Why Europeans don’t have babies

Why Europeans don’t have babies

Why Europeans don’t have babies

Written by Katinka Barysch, 29 June 2007

by Katinka Barysch

Europeans live longer, work less and have fewer babies. On current trends, the EU will not have enough workers to pay for its growing number of pensioners. Economists and policymakers have moved beyond scratching their (greying) heads in despair. They focus on what can be done to alleviate and possibly reverse the trend. That is also what they did at last week’s Munich Economic Summit that brought together some of the world’s best people on the subject (http://www.munich-economic-summit.com/mes_2007/participants.htm).

The EU’s average fertility rate is now 1.5, well below the 2.1 needed to maintain the size of a population. In Germany and Italy, the fertility rate is closer to 1, which means that each generation is 60 per cent smaller than the previous one. Even more worrying but less well-known is the fact that population decline – just like population growth – is exponential. In Germany, the birth rate started to fall in the 1960, well before Italy, Spain and other EU countries. By the 1990s, Germany was running short of 20 or 30-something potential mothers. A country that has had low birth rates for decades ends up in a ‘fertility’ trap.

Another fact that is rarely taken into account is how demographics interact with economic geography. Young people and those with skills are the most likely to leave declining areas, and women are apparently more prone to moving than men. Germany’s eastern Laender are a frightening illustration of this trend. The number of young people has dwindled, leaving the over-60s to themselves in some places. And among the 10 per cent of the population that has left the eastern Laender, there were many more women than men. In some towns, there are 160 young men for 100 young women. The fact that those men left behind tend to be unqualified and unemployed gives women little incentive to return. Similar developments can already be observed in some parts of Central and Eastern Europe, as well as in the continent’s northern and southern fringes. Europe will not age homogenously. It will be a patchwork of booming regions and those that are inhabited by octogenarians and angry young men.

No-one is yet talking about demographic micro-management. But all EU countries do need to address the inevitable raise (in many cases doubling) of the old-age dependency ratio (the number of workers to pensioners). The list of possible solutions is by now well known: work longer and harder, accept more immigrants and have more babies. But each remedy has its limits, so Vladimir Špidla, the EU’s social affairs commissioner, talks about ‘mainstreaming’ demographic concerns into all policy areas, not only pension reforms, but also education, tax, labour market and infrastructure policies.

Population decline is a European problem – globally the population is growing by 200,000 a day, adding the equivalent of Switzerland every six weeks. Some of the fastest growth happens in the EU’s vicinity, especially in North Africa and the Middle East. Children and teenagers make up over half of the populations of Iraq and Somalia. Many of them will want to move to where jobs are better and life is more stable.

But immigration can only help to alleviate Europe’s pension pressures, it cannot solve the problem. Hans-Werner Sinn, head of the Ifo Institute that runs the Economic Summit, says that even if immigrants stayed young forever, the EU-15 would need more than 190 million immigrants to keep its dependency ratio constant until 2035.

Similarly, the retirement age would have to go up to 77 if governments were to rely on this step alone to fix the pension problem. Instead, they usually adopt reform packages that include a gradual raise in retirement ages, cuts in state pension payouts and adding fully-funded ‘pillars’ to the pension systems. There are some interesting and encouraging examples of reform, for example the ‘notional contribution’ systems implemented by Sweden, Poland and Latvia. These are pay-as-you-go systems that mimic fully-funded pensions because each worker’s contributions are added up in a notional account’. Since the pension pay-out depends on how much a worker has paid in, people have an incentive to retire later.

In most other European countries reforms have been overly cautious, which may have something to do with the growing voting power of Europe’s elderly. Not only is the number of over-50s rising steadily, they also tend to be more politically active. In the last US presidential election, for example, 70 per cent of those over 65 voted, but only a third of the 18-24 year-olds. Pension reform would have to happen now, before the baby boom generation retires. But there is little sign of this.

Meanwhile, family-friendly policies are becoming increasingly popular, across the political spectrum. Munich’s assembled economists were unanimous that higher birth rates cannot solve Europe’s pension problem in the short run. Even an immediate doubling of the birth rates would only have an impact on dependency ratios in 30 years or so. But in the long run, Europe will need more babies to mitigate the economic consequences of an ageing and shrinking workforce. Can and should governments get involved?

Economists have calculated that bringing up a child costs €150,000 to €300,000 and that each child contributes a net €140,000 to a country’s pension system. The parents bear the costs but the benefits also go to those pensioners that have not raised children themselves. Therefore, some economists suggest that people with children should pay less tax and get bigger pensions. Others argue that state-funded childcare institutions are a better and more immediate way of redistributing money to those with children. The fact that France offers day care for all children over three may have helped with its impressive fertility rates. But childcare facilities alone do not make a difference: Germany’s eastern Laender have many more nurseries but fewer babies than the western part of the country.

A quick fix will not work. France has had pro-family policies since the 1870s. In Scandinavia, support for women and children runs through all aspects of life. David Willetts, the Conservative Party’s Secretary of State for Education and Skills approvingly speaks of ‘state feminism’. Nor do values or religion explain birth rates. Fertility rates are lowest in traditionalist countries with rigid family structures, such as Italy, Greece or Spain, but also Japan, South Korea and Iran. They are highest in those places that allow women to combine work with bringing up children. France’s 35-hour week gives parents plenty of free time to look after their offspring. Flexible labour markets in the UK and the US offers part-time job and makes it easier for women to go back to work after a maternity break.

Germany is almost an example of how not to do it. Education takes too long, often up to 20 years, which forces many women to delay having kids until their 30s. Women now tend to be better educated than men. But they struggle to find matching partners since many high-earning men prefer traditional stay-at-home wives. Over 40 per cent of German women expect that having a baby would be the end of their professional career. They have a point: schools close at mid-day and private child care is expensive. Part-time jobs are rare and often come without perks and social security. The expectations towards women that juggle work and kids are crushing, says Regine Stachelhaus, who admits that she only managed to bring up her son and run Hewlett Packard in Germany because her musician husband did not work regular hours.

Incidentally, Frau Stachelhaus was the only female speaker at this two-day conference. I counted fewer than ten women among the 150-odd participants. I would have though that women have a lot to contribute to debates about having babies, juggling work and families and caring for the elderly.

Katinka Barysch is chief economist at the Centre for European Reform.

Comments

Added on 02 Jan 2013 at 07:50 by Astrid Carter

I really think the reason Europeans don't have children is not because of the work schedules. I used to think this, but then every time I went back to Germany and Sweden etc all of the people in my generation (I'm 20) were too selfish to want to have children. This is the problem. It doesn't matter that the welfare state is offering money for having children, the Europeans are just too damn self absorbed to be responsible for anyone else in life. Having children makes you a better person, and it is also the most basic economic and societal structure of a country! Think about it, without families what civilization will be left? The Europeans are no replacing their parents so nobody will be able to pay for the welfare state. I think this is a product of a hedonistic spoiled generation.

Will EMU lead to a European economic government?

Will EMU lead to a European economic government?

Will EMU lead to a European economic government?

Written by David Currie, Alan Donnelly, Heiner Flassbeck, Ben Hall, Jean Lemierre, Tomasso Padoa-Schioppa, Nigel Wicks, 07 May 1999

Europe's new economy

Europe's new economy

Europe's new economy

Written by Charles Leadbeater, 05 November 1999

The impact of the euro on transatlantic relations

The impact of the euro on transatlantic relations

The impact of the euro on transatlantic relations

Written by Steven Everts, 07 January 2000

The spectre of tax harmonisation

The spectre of tax harmonisation

The spectre of tax harmonisation

Written by Kitty Ussher, 04 February 2000

The EU and world trade

The EU and world trade

The EU and world trade

Written by Richard Cunningham, Peter Lichtenbaum, Julie Wolf, 08 September 2000

The future of European stock markets

The future of European stock markets

The future of European stock markets

Written by Alasdair Murray, 04 May 2001

Breakfast meeting on 'The economic crisis'

Breakfast meeting on 'The economic crisis'

Breakfast meeting on 'The economic crisis'

27 November 2008

With Joaquin Almunia, European commissioner for economic and monetary affairs.

Location info

Brussels

Breakfast meeting on 'The future of EU financial services regulation'

Breakfast meeting on 'The future of EU financial services regulation'

Breakfast meeting on 'The future of EU financial services regulation'

25 November 2008

With David Wright, deputy director general, DG internal markets, European Commission.

Location info

London

Globalisation: Business versus politics?

Globalisation: Business versus politics?

Globalisation: Business versus politics?

Written by Katinka Barysch, 20 April 2007

Globalisation: business versus politics?
by Katinka Barysch

The CER and Accenture brought together a group of business people, journalists and policy analysts today, to discuss what the world may look like in 2020. What struck me is that there is not one debate about globalisation but several. And they hardly touch.

Business people and bankers tend to take globalisation as a given and ask how governments, businesses and workers can make the most of it. Journalists, think-tankers and politicians are more likely to ask whether globalisation is good or bad. The assumption is that it can be managed.

Two recent publications encapsulate these different approaches. Both extrapolate current trends and naturally conclude that China, India, Brazil, Russia and other emerging markets will be big global players in 2020. Mark Leonard (in his CER essay ‘Divided world: The struggle for supremacy’) then argues that the world will divide along two axis: democracy versus autocracy; and multilateral institutions versus power. Instability could result if the world’s leading states struggle to entice others into their camp.

Accenture’s report on ‘The rise of the multi-polar world’ takes a bottom-up approach. Technology, trade liberalisation and the growing reach of multinational enterprises draw emerging countries into our rules-based global market. This is a world characterised by growing flows of money, people and technology. Multinationals lure Indian programmers to Munich and Palo Alto; new R&D clusters are emerging in China; foreign direct investment last year exceeded $1 trillion.

Both visions are plausible. But are they compatible? Political differences – such as those predicted by Mark Leonard’s – have a tendency to disrupt the kind of economic interdependence that Accenture analyses.

In the scenario of a ‘divided world’, trade and investment could be tools for defending political objectives, and perhaps for spreading ideas. But countries will be less likely to employ economic sanctions to enforce their standards and values abroad. In a globalised world, cutting trade and investment ties simply creates opportunities for others. In its quest for raw materials, China has invested huge sums in African dictatorships shunned by the West. Many African countries now get as much FDI from emerging economies as from the developed world.

In Accenture’s visions, business itself could help to spread practices and underlying values. As Western multinationals move abroad, they bring with them not only money and management but also Western ideas on property rights, social protection and so on. But the flow is no longer one way. Today, 62 of the Fortune 500 companies are from the developing world, and the number is growing fast. Cross-border acquisitions help these companies to enter markets, acquire well-known brands and learn modern management. But the reversal of investment flows makes many Westerners uncomfortable. The debates about Dubai Ports, Aeroflot’s bid for Allitalia or Tata’s acquisition of Corus spring to mind. Russia now insists that European companies can only invest in its oil and gas sector if Gazprom is allowed to buy European downstream assets. Will such demands for ‘reciprocity’ spread? And if so, would the ‘new’ multinationals conform with our local rules or import their own ideas about how to do business or treat workers?

Market forces shape the globalised world, but so do governments. Autocratic countries find it easier to act strategically than democratic ones. If China was a democracy, its voters may well be upset about the costs (as well as the legitimacy) of the government’s Africa policy. Moreover, in democracies the losers from globalisation are making their voices heard. Low-skilled workers who watch imports and immigration erode their wages will vote for politicians promising relief. Protectionism and global leadership do not go together.

These are fascinating questions. There certainly is a need for business and politics to discuss their respective views of globalisation more often.

Katinka Barysch is chief economist at the Centre for European Reform

Comments

Added on 15 Dec 2008 at 12:21 by zang

Nice Post
-------------
http://www.autorewrite.com/" REL="nofollow">article rewrite

Added on 07 Aug 2007 at 08:37 by Anonymous

So what is the solution? Will the spead of democracy end in a more just world?

http://www.bigtravelweb.com/allitalia_flights.htm" REL="nofollow">Allitalia

Syndicate content