Presentation at the TEDXNHH event organised in Bergen, Norway, 2010

1. Is Immigration A Solution To Our Edward Hugh
Long Term Pension Problems? Bergen: October 2010

2. Global Ageing: An Irreversible Truth
No other force is likely hot shape the future of national economic health,
public finances, and policymaking as the irreversible rate at which the
world's population is ageing.
U.N. figures show the proportion of the world's population aged over 65 is
set to more than double by 2050, to 16.2% from 7.6% currently. By the
middle of the century, about 1 billion over 65s will join the ranks of those
classed as of non-working age.
The cost of caring for these people will profoundly affect growth prospects
and dominate public finance policy debates worldwide.

3. Second Demographic Transition
This process of rapid ageing is due to the combined impact of two factors
1) Declining fertility
Spain Total Fertility Rate
0,0
0,5
1,0
1,5
2,0
2,5
3,0
2010
2005
2000
1995
1990
1985
1980
1975

4. 2) Steadily Rising Life Expectancy
Spain Male Life Expectancy
(years, from birth)
40
45
50
55
60
65
70
75
80
2010
2005
2000
1995
1990
1985
1980
1975
Source: Eurostat

5. • The pace of aging varies greatly across countries and regions,
• Most pronounced and rapid in those countries that for decades have
had fertility rates below replacement levels - Japan, German speaking
countries, Southern and Eastern Europe.
• The median age of populations in Europe as a whole will increase from
38 today to 49 in 2050 (with significant differences between countries),
and at this point it will be over 20 years above the estimated median
age in Africa (which will be the youngest continent).
• Spain - with half its population older than 55 by 2050 – is expected to
become the oldest country in the world, followed closely by Italy and
Austria, where the median age is projected to be 54.
Differential Rates Of Ageing

6. Not only will populations get older, in many cases they will shrink.
According to the latest forecasts, Germany’s total population will
shrink from its current 82 million to somewhere between 69 and 74
million by 2050, while the proportion of people aged 65 and older is
projected to rise from just under 20% today to just over 33% by
2050, depending on immigration. At the same time, the number of
very elderly (those aged 80 and over) will nearly triple to as much
as 15% of the total population.
Shrinking As Well As Ageing
Latvia Total Population
(annual, 1960 - 2010, millions)
2,0
2,1
2,2
2,3
2,4
2,5
2,6
2,7
2,8
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
Source: Eurostat
Hungary Total Population
(annual, 1960 - 2010, millions)
8,0
8,5
9,0
9,5
10,0
10,5
11,0
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
Source: Eurostat

7. Eastern Europe Especially Badly Affected
Among emerging economies, the situation in the East of Europe stands out
as by far the worst in the short term.
In 2025, more than one in five Bulgarians will be over 65 - up from just 13
percent in 1990. Ukraine’s population will shrink by a fifth between 2000
and 2025. And the average Slovene will be 47.4 years old in 2025—among
the oldest in the world.
Between 2000 and 2005, the only countries in the world with population
declines of more than 5,000 people were 16 countries in Eastern Europe
and the former Soviet Union
The fastest aging countries on the planet over the next two decades will be
in those of Eastern Europe and the former Soviet Union.The entire region
is projected to see its total population shrink by about 23.5 million.
The largest absolute declines will be in Russia, followed by Ukraine and
Romania.

8. The magnitude of China’s coming age wave, is simply staggering. By
2040, assuming current demographic trends continue, there will be 397
million Chinese over 65 - more than the total current population of France,
Germany, Italy, Japan, and the United Kingdom combined.
China Too
China’s ageing is
characterised by the unusual
speed with which it is
occuring. In Europe, the
population over 65 passed
the 10 percent threshold
back in the 1930s and will
not reach the 30 percent
mark until the 2030s, one
century later. China, on the
other hand, will traverse this
same distance in a single
generation.

9. Norway Is Ageing More Slowly Than Most
Fertility has fallen, but never
below the critical 1.5 tfr level
Life expectancy is also rising
With the result that
the medium growth
Population pyramid
doesn’t look like a
nightmare

10. The secret is
maintaining
economic growth.
Migrants have been
attracted by
Norways recent rapid
economic growth
And seem to follow
pathways laid down
during earlier waves of
internal migration.

11. As far as we understand the issue at this point, population ageing will
have impacts which could be categorised under four main headings:
i) it will affect the size of the working age population, and with this the
level of trend economic growth in one country after another
ii) it will affect patterns of national saving and borrowing, and with these
the directions and magnitudes of global capital flows
iii) through the saving and borrowing path the process can influence
values of key assets like housing and equities
iv) through changes in the dependency ratio, ageing will influence
pressure on global sovereign debt, producing significant changes in
ranking as between developed and emerging economies.
Impacts Of Population Ageing

12. Most of the literature on the impact of immigration on ageing focuses on
the impact of immigration on the labour market and the welfare state. A
drawback of this focus then is that the impact of ageing and immigration
on capital formation and economic growth usually are ignored.
Most “overlapping generations” economic models assume that the
younger generation works, borrows to buy a house and pays pension
contributions, whereas the older generation lives from previous saving,
pension benefits and (later) dissaving. Modern economic growth is
increasingly fuelled by either exports and credit growth, and the latter
implies that an ageing economy experiences a decline in economic
growth. Immigration then might help counter this decline.
Not Just Working Age Population
Growth Is Also Involved

13. Japan GDP 1965 - 2009
(annual % change - 10 year moving average)
0
1
2
3
4
5
6
7
8
9
10
11
12
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
Source: Japan Statistics Office, IMF, Ow n Calculations, 2010 IMF Forecast
German GDP - 10 year moving average 1980 - 2010
(annual, % change)
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Source: Federal Statistics Office
Japan and Germany are
currently the two oldest
societies on the planet. With
median population ages of
around 45.
They are both heavily “export
dependent”. Just a
coincidence?
Also trend GDP growth
in both these countries
has fallen back
strongly, and both
countries are now
highly sensitive to the
impact of external
currency and demand
shocks.
Germany And Japan: Examples (to try) Not to Follow?

14. The Counter Argument
“There may be many reasons to favour increased immigration....But it would be
wrong to advocate increased immigration as necessary to deal with the fiscal
consequences of an ageing population, or as a means to avoid large future tax
increases or benefit reductions”.
Marty Feldstein - The Effects of the Ageing European Population on Economic
Growth and Budgets: Implications for Immigration and Other Policies
Two Principal Points
i) immigration is not necessary to deal with the fiscal
consequences of ageing populations
ii) it is false that immigration constitutes a way of handling
ageing which enables you to do so without large tax increases
or benefit reductions since increased immigration would do little
to reduce the future fiscal burden. The increased revenue from
a large rise in immigration would finance only a small part of the
coming rise in the cost of pension and health benefits.

15. My opinion - Feldstein is both right and wrong
He is right that immigration alone won’t be enough to address the
problems we face. We also need structural reforms in labour markets to
encourage higher participation rates. We need to move away from
Paygo to fully funded pension systems.
But he surely goes too far. Migrants can help keep
our welfare systems afloat as we transit from one
system hot the other. They help fill the gap of the
“missing generation” of contributors.
Most migrants are in their 20s and 30s, so they will
also form homes and families, helping push the
birth rate up a bit.

16. Two Examples Of What Not Not Do From The South Of Europe
Italian - Non Italian Nationals Resident in Italy
(annual, millions)
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
4,5
2002
2003
2004
2005
2006
2007
2008
2009
Source: ISTAT
Italy GDP - 10 year moving average 1980 - 2010
(annual, % change)
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Source: ISTAT
Italy – Significant migrant
inflows since 2000, but no net
impact on the decline in trend
growth.
Trend growth could now be
below 0.5% per annum - and
could turn negative during this
decade.

17. .
Human Capital Loss Gives The Key To The
Italian Problem
• It is hard hot say why Italy has fared so badly in terms of
growth, given the recent strong immigration.
• A number of factors involved, but one that stands out
clearly in the annual brain drain out of Italy.
• Each year somewhere between 5% and 10% of Italian
university graduates leave their country, never to return.
• So some of the migration represents a “bad swop” of
highly qualified people for people with far lower education
levels.
• Reform in Italy’s “insider-outsider” labour market, and
changes making it easier for young people to start their
own businesses would be a big step forward.

18. Spain Number of Non-Spanish Residents
0
1
2
3
4
5
6 1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Source: Spanish National Statistics (INE)
Spain GDP 1995 to 2010
(quarterly, volume index - 2000 = 100)
60
80
100
120
140
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 20092010
Source: Spanish National Statistics (INE)
Spain’s huge housing bubble
lead to a decade and a half
of recession-free growth,
growth which then came to a
dramatic halt after the bubble
burst.
During the boom nearly five
million migrants were “sucked-
in” to keep the economy afloat,
but now the boom is over many
are unemployed and the
authorities have no clear idea
what to do about this problem.
Spain’s Construction Driven “Boom-Bust”

19. Spain Unemployment Rate
(monthly, seasonally adjusted, %)
0
5
10
15
20
25
2010m8
2010m3
2009m10
2009m5
2008m12
2008m7
2008m2
2007m09
2007m04
Source: Eurostat
Initially the new migrants
became contributors to the
social security system, thus
helping to make the PAYGO
pension system more
sustainable.
Spain - Contributors to the Social Security System
(monthly, seasonally adjusted, millions)
17,0
17,5
18,0
18,5
19,0
19,5
20,0
Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
2007 2008 2009 2010
Source: Ministerio de Trabajo e Inmigración
But as these very same migrants
now queue up at the labour
offices many Spaniards are
asking whether this was the best
way to do things.

20. Japan Gross & Net Government Debt
(annual % GDP)
0
25
50
75
100
125
150
175
200
225
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Source: IMF, 2010 IMF Forecast Gross Debt Net Debt
The Price Of Doing Nothing
Thank You For Your Attention
Credit rating agency S&P’s estimates that without policy changes
U.K. government debt would rise to over 430% of GDP by 2050,
while German government debt would rise to more than 400%,
French government debt to more than 403%, Italian government
debt to over 245%, and Spanish government debt to over 544%.