Chapter

III Population Dynamics in the Seven Major Industrial Countries

Author(s):
Edgardo Ruggiero, Peter Heller, Menachem Katz, Robert Feldman, Richard Hemming, Peter Kohnert, Ziba Farhadian, Donogh McDonald, Ahsan Mansur, and Bernard Nivollet
Published Date:
September 1986
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A significant change is projected in the demographic structure of the seven major industrial countries over the next several decades. Through the year 2000 much of this change can be predicted with reasonable certainty, since changes in demographic parameters are not likely to offset the impact of the movement of existing population cohorts through the age structure. Looking beyond the turn of the century, unanticipated changes in fertility rates or life expectancies may influence the age structure of the population. This chapter reviews current demographic projections for the seven major industrial countries, examines their underlying determinants, and briefly explores their sensitivity to more extreme demographic assumptions.

Demographic projections are routinely carried out in most industrial countries, either in connection with census work or for actuarial analyses of the financing of public pension schemes. Almost always, countries make several projections, examining the effects of alternative demographic scenarios. In this study the “baseline” projections have, in most cases, been chosen so that their demographic parameters closely correspond to the “middle” demographic projections made by the country concerned. The exception is Japan, where the official projections would indicate a slightly more rapid aging of the population. For all countries, an alternative “greater aging” scenario is examined, corresponding to a situation of lower fertility rates and more rapid improvements in life expectancy.27

Underlying Demographic Assumptions

The baseline scenarios for the seven countries are built on the assumption of a gradual 8–16 percent increase in the fertility rate from the low levels experienced in 1980 (Chart 5 and Table 19).28 This implies that by 2010, five of the seven countries will have a fertility rate sufficient ultimately to ensure at least a stable population size (i.e., 2.1). For the Federal Republic of Germany and Italy, fertility rates are assumed to increase but will remain at 1.7 and 1.9, respectively, through the year 2025. It should be recalled that fertility rates above 2 were typical in all the industrial countries through the 1960s, reaching almost 4 in Canada and the United States in 1960. In the mid–1960s, fertility rates were 2.7 or above in Canada, the United Kingdom, and the United States; the lowest rate experienced was about 2.3 in the Federal Republic of Germany and Italy.

Chart 5.Assumed Demographic Parameters, 1980–2025

Projections of mortality rates are subject to considerable uncertainty, as was clearly indicated in the early 1970s, when demographers in the United States seriously underestimated the improvements in life expectancy that actually took place. The baseline scenario projects further improvements in life expectancy, so that by the year 2025 the average life expectancy of males and females should rise to 74.5 and 80.5, respectively (Chart 5 and Table 19).29 Such improvements are relatively conservative, compared with those potentially possible from medical breakthroughs. For example, in the United States, the baseline scenario assumes an annual improvement of 0.9 percent in mortality over the entire period (though a higher rate of 1.4 percent a year between 1980 and 2000), compared with the 1.7 percent rate experienced during the 1970s. It should be noted that this added longevity will not necessarily be associated with a substantial improvement in the morbidity or disability rates of the very elderly.

Patterns of immigration may also have an important bearing on demographic developments. The assumptions relating to immigration reflect the varying experiences anticipated for the different countries. For example, the baseline scenario for the Federal Republic of Germany assumes net emigration of approximately a million persons in the period 1980–90, with no further net migration in subsequent years. For the United Kingdom, the baseline scenario assumes net emigration of approximately 75,000 a year through 1990, dropping progressively to 15,000 by 2010 and 10,000 by 2015.30 For Italy, net emigration is assumed to be low and declining over time. In France and Japan, no net migration is assumed. On the other hand, in Canada and the United States, sizable immigration is expected. In Canada, the baseline scenario assumes that immigration will be close to 100,000 persons annually through the end of this century and then will drop to approximately 50,000 a year. In the United States, the baseline scenario assumes net immigration of 400,000 a year.

Principal Results of the Baseline Scenario

Striking differences appear across the Group of Seven in the extent to which they have already experienced a significant change in the age structure of their populations. In four countries—France, the federal Republic of Germany. Italy, and the United Kingdom—the share of the population aged 65 and 13 over already exceeds 13 percent, with a high of almost 16 percent in the Federal Republic of Germany, in contrast to only 9–11 percent in Canada, Japan, and the United States (Chart 6 and Table 20).

Chart 6.Demographic Structure of the Population, 1980–2025

(In percent)

These differences in the share of the elderly principally correspond to differences in the size of the potential working-age population. The share of the young (aged 0–14) in the population is clustered around 22 percent, with only the Federal Republic of Germany being substantially less, at 17 percent. The European nations reveal a significantly higher elderly dependency rate (Chart 7 and Table 21), with the elderly constituting approximately 21–23 percent of the potential working-age population in 1980 (set for illustrative purposes at age 15–64).31 In contrast, the elderly dependency rate ranges from 13 to 17 percent in Canada, Japan, and the United States. The youth dependency ratio varies less across countries and is maintained at 33–35 percent (with the exception of the Federal Republic of Germany where it is 25 percent). The share of the very old in the population (those 75 and over) also differs markedly across countries, by as much as a factor of 2, and is particularly high in France, the Federal Republic of Germany, and the United Kingdom (Chart 8 and Table 20).

Chart 7.Dependency Rates, 1980–2025

(In percent)

1 Ratio of population aged 65 and over to population aged 15–64 (in percent).

2 Ratio of population aged under 15 to population aged 15–64 (in percent).

Chart 8.Share of Age Group 75 and Over in the Population, 1980–2025

(In percent)

Through the year 2000, the impact of the largely predictable evolution of the different cohorts through the populations can be observed. The size of particular cohorts is largely determined by past demographic and historical events—baby “booms” and “busts,” wars, epidemics, and periods of economic hardship. Changes in the elderly population (65 and over) are a direct function of births 65 years ago and before as well as age-specific net immigration, and are attenuated by age-specific mortality patterns.

What is striking is both the increased aging that is expected to occur in almost all of the countries by the year 2000 and the narrowing of the dispersion in the shares of the elderly. In the countries with the lowest shares of the elderly in 1980, the largest increases in these shares are projected by 2000; in Japan, the share of the elderly will rise by almost 70 percent, primarily reflecting the rapid decline in fertility rates that has occurred over the last 30 years. There will be a concomitant increase in the share of the age group 75 and over in the population: from an average of 1 in every 21 people in 1980 to 1 in 17 by 2000. The share of the population aged 85 and over increases even more dramatically. In the United States, for example, the population aged 85 and over will double between 1984 and 2000 (to 2 percent of the population). The increasing importance of these groups within the elderly segment of the population will have very important ramifications for both the magnitude and character of the demands for medical and institutional nursing services by the elderly.

In most countries, the increase in the share of the age group 65 and over will be more than offset by a decrease in the share of the population under age 15. In Japan alone, the share of the population under age 15 will decline from almost 24 percent in 1980 to approximately 18 percent by the year 2000. Thus, both a decline in the overall dependency rate in all countries (except in the case of the Federal Republic of Germany) and a shift in the balance between the elderly and the young will be observed. The average dependency rate of the young will decline from 33 percent to 29 percent and will be almost offset by the increased dependency rate of the elderly from 19 percent to 22 percent. For Japan, the dependency rate of the elderly will rise from 13 percent to 22 percent.

Between 2000 and 2010, a further gradual aging of the population is expected in all of the countries except France, with the average share of the elderly in the population rising by 1.7 percentage points between 2000 and 2010. Sharper increases are anticipated for Japan and the Federal Republic of Germany. Further declines are anticipated in the share of the young. There will be an increase in the elderly dependency rate and a decline in the youth dependency rate. En the Federal Republic of Germany and Japan, the elderly dependency rates should rise sharply from the already high levels of 1980, increasing in the Federal Republic of Germany by 40 percent and doubling in Japan. For Canada and the United States, there would be a 20–30 percent increase over 1980 levels. Clearly, the fiscal implications of these demographic trends are likely to be influenced by whether reduced expenditure demands for education are offset by the higher expenditure associated with the needs of the elderly.

Between 2010 and 2025, some acceleration will occur in the rate of population aging, with the average share of the elderly rising from 16 percent of the population to almost 20 percent, compared with 12.5 percent in 1980. The shares of the elderly in the Federal Republic of Germany and Japan will rise further, but the sharpest increases will occur in Canada and the United States, with the share of the elderly rising from 13–14 percent of the total population by 2010 to more than 19 percent by 2025. The average share of the age group 75 and over in the population will almost double between 1980 and 2025 and is projected to exceed 10 percent of the populations of the Federal Republic of Germany and Japan. The population aged 85 and over will increase even more rapidly: in the United States, it is likely to triple over the same period.

What is particularly important about trends in these later years is that the increase in the share of the elderly is principally at the expense of the share of the working-age population. Thus, the elderly dependency rate is expected to increase sharply, from an average of 24 percent by 2010 (19 percent in 1980) to more than 31 percent by 2025. Even the youth dependency rate will increase in most countries, albeit by a small amount. In the Federal Republic of Germany and Japan, the elderly dependency rates will increase to 38 and 35 percent, respectively. Put simply, if the entire group aged 15–64 in the Federal Republic of Germany and Japan were employed, less than three workers would be available to pay for pensions and medical care on a pay-as-you-go basis by 2025, compared with five in 1980.

Several other characteristics of the evolving age structure of the industrial countries should be noted. First, what will most differentiate the next several decades from the preceding two decades is the shift in age composition rather than the rate of increase in the number of elderly. On average, the annual growth rate in the number of elderly in the period 1980–2025 will be only half what it was in the preceding two decades (1.3 percent vs. 2.4 percent). However, the rate of total population growth will shrink even more sharply (by a factor of almost four), so that the share of the elderly will be rising even more rapidly.

Second, the share of the very old (i.e., 75 and over) among the elderly will rise on average from 38 percent in 1980 to 42 percent by the year 2000. However, in some countries, the increase will be dramatic: in Japan, the group aged 75 and over is expected to rise from a third to half of the elderly population over the whole period.

Third, a striking compositional change will take place in the structure of the population aged 20–64, the principal group in the labor force (Chart 9 and Table 22). By 2000, the share in this group of those aged 20–29 will fall sharply in Canada, France, the Federal Republic of Germany, and the United States. In Canada and the United States, the declining share of this group will be offset by a sharp increase in the share of the group aged 40–49, whereas in the Federal Republic of Germany the shares of those aged 60–64 and, to a lesser extent, the group aged 30–39 will show significant increases. In each subsequent decade, there will be a corresponding movement of these cohorts through the age structure. From 2010, the share of the group aged 20–39 will, on average, begin a decline from 52 percent to 42–44 percent by 2025. The aging of the labor force is likely to have important implications for the growth in productivity, the rate of technological change, the savings-consumption behavior of the population, and many other important socioeconomic variables.

Chart 9.Age Composition of the Population Aged 20–64, 1980–2025

(As a percentage of the population aged 20–64)

Finally, it is useful to note the expected movement in the absolute size of the overall population of the seven major industrial countries over the period 19802025 (Chart 10 and Table 21). At one extreme, current projections suggest a continuous growth, albeit at a decelerating rate, in the populations of Canada and the United States, with more than a 30 percent increase anticipated by the year 2025 over the 1980 level. A similar though lower growth rate is anticipated for France and Japan; however, it is noteworthy that the Japanese population virtually ceases to grow after the year 2010. Italy and the United Kingdom are expected to experience only limited growth in their populations over the entire period, with the Italian population declining during the period 2010–25. In the Federal Republic of Germany, the population is expected to decline continuously throughout the period.

Chart 10.Population Size, 1980–2025

(In millions)

The “Greater Aging” Scenario

Forecasts of social expenditure have also been made on the assumption of lower fertility rates and higher life expectancies, thus yielding “greater aging” in the population. Such an alternative scenario provides a sense of the upper bounds implied by demographic factors in the demand for social expenditure. The alternative demographic assumptions are indicated in Chart 5 and Table 19. For this scenario, fertility rates are assumed to remain at their 1980 level,32 and life expectancy is projected to improve more rapidly than in the baseline scenario.33 Lower fertility rates tend to have a slow-acting, but important, cumulative effect on the population size and structure. As persons in the reproductive age groups have smaller numbers of children, this development will be reflected in a smaller size of the reproductive age groups 20 to 30 years later. Lower mortality rates are reflected earlier, both sustaining the size of the elderly group and, over time, becoming more important as the size of the elderly population increases, with the “baby boom” segment moving into the elderly age group.

The alternative demographic assumptions have an impact on the relative shares of the population aged 0–14 and 65 and over by the year 2025. On average, the former group declines from 22 percent of the population in 1980 to almost 15 percent (rather than the 18 percent projected in the baseline scenario); the latter group rises from 12.5 percent in 1980 to 22 percent (rather than the 19.5 percent projected in the baseline scenario). Consequently, while almost no change in the overall dependency rate occurs, there is a further increase (decrease) in the dependency rate of the elderly (youth) population. The share of the population aged 75 and over also rises, from 5 percent in 1980 to 10 percent by 2025 (relative to 8 percent in the baseline scenario), implying a further increase in the share of the very elderly in the population.

In terms of the total population size, the effect of these alternative assumptions is to leave the population either unchanged in size relative to the baseline scenario, or somewhat lower. Italy’s population would decline in absolute size by the end of the period, primarily reflecting the cumulative impact of lower fertility rates that take effect after the year 2010. The Federal Republic of Germany’s population would contract even further relative to its present size, particularly in the period 2010–25. For the United States, the rate of population growth would be significantly less over the period.

While it is impossible to judge whether technological advances in medicine and sociological factors will coincide to produce the projected combination of demographic patterns, alternative scenarios nevertheless provide a sense of the upper bounds implied by demographic factors in the demand for social expenditure.

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