Demographic in Nordic Countries

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Demographic in Nordic Countries

  1. 1. 09 September 2011 Global Demographics and Pensions Research http://www.credit-suisse.com/researchandanalytics Demographic Spotlight on the Nordic Countries Global Demographics and Pensions Research Research Analysts This report provides a comparative summary analysis of Demographics within the four Nordic countries of our focus: Denmark, Finland, Norway and Sweden. Amlan Roy The demographic differences across these countries have implications and +44 20 7888 1501 amlan.roy@credit-suisse.com effects across a broad range of economic indicators and asset prices. Sonali Punhani • These countries are affluent despite having small population sizes. We re- +44 20 7883 4297 emphasize the need to consider both GDP as well as GDP per capita to sonali.punhani@credit-suisse.com assess prosperity and well-being of countries, not merely GDP. Liyan Shi • The life expectancy differences are fairly important, particularly at older +44 20 7883 7523 liyan.shi@credit-suisse.com ages and retirement ages. The pensions system and benefits (entitlements) also vary across these countries, highlighting differences among older citizens’ standards of living as well as generosity. • Old-age dependency ratios are one of the biggest drivers of age-related expenditures as highlighted in public policy and our own research; the Nordic countries display significant differences in that respect. Norway has seen a decrease in its old-age dependency ratio over 1980-2010. • We report an encouraging commonality across all four countries in terms of the rise in fertility rates, which provides some offset against increased life expectancy in terms of the end-effects on old-age dependency ratios. Migration has additionally complemented higher fertility rates in contributing to population growth. • Labour productivity growth has been a major contributor to GDP growth over 1980-2010 followed by working age population growth. In terms of demographic dividend, we show that all countries are past the first stage of demographic dividend and are reaping the results of the second demographic dividend. • Pensions generosity is the highest in Denmark in terms of gross replacement rates as well as gross pensions wealth. Norway provides the highest expenditures on health care on a per capita basis although Sweden spends the highest in terms of percentage of GDP on age-related health expenditures. • We recommend increased retirement ages with flexible working and renegotiated benefits for those with ten years or more of working life remaining as potential solutions to dealing with high age-related expenditures in the medium term. • In terms of Human Development Indicators which capture Quality of Life, the Nordic countries do well, with Norway leading the world, followed by Sweden (9th), Finland (16th) and Denmark (19th ).ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES ARE IN THE DISCLOSURE APPENDIX. FOR OTHERIMPORTANT DISCLOSURES, PLEASE REFER TO https://firesearchdisclosure.credit-suisse.com.
  2. 2. 09 September 2011 We spotlight the comparative demographics of the Nordic countries - Denmark, Finland, Norway and Sweden. These rich liberal countries had a combined population of 25 million in 2010. They are fairly dissimilar to Japan and have some differences with the larger European countries. Yet they face the demographic and pension issues faced by Japan and the rest of the ageing European countries. Sweden is among the five oldest countries in the world as highlighted in a previous report1 and along with the other Nordic countries, it has to bear the burden of its ageing population. Nordic Demographic Comparisons The Nordic countries have smaller population sizes compared to the G6 countries (France, Germany, Japan, Italy, US and UK) as shown in Exhibit 1. The most populous Nordic country, Sweden, has a population that is nearly 15% that of Italy. In the 1980’s, the population growth rates of the Nordic countries were very low; Denmark even had a declining population in 1980-1985. Since then, there has been an uneven pattern of population growth as shown in Exhibit 2. The population growth rates today are higher than those in 1980-1985, except in Finland, where population growth rates were 0.51% in 1980-1985 and are 0.28% in 2010-2015. For 2010-2015, Norway has the highest projected population growth rate (0.69%) followed by Sweden (0.56%). This relatively high population growth can be attributed to both high immigration rates and high birth rates. Exhibit 1: Population, 2010: Nordic countries vs. G6 Exhibit 2: Uneven pattern of population growth rate Millions Rate per annum (%) 350 1.2% Denmark Finland 310.0 Norway Sweden 300 1.0% 250 0.8% 200 0.6% 150 127.5 0.4% 100 81.6 60.3 62.2 63.0 0.2% 50 4.9 5.4 5.5 9.3 0.0% 0 -0.2% Norway Italy UK US Germany Finland Sweden France Japan Denmark 1980- 1985- 1990- 1995- 2000- 2005- 2010- 1985 1990 1995 2000 2005 2010 2015 Source: UN, Credit Suisse Source: UN, Credit Suisse The Nordic countries experienced an earlier decline in fertility rates than many other European countries, but the decline has stabilized or reversed since the mid-1980s. Currently, the total fertility rates are higher than the G6 average of 1.7 children per woman and the European average of 1.53 children per woman, although still below the replacement rate of 2.1 children per woman. Norway has the highest fertility rate followed by Sweden in 2010-2015 (as shown in Exhibit 3) . The welfare state model and the family-friendly policies in these countries have contributed to improvements in fertility rates, especially considering the high participation rates of women in the labour force as we discuss later. 1 Credit Suisse Demographics Research, Macro “Fiscal Sustainability” to Micro “Economic Conditions of the Old” in the “Oldest Five” Countries, 2011Demographic Spotlight on the Nordic Countries 2
  3. 3. 09 September 2011 Exhibit 3: Total fertility rate (rising) Exhibit 4: Life expectancy at birth (rising) Children per woman Years 2.2 Replacement Rate: 2.1 84 81.3 81.7 2.0 1.95 82 1.88 1.89 1.93 80.2 80 79.0 1.8 1.69 1.69 1.65 78 76.4 1.6 75.9 1.43 76 74.4 74.3 1.4 74 1.2 72 1.0 70 Finland Denmark Sweden Norway Denmark Finland Norway Sweden 1980-1985 2010-2015 1980-1985 2010-2015 Li Source: UN, Credit Suisse Source: UN, Credit Suisse The Nordic countries have historically enjoyed high life expectancy levels. In 2010-2015, Sweden leads the group with the highest life expectancy at birth, very similar to the level in France, while Denmark has the lowest life expectancy (Exhibit 4). The life expectancy in the Nordic countries is in general higher than the European average of 76.5 years. The extent of population ageing is reflected in high old age dependency Exhibit 5: Old age dependency ratio ratios. All these Nordic countries except Ratio of population aged 65+ per 100 population 15-64 Norway have an old age dependency ratio greater than the European overall of 23.7. 1980 2010 Sweden has a particularly high ratio of 28 Norway 23.4 22.0 as shown in Exhibit 5, higher than the Denmark 22.3 25.1 levels of the US (20), the UK (25) and Finland 17.7 26.0 France (26). In fact, Sweden is the fourth Sweden 25.4 28.0 oldest country in the world when measured Source: UN, Credit Suisse in terms of its old age dependency ratio2. The old age dependency ratio increased in Denmark and Finland, however declined in Norway from 1980 to 2010. The migration patterns in the Nordic countries are shown in Exhibit 6, which decomposes overall population growth into natural population growth (i.e., births minus deaths) and net migration (inward migration less emigration). We note that Denmark’s population growth was negative in 1980-1985 as deaths exceeded births and immigration was small. Recent immigration levels are high and contributed 69% to the overall population increase in Denmark in 2005-2010. Finland, Norway and Sweden have also experienced strong immigration flows, the highest being in 2005-2010. Immigration contributed 60% to the overall population increase in Finland, 66% in Norway and 76% in Sweden over the 2005- 2010 period. 2 Please see footnote on previous page referencing our report on the "Oldest Five" countries of the world.Demographic Spotlight on the Nordic Countries 3
  4. 4. 09 September 2011 Exhibit 6: Natural population change and net migration: Migration has strong effects In thousands Natural Population Change Net Migration 150 Denmark Finland 150 100 100 50 50 0 0 -50 1980-1985 1990-1995 2000-2005 2010-2015 1980-1985 1990-1995 2000-2005 2010-2015 Norway Sweden 300 400 250 350 200 300 250 150 200 100 150 50 100 50 0 0 -50 1980-1985 1990-1995 2000-2005 2010-2015 1980-1985 1990-1995 2000-2005 2010-2015 Source: UN, Credit Suisse GDP and GDP per capita- Demographic Drivers The GDP levels of the Nordic countries are much lower than for all the G6 countries (Exhibit 7) as they are smaller countries in terms of population size (shown in Exhibit 1). However they have amongst the highest levels of GDP per capita. We compare the GDP per capita of the Nordic countries to those of G6 countries (US, Japan, France, Germany, UK, Italy) in Exhibit 8. Sweden, Denmark and Norway have GDP per capita higher than all G6 countries and GDP per capita of Finland is just below that of the US. The GDP per capita is relatively high in part due to their smaller populations. Hence, it is important to consider both overall GDP as well as population in order to evaluate economic size as well as individual wellbeing. Exhibit 7: GDP (2010): Nordic countries & G6 Exhibit 8: GDP per capita (2010): Nordic countries & G6 Current prices, Billions of USD Current prices, Thousands of USD 16000 14658 90 84.4 14000 80 12000 70 60 56.1 10000 47.3 48.9 8000 50 42.8 44.5 40.6 41.0 5459 40 34.1 36.1 6000 3316 30 4000 2583 2055 2247 20 2000 414 456 239 311 10 0 0 Norway Italy UK Germany US Finland Sweden France Japan Denmark Italy Norway UK US Germany France Japan Finland Sweden Denmark Source: IMF, Credit Suisse Source: IMF, Credit SuisseDemographic Spotlight on the Nordic Countries 4
  5. 5. 09 September 2011 a) Demographic decomposition of real GDP growth: A growth accounting framework, explained in an earlier report 3 , helps decompose GDP growth into growth factors that reflect changes in the labour force structure. Exhibit 9: Real GDP Growth Decomposition in the Nordics Percent per annum Working Age Population Growth Labour Productivity Growth Labour Utilization Growth 4.0 Finland 4.0 Norway 0.1 3.5 0.2 3.0 Real 3.0 2.0 3.1 GDP 0.2 2.5 Growth 2.8 1.5% 2.1% 2.0 2.7 = 3.6% 1.6 Real 3.5% 1.0 2.3 1.5 GDP 1.1 0.4 0.3 0.2 Growth 0.0 1.0 1.7% = 2.7% -1.5 0.5 1.0 -1.0 0.6 0.6 0.0 -0.2 -0.3 -2.0 -0.5 1980-89 1990-99 2000-10 1980-89 1990-99 2000-10 Sweden Denmark 2.5 0.1 2.5 2.0 2.0 0.7 Real 1.5 1.5 2.0 GDP Real 1.8 2.3% 1.9 1.9 GDP Growth 0.1 1.0 1.8% 2.1% 1.0 Growth = 1.8% 1.0 0.5 = 2.0% 0.5 0.8 0.6 0.4 0.9% 0.3 0.4 0.3 0.0 0.0 -0.3 0.1 -0.5 -0.6 -0.5 -0.5 -1.0 -1.0 1980-89 1990-99 2000-10 1980-89 1990-99 2000-10 Source: UN, GGDC, Credit Suisse Demographics Research Exhibit 9 displays the demographic decomposition of real GDP growth into the following components: • Working-age population growth (population aged 15-64 years) • Labour-productivity growth (real GDP/hours worked) • Labour-utilization growth (hours worked/working-age population) We note that labour productivity growth has been a major factor contributing to GDP growth in the Nordic countries. Working age population growth also has had a positive influence on GDP growth in Nordic countries. The projected decline of working age population growth in the future (with Denmark, Finland and Sweden being negative) could potentially have a negative or adverse effect on GDP growth. 3 Credit Suisse Demographics Research, A demographic perspective of economic growth, 2009Demographic Spotlight on the Nordic Countries 5
  6. 6. 09 September 2011 b) Demographic Dividend The Demographic Dividend theory (coined by Bloom and Canning) is a theory that attributes part of GDP per capita growth of countries to demographic factors. The First Dividend arises from higher participation of the population in the labor force. It occurs when fertility rates decrease, leading to fewer young people to be fed. During this stage, the labor force temporarily grows more rapidly than the dependent population, which frees up resources for investment in family welfare and economic development. This leads to a rapid growth in per capita income. It typically lasts for decades, but is transitory in nature. Later, with the onset of faster population aging, the share of population in the working ages declines and population growth outstrips labor force growth; consequently per capita income grows more slowly. The realization of the first dividend for a country or a region is contingent on how wages, labor force participation rates and unemployment are affected by the rapid working age population growth that leads to the initial prospect of the first dividend. The Second Demographic Dividend arises as a response to the challenge of population aging. A key economic challenge for aging populations is to provide consumption for the old who have substantially reduced labor income. Anticipated increases in the share of the population concentrated in the retirement ages induce individuals, firms and governments to accumulate capital, which can translate into productivity growth. If the capital is invested in the domestic economy, the result will be capital deepening and more rapid growth in output per worker. If the capital is invested abroad, the result will be an improvement in the current account and an increase in national income. In either case, per capita income will grow more rapidly than it would otherwise. The second dividend is not transitory in nature, as population ageing may produce a “permanent” increase in capital and thus per capita income. The size of the dividends depends on trends in population structure, how much people produce and consume at each age, how a society supports its elderly, and hence how much capital is accumulated. The first dividend yields a transitory bonus, whereas the second dividend transforms that bonus into greater assets and sustainable development. The realization of the dividends depends on the effectiveness of policy implementation. Andrew Mason in his 20054 paper calculated the value of the demographic dividends. The first demographic dividend started in Finland in 1965, in Denmark and Norway in 1975, and in Sweden in 1980. It lasted for two or three decades. During 1970-2000, the size of the first dividend was small in these countries, especially in Sweden. The second dividend was the highest in Finland, and negative in Norway (Exhibit 10). Exhibit 10: Demographic Dividends: Contribution to growth in GDP/N 1970-2000, rate per annum Year First Dividend Year First Dividend First Dividend Second Dividend Total Started Ended Denmark 0.28 0.44 0.72 1975 1995 Finland 0.24 0.90 1.14 1965 1990 Norway 0.26 -0.92 -0.67 1975 2000 Sweden 0.04 0.39 0.43 1980 1995 Source: Andrew Mason, Credit Suisse Note: GDP/N- actual growth in GDP per effective consumer, 1970-2000, in percent per year. The effective no. consumer is the no. of consumers weighted for age variation in consumption needs. 4 Andrew Mason, "Demographic Transition and Demographic Dividends in Developed and Developing Countries", 2005Demographic Spotlight on the Nordic Countries 6
  7. 7. 09 September 2011 Labour force trends There is a need to increase labour force participation rates for the older workers and encourage people to work longer to bear the burden of the ageing population in these countries 5 . As Exhibit 11 shows, effective retirement ages 6 (age when people actually retire) in Norway, Denmark and Finland are below the respective official retirement ages for men. The gap between effective and official retirement age for men is as high as 3.2 years in Finland. Only in Sweden, men work longer than the official retirement ages. Effective retirement ages for women are lower than the official retirement ages for all Nordic countries. While this practice is currently sustainable, it is not so for the future without accompanying reforms in labour markets, pensions, health and taxes. Exhibit 11: Average effective age of retirement versus the official age Years Men Women Effective Official Effective Official (2004- 2009) (2010) (2004- 2009) (2010) Norway 64.7 67 Norway 64.5 67 Sweden 66.0 65 Sweden 63.6 65 Denmark 64.4 65 Denmark 61.9 65 Finland 61.8 65 Finland 61.4 65 OECD-34 average 63.9 64.4 OECD-34 average 62.5 63.0 Source: OECD, Credit Suisse In Denmark, there is a drop of 42.3% (from 83.8% to 41.4%) in economic activity rates while going from the 55-59 age group to the 60-64 age group, and a further drop of 34.4% (from 41.4% to 7.1%) while going from the 60-64 age group to 65+ age group (Exhibit 12). The drop in economic activity rates beyond 55 years of age in each five-year group is similarly observed in Finland. In Norway and Sweden, however, the drop from the 55-59 age group to the 60-64 age group is much smaller (only 18.8% in Norway and 16.0% in Sweden). The data suggest that older workers retire later in these two countries. Exhibit 12: Economic activity rates by age, 2010: Exhibit 13: Gap between male and female economic Activity rates drop drastically 55+ onwards activity rates, 2010 Percent Percent 100 80 Men Women 71 69 70 90 70 63 65 80 61 60 60 57 70 60 50 50 40 40 Denmark 30 Finland 30 Norway 20 Sweden 20 10 10 0 15- 20- 25- 30- 35- 40- 45- 50- 55- 60- 65+ 0 19 24 29 34 39 44 49 54 59 64 Norway Finland Sweden Denmark Source: ILO, Credit Suisse Source: ILO, Credit Suisse 5 A point we highlighted in our demographics launch publication addressed to policy makers and investors in ageing developed countries. See Credit Suisse Research (2000) "The Demographic Manifesto: New Jobs, New People". 6 Technically, the average effective age of retirement is the average effective age at which older workers withdraw from the labour force. It is calculated as a weighted average of (net) withdrawals from the labour market at different ages over a five-year period for workers initially aged 40 and over.Demographic Spotlight on the Nordic Countries 7
  8. 8. 09 September 2011 The Nordic countries have done well in maintaining a low gap between male and female participation rates (Exhibit 13). The gaps in these countries are in the range of 8% to 10%, lower than those within the Europe overall of 14.3%. The economic dependency ratio measures the number of non-workers per worker in the total population. A number greater than one means that there are more non-workers in the economy than the workers to support them. The Nordic countries have levels below one and even below the European average (Exhibit 14). In future though, there is a danger of this ratio increasing to greater than one as the population ages, as we see did happen in Norway in 1980. Exhibit 14: Economic dependency ratio in Nordic countries lower than one Number of non workers per worker Denmark Norway Sweden Finland Europe (total) 1.2 1.11 1.1 1.04 1.02 0.98 1.0 0.94 0.92 0.9 0.87 0.87 0.84 0.85 0.8 0.7 0.6 1980 2010 Source: ILO, Credit Suisse Exhibit 15 displays the unemployment trends in the Nordic countries, which reflect a combination of cyclical influences over the business cycle as well as structural factors such as labour market norms as well as the underlying demographics. Potential labour force numbers typically trail population numbers by 20 or so years in the Nordics as the typical worker enters the labour force with more years spent in education. Exhibit 16 displays the labour force growth rate in these countries and there also exist differences, reflecting the structure of the economy as well as its demographics. Exhibit 15: Unemployment rates Exhibit 16: Labour force growth % of civilian labour force Rate per annum (%) Denmark Finland Norway Sweden 2.0 18 1.5 16 1.0 14 12 0.5 10 0.0 8 -0.5 6 -1.0 4 2 -1.5 0 1980- 1985- 1990- 1995- 2000- 2005- 2010- 1985 1990 1995 2000 2005 2010 2015 1980 1985 1990 1995 2000 2005 2010 Denmark Finland Norway Sweden Source: OECD, Credit Suisse Source: ILO, Credit SuisseDemographic Spotlight on the Nordic Countries 8
  9. 9. 09 September 2011 Pensions and Health There are differences in the life expectancy after pensionable age for men in Denmark (16.4 years), Finland (16.8 years), Norway (15.7 years) and Sweden (17.9 years). In addition, there are also differences in conditional life expectancy, i.e., life expectancy at age 65 and age 80 as shown in Exhibit 17 and Exhibit 18. Each additional year lived past retirement becomes more expensive for retirees across all countries with expensive health care and long-term care, irrespective of who pays for it. Exhibit 17: Life expectancy at 65, 2009 Exhibit 18: Life expectancy at 80, 2009 Years Years 25 12 21.5 21.1 21.0 9.6 9.9 9.7 19.5 10 9.1 20 18.0 18.2 16.8 17.3 7.8 7.9 7.9 8 7.4 15 6 10 4 5 2 0 0 Denmark Finland Norway Sweden Denmark Finland Norway Sweden Males Females Males Females Source: OECD, Credit Suisse Source: OECD, Credit Suisse We discuss below two measures of pension generosity within public pension systems. The gross replacement rate shows the level of pensions in retirement relative to earnings when working. For workers with average earnings, the gross replacement rate averages 57% in the 34 OECD countries. Gross pension wealth measures the total value of the lifetime flow of retirement incomes. For average earners, the gross pension wealth is 9.6 times annual earnings on average in OECD countries. The figure is higher for women because of their higher life expectancy. Gross pension retirement rates (Exhibit 19) and gross pension wealth (Exhibit 20) for the average earner are low in Norway, Sweden and Finland relative to the European average. The Danish pension system, however, is relatively more generous measured by its high levels of gross pension replacement rates and pension wealth for men and women. Exhibit 19: Gross pension replacement rates for the Exhibit 20: Gross pension wealth for the average average earner (2008) earner (2008) Gross pension entitlement divided by gross pre retirement incomes Gross pension wealth is the total value of lifetime flow of pension incomes. It is measured as a multiple of gross annual individual earnings Norway 53.1 Men Women Sweden 53.8 Sweden 9.1 10.2 Finland 57.8 Finland 9.5 11.4 Denmark 79.7 Norway 9.7 11.4 EU 27 61.6 Denmark 12.1 14.3 EU 27 10.2 12.2 Source: OECD, Credit Suisse Source: OECD, Credit SuisseDemographic Spotlight on the Nordic Countries 9
  10. 10. 09 September 2011 The health expenditure per capita data measured in PPP USD terms for the four Nordic countries are shown in Exhibit 21 . Norway ranks the highest and Finland the lowest. Total health expenditure as a share of GDP is highest in Denmark at 11.5% and lowest in Finland at 9.2% in 2009 (Exhibit 22). Public health expenditure is high in all four countries, especially Denmark (9.8%). We expect the share of private health expenditures to increase in the future if the governments do not manage to ensure the same level and quality of benefits that the older citizens and retirees have become acquainted with and accustomed to. Exhibit 21: Health expenditure per capita, 2009 Exhibit 22: Health expenditure (% of GDP), 2009 USD PPP Public Private Norway 5352 Total: Denmark 9.8 1.7 11.5 Denmark 4348 Sweden 8.2 1.9 10.0 Sweden 3722 Norway 8.1 1.5 9.6 Finland 3226 Finland 6.9 2.3 9.2 0 1000 2000 3000 4000 5000 6000 0 2 4 6 8 10 12 Source: OECD, Credit Suisse Source: OECD, Credit Suisse A large share of the population is living on Exhibit 23: Disability benefit recipients sickness and disability benefits in the four % of population aged 20-64 Nordic countries. The percentage of disability benefit recipients in 2008 within 1995 2008 the 20-64 aged population was 10.3% in 11 10.3 10.3 10.0 Sweden and Norway, 8.5% in Finland, and 10 7.2% in Denmark. These shares are much 9 8.2 8.5 higher than the OECD average of 5.7% 8 7.7 7.4 7.2 (Exhibit 23). In fact, many people of 7 working age who are able to work relied on 6 5.5 5.7 sickness benefits as their main source of 5 income. This further adds to the fiscal 4 burden in these countries. For example, Sweden Norway Finland Denmark OECD expenditures on disability and sickness average benefits account for 4.8% of GDP and Source: OECD, Credit Suisse 23% of public social spending in Norway, and 3.6% of GDP and 13% of public social spending in Sweden in 2007. Age related expenditure increases in the Nordic countries strain their public finances and need to be considered by policy-makers as well as investors in order to gauge the sustainability in the medium- to long-term. In Exhibit 24, we present the projections of age related expenditure increases from the European Commission’s 2009 Aging Report7. This 7 Credit Suisse Demographics Research (2010) "A Demographic Perspective of Fiscal Sustainability: Not Just the Immediate Term Matters" and European Commission, Sustainability Report 2009Demographic Spotlight on the Nordic Countries 10
  11. 11. 09 September 2011 report assumes that social protection arrangements remain unchanged in the future and that nearly all government revenues and non-age related expenditures stay constant as a share of GDP. We note that the projected increases in pension spending in Norway and Finland are higher than the corresponding European average and that for few major European countries. However, the projected increases in health care expenditures are lower in Nordic countries compared to the European average and countries such as UK and Germany. Exhibit 24: Age related expenditure components Percent of GDP Country Pensions Health Care Long-term Care Level in Change from 2007 Level in Change from 2007 Level in Change from 2007 2007 to: 2007 to: 2007 to: 2035 2060 2007 2035 2060 2007 2035 2060 Norway 8.9 4.3 4.7 5.6 1.0 1.3 2.2 1.2 2.7 Denmark 9.1 1.4 0.1 5.9 0.8 1.0 1.7 1.1 1.5 Finland 10.0 3.9 3.3 5.5 0.9 1.0 1.8 1.7 2.6 Sweden 9.5 -0.1 -0.1 7.2 0.6 0.8 3.5 1.3 2.3 UK 6.6 1.3 2.7 7.5 1.2 1.9 0.8 0.3 0.5 Germany 10.4 1.4 2.3 7.4 1.4 1.8 0.9 0.7 1.4 Italy 14.0 1.2 -0.4 5.9 0.9 1.1 1.7 0.5 1.3 France 13.0 1.4 1.0 8.1 1.0 1.2 1.4 0.5 0.8 EU27 10.2 1.7 2.4 6.7 1.0 1.5 1.2 0.6 1.1 Source: European Commission, Credit Suisse Quality of Life: the Human Development Index The Human Development Index (HDI) is a summary composite index that measures a countrys average achievements in three basic aspects of human development: health, knowledge, and income. The education component of the HDI is measured by mean of years of schooling for adults aged 25 years and expected years of schooling for children of school-going age. Mean years of schooling is estimated based on duration of schooling at each level of education. Expected years of schooling estimates are based on enrollment by age at all levels of education and population of official school age for each level of education. The education index is the geometric of two indices. Health is measured using life expectancy at birth component. The decent standard of living component is measured by GNI per capita (PPP US$) instead of GDP per capita (PPP US$) The HDI uses the logarithm of income to reflect the diminishing importance of income with increasing GNI. The scores for the three HDI dimension indices are then aggregated into a composite index using geometric mean. Exhibit 25 shows the HDI rankings and levels for the Nordic countries and the G6 countries. The levels of individual components that make up the HDI are also presented. We note that Norway has the highest ranking in terms of quality of life measured by HDI and Sweden, Finland and Denmark also rank among the top 20.Demographic Spotlight on the Nordic Countries 11
  12. 12. 09 September 2011 Exhibit 25: Human Development Index and its components Life expectancy at Mean years of Expected years of GNI per capita HDI Rank HDI Value birth (years) schooling (years) schooling (years) (PPP 2008$) HDI Value 2010 2010 2010 2010 2010 1980 VERY HIGH HUMAN DEVELOPMENT 1 Norway 0.94 81 12.6 17.3 58,810 0.79 4 United States 0.90 79.6 12.4 15.7 47,094 0.81 9 Sweden 0.89 81.3 11.6 15.6 36,936 0.77 10 Germany 0.89 80.2 12.2 15.6 35,308 .. 11 Japan 0.88 83.2 11.5 15.1 34,692 0.77 14 France 0.87 81.6 10.4 16.1 34,341 0.71 16 Finland 0.87 80.1 10.3 17.1 33,872 0.75 19 Denmark 0.87 78.7 10.3 16.9 36,404 0.77 23 Italy 0.85 81.4 9.7 16.3 29,619 0.70 26 United Kingdom 0.85 79.8 9.5 15.9 35,087 0.74 Source: UNDP, Credit Suisse Expected years of schooling: Number of years of schooling that a child of school entrance age can expect to receive if prevailing patterns of age-specific enrollment rates were to stay the same throughout the child’s life. Marriage and Family Size Marriage rates have declined in the four Nordic countries in the past decades, though they are currently above the OECD average. In addition, people are delaying marriage and child bearing. The average age of first marriage for men and women has increased by around 6-8 years from 1980 to 2008, as shown in Exhibit 26. Exhibit 26: Average age of first marriage increasing Exhibit 27: Distribution of households by size Years Share of total households Finland Norway Denmark Sweden 1 2 3 4 5+ 36 100 5 5 6 5 8 10 12 8 90 11 9 11 34 16 11 15 80 19 11 18 11 32 11 12 70 15 16 30 60 20 16 26 33 35 29 28 50 31 31 40 26 26 26 30 24 47 20 39 39 40 29 28 33 22 10 26 20 0 1980 2008 1980 2008 1980 2010 1980 2010 1980 2010 1980 2010 Men Women Denmark Finland Norway Sweden Source: UNECE, Statistics Finland, Credit Suisse Source: Euromonitor, Credit Suisse We also note that the extent of delay in child bearing has not been as much as the delay in marriage. For example, the average age of first marriage surpassed the average age of first birth for women in Finland at around 1995, and on average, Finnish women gave birth to their first child two years before their first marriage in 2010. 47% of births occurred outside marriage in Denmark in 2010, and the rate was even higher in Sweden at 55% in 2008. This reflects the declining role of marriage and increase in cohabitation of partners.Demographic Spotlight on the Nordic Countries 12
  13. 13. 09 September 2011 Consequently, households have grown smaller in these countries. As shown in Exhibit 27, the share of one-person households increased from 29% to 39% in Denmark, from 26% to 39% in Finland, from 28% to 40% in Norway, and from 33% to 47% in Sweden during 1980-2010. Similarly, the share of two-person households also increased (except in Sweden), while three-person, four-person and five-plus-person households all declined in the four countries. Conclusions This report presents a summary of the core demographic indicators of the Nordic region. We present trends over the last three decades and also demonstrate the macro linkages of the demographic factors to explaining GDP growth, GDP per capita growth as well as public finances within these affluent and liberal small economies. We show the role of migration in influencing population growth within these countries. We highlight aspects of the labour market, the pension system and benefits (health as well as disability) and highlight that multi-pronged reform across pensions, health, labour markets and taxes is essential for fiscal sustainability in the medium- to long-term. A key aspect that we highlight briefly is how families have changed due to marriage, child- bearing and other changes. Decreased family sizes have implications across all sectors and all asset classes as we have maintained in previous research. References Andrew Mason, “Demographic Transition and Demographic Dividends in Developed and Developing Countries” (2005) Credit Suisse Research, ‘Macro “Fiscal Sustainability” to Micro “Economic Conditions of the Old” in the “Oldest Five” Countries’ (2011) Credit Suisse Research, ‘A Demographic Perspective of Fiscal Sustainability: Not Just the Immediate Term Matters’ (2010) Credit Suisse Research, ‘A Demographic Perspective of Economic Growth’ (2009) Credit Suisse Research, ‘New Jobs, New People – The Demographic Manifesto’ (2000) European Commission and Economic Policy Committee ‘2009 Ageing Report: Economic - and budgetary projections for the EU-27 Member States (2008-2060), European Economy, (2009)Demographic Spotlight on the Nordic Countries 13
  14. 14. GLOBAL DEMOGRAPHICS & PENSIONS RESEARCH Eric Miller, Managing Director Global Head of Fixed Income and Economic Research +1 212 538 6480LONDONAmlan Roy, Managing Director Sonali Punhani, Analyst+44 20 7888 1501 +44 20 7883 4297amlan.roy@credit-suisse.com sonali.punhani@credit-suisse.comLiyan Shi, Analyst+44 20 7883 7523liyan.shi@credit-suisse.com
  15. 15. Disclosure AppendixAnalyst CertificationAmlan Roy, Sonali Punhani and Liyan Shi each certify, with respect to the companies or securities that he or she analyzes, that (1) the views expressed in this report accurately reflect his or herpersonal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or viewsexpressed in this report.DisclaimerReferences in this report to Credit Suisse include all of the subsidiaries and affiliates of Credit Suisse AG operating under its investment banking division. 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