Rightsizing Europe: Counteracting the “Graying” of the Continent

By Nicholas Hager, Transatlantic Community Analyst

The EU is in the midst of an unprecedented population decline that is expected to place enormous strain on member states’ budgets and their ability to project power in the broader world. Eurostat projects that the EU’s population will decline from 521 million in 2035 to 506 million by 2060. This may not seem problematic in the abstract, but when one considers that in “the next 40 years…one person in three will be a pensioner” in countries like Germany and Italy, the exigency of this issue becomes clear. As Europe’s aging population continues its rapid exodus from the workforce, and lead significantly longer post-retirement lives, the “40…[to] 60 percent of total public spending” currently budgeted for age-sensitive state expenditures, such as health care, will increase dramatically. While member states have started to take measures aimed at counteracting this trend, an investigation of these, as well as the underlying causes of the demographic crisis, reveal that current approaches are inadequate at best.

This demographic imbalance is the result of a number of interrelated factors that can, on the whole, be classified as positive developments. Urbanization is a central factor in this discussion, with evidence that it contributes to both lower fertility and lower infant mortality rates. The latter is probably attributable to greater access to medical care, but the former is particularly interesting because it helps us see why this bundle of factors is so significant. City life offers economic opportunity in the form of jobs with bigger paychecks, but it also results in decreased free time. When combined with the higher cost of living in an urban environment, it seems that economic success creates a socio-economic climate which inhibits the desirability and feasibility of procreation. This trend could prove particularly catastrophic for the EU because of its extensive social welfare systems.

The EU appears to believe the answer is largely a matter of boosting its rate of reproduction. So-calledfamily-oriented policiesoffer palliatives to address the symptoms of urban inhibition, including tax breaks for parents, greater access to childcare, and an increase to already generous maternity and paternity leave programs. Iran’s government – in response to its own demographic crisis – is taking a similar, albeit heavier-handed, approach, encouraging its citizens to procreate through religious and secular exhortations while ending its support for things like free birth control. The underlying assumption is that an infusion of more bodies will solve the problem, but as Mehrdad Lahouti, a member of the Iranian Parliament who opposes the new focus, asserts: “[The] government is worried that an old population will be bad for the country…[b]ut a young population with no jobs could be even worse.” While Iran is not the EU, his point — that focusing so heavily on population numbers is myopic and animates programs which are unlikely to address the core issue — is broadly applicable.

Japan, which is also struggling with an aging population, recently considered “accepting…as many as 200,000 [immigrants] a year…” According to the UN, unless Japan is able to increase its birth rate, it will require an annual influx of roughly 650,000 immigrants to stabilize its population. Like Japan, however, European publics are wary of accepting the number of immigrants needed to save their social welfare systems. The European Commission asserts that immigration may slow the graying of the Union, but there is little evidence that it would have a more than minimal impact on the EU’s demographic outlook and member states’ public finances. The EU’s most frequent residence requests come from countries like Ukraine, the U.S., and China, which face the same demographic challenge as Europe. New EU citizenship is unlikely to change this. Additionally, enlargement offers even gloomier prospects for righting Europe’sinverting pyramidas only the fertility rates of Iceland and Turkey currently meet the replacement level.

And what about reducing unemployment to increase the fertility rate? Gunnar Andersson, of the Max Planck Institute for Demographic Research, observes that Sweden, in the 1980s and 1990s, displayed a “pro-cyclical” trend in its unemployment rate and its fertility rate, meaning that “changes in economic performance and in childbearing levels [are] positively correlated.” Andersson caveats this finding, however, suggesting that Sweden’s overall employment rate fails to tell the whole story; looking at women specifically, Andersson found “no real negative effect of being unemployed on the propensity to give birth.” Moreover, he believes that intervening variables — such as “the increased generosity of…the Swedish parental-leave system” or purely economic factors like the cost of housing — have often either elevated or diminished fertility rates, making the causative variable difficult to determine. Therefore it will be crucial to ensure that the relevant policies have been thoroughly considered, lest Europe find itself chasing ghosts.

Likewise, another focus of the EU’s approach is the expansion of female participation in its workforce. The EU  asserts that increasing the number of female workers is “paramount,” and argues that one method to achieve this could be to expand the availability of childcare since “the employment rate for women with children is more than 20 percentage points lower than the employment rate of childless women…[while it] is close to 20 percentage points in Germany and the United Kingdom.” This makes intuitive sense, but such a solution comes apart under scrutiny. As the authors of this RAND report point out, Ingrid Jönsson has found several additional factors that make motherhood less compatible with a career. Mothers face myriad forms of “discrimination…in the labour [sic] market,” she says, including a “negative impact…on wages, negative attitudes at the workplace towards part-time [work]…[and] double workloads for women” who are still largely expected to retain domestic responsibilities even while they assume the new ones of their “working life.”

Are aging populations and the demise of European social welfare systems therefore inevitable? Perhaps not, but these inquiries overshadow a more important question: How might a declining population be beneficial? This may appear to run counter to the acknowledged consequences for Europe’s social welfare infrastructure, but as a recent article in The Economist suggests, a shrinking population could be beneficial if properly managed. The crux of the argument is that fertility rates at replacement level are not — as EU, Iranian and Japanese policymakers assume — the final word on the long-term health of the state. As demographers Erich Striessnig and Wolfgang Lutz argue, education is a crucial factor that is largely omitted from current analyses. An educated populace is more likely to be healthier, earn more and retire later – thus contributing more to the state via taxation. Therefore, a widespread increase in educational attainment would even allow states with robust social welfare systems to reduce the necessary fertility rate from 2.1 to a more modest “1.5…[to] 1.8,” which their results suggest will “result in future higher welfare” as long as we invest, and continue to invest, “in the education of our slowly declining number of children.”

Yet there are some problems with this approach. First, it is difficult to disentangle the connections among education, health, and earnings to determine which, if any, factor is causal. Second, the authors assume that such a program of education is possible; but not everyone is capable, or willing, to pursue post-secondary education. A double-edged conundrum emerges from this: on one hand, as automation becomes almost ubiquitous in the modern world – indeed, Japan is already developing creative ways to offset its declining workforce – and takes over many new professions in the near future, not every low-skill job may be automated and workers may still be needed to fill these positions. On the other hand, if we do succeed in automating low-skill jobs and workers do not attain the education needed for higher-skilled positions, society will be left with a sizable segment of the population that finds itself forced out of the economy. These possibilities should make us wary of accepting the education approach as a silver bullet, but these are issues that can, and should, be mitigated through proper implementation. Such a program could well prove to be the pillar around which the EU implements its current regime of family-friendly policies.

Unchecked aging populations, unmitigated by a boost in education, would lead to disproportionate increases in social spending that are politically difficult to challenge, requiring concomitant cuts in other areas such as defense which are already quite low to begin with. For these reasons, the EU should shift its focus from uncritically supporting policies that value increased procreation, and toward investigating the utility of bolstering education as a means to making its current fertility initiatives more robust. 

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