January 07, 2015
The horror, the horror! Europe has a declining ratio of workers to retirees, just as has been the case for the last fifty years.
That is the message Arthur Brooks gave us in his NYT column this morning, although he left out the part about the last fifty years.
“Start with age. According to the United States Census Bureau’s International Database, nearly one in five Western Europeans was 65 years old or older in 2014. This is hard enough to endure, given the countries’ early retirement ages and pay-as-you-go pension systems. But by 2030, this will have risen to one in four. If history is any guide, aging electorates will direct larger and larger portions of gross domestic product to retirement benefits — and invest less in opportunity for future generations.”
Brooks’ source shows the share of the over 65 age group in the population rising from 18.8 percent in 2015 to 23.7 percent in 2030. If that sounds really scary consider that it has risen from 15.7 percent in 2000 to the current 18.8 percent over the last 15 years. In other words, this is a trend that has been taking place for a long time: people are living longer. This is usually viewed as good news.
Even as the ratio of older people to working age population has risen in Europe and elsewhere, people have seen rising living standards due to productivity growth. This is why we can all have enough to eat even though only less than 2.0 percent of the workforce is employed in agriculture. (Remember the robots who are taking our jobs? That is a story of rising productivity. It’s a story where we have too many people who want to work.)
In terms of the lack of investment for future generations, this is a problem for Europe now due to the bizarre superstitions of Germany and its balanced budget cultists. If the EU were to devote another 2.0 percentage points of GDP to improving infrastructure and education it would lead to more jobs and output in the present and higher productivity in the future. But the deficit cultists in Germany insist this would be bad and have imposed their will on the rest of the euro zone.
The piece goes on to complain about the prospect of declining populations. While it is a bad thing if people believe that they cannot afford to have children, it is not clear why anyone should be bothered by the prospect of less crowded beaches and museums.
Brooks goes on to complain that too few Europeans are working:
“Yet as bad as that is, the United States looks decent compared with most of Europe. Our friends across the Atlantic like to say that we live to work, while they work to live. That might be compelling if more of them were actually working. According to the most recent data available from the World Bank, the labor force participation rate in the European Union in 2013 was 57.5 percent. In France it was 55.9 percent. In Italy, just 49.1 percent.”
While more Europeans would certainly be working if the continent could get over its deficit fetish, the comparison with the United States is misleading because it is largely driven by policies that promote earlier retirement and discourage college students from working (i.e. free tuition and government stipends). According to the OECD, the percentage of prime age workers (25-54) who are employed in Germany is 83.6. In France it is 80.6. This compares to 76.8 percent in the United States. In Sweden it is 85.6 percent.
In short, the aging of the European population is not new, nor is it in any obvious way a serious problem for Europe. This is simply a case where Brooks seems not to like older people.
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