longer and healthier life than his or her ancestors. This is a huge historic accomplishment to be celebrated.
Europe is the first major world region facing such population ageing. The political challenges it brings are new, but not unforeseen. Public policy issues include access to quality public services and health care, the sustainability of public finances, as well as intergenerational solidarity and equity.
The ageing of Europe's population is no longer an abstract future scenario: it is a fact that is becoming increasingly evident today as the baby boom cohorts born between 1945 and 1965 reach retirement age. This will result in the number of persons of working age declining considerably over the coming two decades while the number of pensioners increases. If current projections prove correct, not only will the resources needed to support a growing number of elderly people be ever scarcer, but the needs of the elderly in terms of health care and pensions will rise. European policy makers have a window of opportunity of around one decade during which employment can still grow, thanks to higher labour force participation. During this time, measures need to be taken to tackle the challenges of ageing.
What the demographic challenge entails
There are three drivers to demographic change: fertility, mortality (or life expectancy) and migration. Europeans’ reproductive behaviour has undergone a change in terms of the number and timing of births. Women tend to give birth later in life while the European fertility rate has fallen, dropping from an average of 2.5 children per woman in the 1960s to 1.5 in 1993, though it has remained stable since then. The number of births ceased to be the main contributor to population growth in the early 1990s. Today, migration has become the source of population growth within the Union. More than three-quarters of the EU's population growth is due to immigration from non-EU countries. At the same time, life expectancy is increasing, and this also increases the population. Since 1960, we have gained eight extra years of life on average; over the next four decades, we could gain another 5 years. People aged 80 and over, who account for about 4% of the total EU population today, are expected to make up 11% in 2050; they are the fastest-growing age group in the EU. The percentage of people aged 50 and older will also increase, from 35% in 2006 to 48.4% in 2050.
Demographic ageing is a challenge facing all 27 Member States (and most of the rest of the world too), albeit to varying degrees. According to recent projections, Bulgaria and Latvia are likely to be most affected by a decline in population, while Cyprus and Ireland will see their populations grow as a result of immigration and high birth rates.
The impact of this demographic change also varies from region to region. Some regions, particularly in the east of the European Union, already have to cope with shrinking populations, mainly due to an outflow of younger people to more prosperous regions with better opportunities. These deserted regions are then left to cope with the needs of their ageing citizens.
The socio-economic dimension of demographic change
Demographic change calls for a review of welfare systems to ensure that they can continue to deliver solidarity and social inclusion. Long-term projections show that potential GDP growth in the EU could halve as a result of the decline in the working age population from 2.5% in 2004-2010 to 1.25% in 2031-2050. Europe's capacity to provide adequate pensions as well as health and social services for the ageing baby boom cohorts depends largely on whether the effective retirement age can be raised further. The European Union has set two benchmarks for senior employment: the 2001 Stockholm European Council set a target of a 50% employment rate for the 55-64 age groups, and the 2002 Barcelona European Council set the goal of raising the average age at which people stop working by 5 years by 2010. Substantial progress has already been made in achieving those goals. According to the most recent data available, the EU average for employed workers aged 55-64 rose by 7% points from 36.6% in 2000 to 44.7% in 2007. The labour market exit age for the EU-27 rose to 61.2 years in 2006 (compared with 59.9 in 2001).
The ageing baby boomers represent a huge potential for increased employment, but this is not the only way in which they can and will contribute to society. Active ageing covers more than just labour market activity. Today voluntary and unpaid work performed by older people contributes to a wide range of social activities. In many Member States, between 10 and 20% of people aged 50 and over are already active as volunteers, which makes volunteering an important social phenomenon in this age group and one that is worthy of attention and support at the Member State and EU level.
As the baby boomers grow older, the demand for long-term care will also increase. Long-range projections show that public spending on health care and long-term care in the EU could rise by 2.25% points of GDP up to 2050. Much will depend, of course, on how healthy we remain as we age and at what age physical and mental decline sets in. But it seems inevitable that financial pressure on welfare and health systems will increase. The extent to which this happens will depend on how much we can promote healthy ageing and support autonomy by removing barriers to communication and mobility obstacles for the frail elderly, who would otherwise have to be cared for by their relatives or in institutions.
The opportunities in demographic change
All this should not make us forget that demographic change is first and foremost an achievement and brings great new opportunities for building a better, more cohesive society. In 2006, the European Commission's communication on The demographic future of Europe-from challenge to opportunity identified the main policy fields that will open up new room for political manoeuvring.
Obstacles to having children and raising them in the best possible conditions can be removed, so that demographic renewal becomes possible. This requires offering better opportunities for parents, mothers in particular, to reconcile a professional career and a satisfying private and family life. Society will benefit from increased female labour market participation, but this will only be possible if affordable high-quality child care and, increasingly, care for the dependent elderly are provided. Flexible working time and leave arrangements and more equal sharing of household responsibilities between women and men are also required.
In Europe's modern welfare states, it is the working population's size and productivity that determines the living standards of the young and the old. The greatest potential for more and better employment lies with women, older workers and other disadvantaged groups. Public policies can unlock this potential by increasing the attractiveness of work and the employability of individuals. Clearly, however, demographic trends limit the potential for growth through higher employment rates in Europe. Increased productivity, therefore, will be the key to ensuring that growth rates keep up with the demands of our ageing societies. In particular, greater investment in education is required to boost human capital. At the same time, Europe is fortunate in being highly attractive to immigrants, who can help alleviate labour force shortages. However, we have to be more successful than in the past in integrating them and their offspring and we have to become much more attractive for highly skilled workers to come to Europe.
The ageing of the population will increase public expenditure on pensions, health and long-term care in all Member States. The Stability and Growth Pact recognises that pursuing sound medium-term fiscal policies is a prerequisite for ensuring sustainable public finances over the long term, alongside employment- and growth-friendly policies. While we still have a relatively large working age population, budget consolidation will put us in a much better position to face future demands on our welfare and health care systems. However, budget consolidation must be envisaged now, while growth prospects are still favourable and before the baby boom cohorts retire.
The European Commission's policy contribution
Demographic change became a priority EU issue when it was discussed by the heads of states and governments at the Hampton Court informal summit in October 2005. The Commission's Green Paper Confronting demographic change: A new solidarity between generations (March 2005) helped to trigger this major policy debate. The Commission has continued to support this debate by setting up platforms for the exchange of experience, in particular in the form of biennial forums and reports on the demographic situation in Europe (the next forum will take place in Brussels on 24 and 25 November). The Commission's communication on the renewed Social Agenda and the European Employment Strategy also takes population ageing fully into account. At the end of the year 2008, the Commission will present another communication on the special needs of an ageing population. Furthermore, in line with the February 2006 ECOFIN Council conclusions, the updated long-term economic and budgetary projections prepared jointly by the Commission and the Member States will be released in spring 2009.
Many of the committees and groups dealing with other policy areas are also very active in the debate on how to tackle the challenges of demographic ageing. To coordinate social policies in the Member States, in 2000 the European Council decided to establish the Social Protection Committee, a group of experts from national governments. This Committee oversees the Open Method of Coordination, which focuses in particular on pensions, health care and long-term care. The Commission has also set up an expert group comprising demography experts from national ministries. The 2007 German Presidency of the Council was instrumental in establishing the European Alliance for Families, a platform for promoting better policies for families, in particular through reconciling work, family and private life.
Conclusion
The demographic transition we are currently witnessing is possibly the most far-reaching social transformation affecting the European Union today. Its effects raise fundamental questions of social justice and concern all Member States, albeit to varying degrees. Yet demographic ageing is first and foremost positive news and also holds out opportunities. While population ageing confronts policymakers all over Europe with the task of rethinking welfare systems and striking a good balance between work, family and private life, it also offers opportunities for business, volunteers and, most of all, for the elderly themselves, who are set to enjoy longer lives and better health.
Footnotes