Draft:Ageing of Europe

Topic : the instrumental use of aging population argument in economic policy

Page : Ageing of Europe

Effects

Political influence of the ageing population

The ageing population in Europe had multiple consequences on the changes in the political narratives and discourses that can be contradictory at times.

First, as the share of the number of individuals that works falls compared to those who are relying on them through the welfare system (i.e. the dependency ratio is going up), it poses financial challenges. The ageing population is therefore framed as an economic threat. The globalization and neoliberalism have their influence on the question as well, when policy makers talk about the need for economic growth. For instance, the World Bank’s Report named “Averting the Old Age Crisis” in 1994 questions the role of pensions systems in economic growth. From 1997, the European Commission recommended changes concerning the pension schemes and the European Council stated ageing as a policy issue for the European Union starting 2001.

And indeed, the demographic changes and the economic pressures coming with it led to a few short-term and long-term policy responses. The short-term ones are pension reforms and initiatives to revitalizing the labour market. The long-term ones concern immigration and pronatalism as a way to reverse the declining population.

Short-term response example: the Netherlands

In 2002, the CDA party, the Liberal Democratic party (VVD) and the populist party (LPF) were put in power after the election. The debate about the ageing in the country began to take more roots during the year, framing ageing as an issue in itself, without contextual factors. The ageing narrative led to reform the welfare state system entirely. This reform was concerning the age-related institutions, the labour market and a restructuring of the public finances. In 2006, a shift in the narrative took place, talking of ageing as a cultural challenge.

Immigration

The European Commission describe 2005 immigration as a way to reinforce population and manpower which would allow for prosperity. However, details remain blurry as to numbers because, while there may be economic benefits, immigration comes also with its set of social challenges. Another argument against it, is the fact that the immigrants with time will also grow old and need pensions. Especially because the idea that those coming from high-fertility cultures would come and have numerous newborns is unfounded. Secularisation theory shows that the immigrants adopt the low-fertility habits of their new country. Therefore, it would lead to only limited enlargement of the working population.

To add on, the role of migration for care work and especially long-term care for the aged population is important. Feminist political economists shade lights on how essential this work is for capitalist societies (unpaid domestic work, emotional services needed for families, the creation of communities and solidarity) and how it is undervalued by mainstream economists and politics. Since it is poorly recognised and paid, there was a care deficit that needed to be filled. That role fell on migrant women. While this fills the gap for care, it creates a new one in the countries of origin and those women are not paid well, perpetuating existing inequalities. As for the European Union, this dynamic is present with migrants coming from Central and Eastern Europe that go for care labour in the west and richest part of Europe.

Pronatalism

This englobes policies that demand quality childcare, nursery, schooling, medical care, etc. that would increase the birth rate and therefore would increase the working population leading to potential economic growth according to the European Commission High Level Working Group. However, there are many critics against this logic, among which we can find:

• This creates a need for workers in the new public facilities like the nurseries, which would not help the dependency ratio. This is inconsistent because this provides subsidies and public expenditures in places that it denies for pensioners.
• It is unclear whether this would be beneficial to the women. The question of work/home balance and gender equality comes into play.

Overall, increasing population is sometimes argued to be undesirable. First, it is often seen as a necessity after rapid growth in developed country. Additionally, an increasing density of the population affects negatively quality of life and affects negatively as well the environment. Another argument that is pushed forward is that the high level of unemployment among the working population, and particularly for the younger ones is alarming.

On a different logic, at the same time, as the share of those working goes down, the demand for pensions, health and social care goes up because the elderly represent a distinct electoral influence. They create a voting block that want to defend their interests. They become a voting block that want to defend their interests and present particular characteristics such as having a particularly high electoral turnout. Older people are also more likely to change their party choice for more conservative ones. They have as well certain policy preferences like on one hand, low support for education spendings and on the other hand, high support for health spendings. Concerning the support for childcare, it depends whether there are often contact with grandchildren, bringing up the solidarity. But overall, studies are often demonstrating that there are less support for welfare expenditure for the younger in the elderly’s eyes.

As for the question of energy efficiency and environmental policies, the elderly’s position on the question is that they are less likely to support such policies and an increasing welfare state generosity for them doesn’t help their position on the matter, and even make their position more adverse. One reason for such attitude is that their immediate future (economically and health-related) has a priority on the sustainability of the environment. Additionally, they might be worried that there might be a reallocation of resources for the realisation of environmental policies in the detriment of pension benefits.

However, when it comes to pension preferences, studies have shown divergent results: some studies show that the older people are opposed to pension reforms, others find no evidence of that. There are some differences depending on countries: in Finland, the elderly are approaching the question with more criticism, supporting higher spendings, yet, at the same time, they feel obligated to be more invested and pay for pensions.

Still, in ageing countries, there is a priority on pensions and healthcare in policies over education and childcare. The preferences of the older population in Europe have an effect on the public spending due the high number of individuals that they represent compared to the younger voters and political parties often react according to the preferences of their potential electorates. They are often called grey power. They are also more likely to be members of political parties themselves and the older population that ages in between 60-69 years old are more often part of union groups than other ages (apart from the cohort in between 50-59 years old). Because they hold such big influence, some academics have started to talk about gerontocracy, in particular in the Germany. Another example of elderly influence is the one on inflation. Indeed, the elderly do not have reasons to take employment prospects into account and they have generally repaid their debt. Hence, inflation doesn’t seem as an attractive aspect for them. And indeed, countries that have a bigger ageing population show lower inflation than in other countries.

That demonstrates why ageing countries end up choosing less efficient economic policies. As such, elderly voters punish the government through their votes when the inflation is high, but not when the unemployment level is high. Another more meaningful concern for them is the house pricing. To add on to that, when governments lead to poor economic performance due to their strategies, they are not faced with penalties from the older population. Especially since, as the ageing population benefits from the pension security, they are not at risk like the workers who might face job insecurity for instance. Because of the results of low inflation and low growth in ageing countries, this leads for the government to opt for more conservative monetary policies with a delegation to independent central bank, which prioritize only inflation control. Furthermore, as the priority of financing education, innovation and social and human capital in general is shifted towards the preferences of older voters, this leads to a lack of investment in infrastructure that could support long-term economic growth. As a consequence, it would make it difficult for governments and politicians to address the issues behind a poor economic performance.