Have to take aging as seriously as climate change
The aging of society should be discussed with the same seriousness as with climate change, demands IW boss Michael Hüther
Source: Uta Wagner; Infographic WORLD
The economic consequences of the corona crisis can only be cushioned with growth. Bubbling tax revenues like after the financial crisis are gone this time. We must therefore take aging as seriously as climate change. Two European countries show how it can be done.
What I want to clarify:
Dhe political consensus to make the German economy climate neutral is impressive and appropriate. The current need for action is derived from the climate models. However, I miss the urgency of today’s action where there is just as much pressure and failure to do so can even endanger decarbonization: in the context of demographic aging.
Why I am saying this right now:
Because when asked how the necessary investments for structural change can be financed under the restriction of the debt brake and the repayment of corona debts does not become a burden, politicians reflexively refer to the fruits of stronger growth. Bubbling tax revenues like in the years since 2011 should automatically solve the problem as a financing miracle. But this is countered by the aging and shrinking workforce.
One can increase growth (on the economic development side) through higher labor productivity or a higher volume of labor. We have been observing a decline in productivity growth in all industrialized countries for a long time; the hoped-for effects of digitization have not yet materialized and international technology convergence does not suggest any special developments in individual economies. In contrast to the previous “golden decade” after the financial crisis, unfavorable conditions apply to labor force participation and the volume of work in the decade ahead:
Firstly, due to aging, the number of economically active persons aged 20 to 66 will decrease from 51.8 million (2020) to 48.6 million in the year (2030), which corresponds to a loss of 4.5 billion working hours. It is based on the current population forecast of the Federal Statistical Office with the assumption of annual net immigration of at least 220,000 people.
Second, employment potential has largely been exhausted after the labor force participation of 20 to 64-year-olds rose from around 68 percent in 2004 to over 80 percent in 2019.
Thirdly, the reduction in involuntary part-time work, which is often cited as an important compensation, and which in 2019 comprised almost ten percent of all part-time employees in Germany, only resulted in a limited gain of 690 million working hours.
If productivity and immigration do not give rise to high hopes, the question remains whether the people in the country can work more. This can be determined, for example, in comparison to Switzerland and Sweden, two social models that are well accepted in Germany.
The labor force participation is slightly higher there, after which the rate in this country could rise by a further 2.5 percentage points, which justifies 1.25 million additional gainfully employed persons and an increase of over 1.8 billion working hours.
It is more important, however, that in both countries – more so in Switzerland – the annual working hours are higher because you work more hours per week and 1.5 more weeks per year. If you were guided by this, you could (on today’s basis) mobilize 4.5 billion hours, which in itself, however, would only compensate for the demographically induced loss. All in all, a gradual increase in the employment rate by 2.5 percentage points and the annual working time by eleven percent (to the Swiss level) could increase the price-adjusted German gross domestic product by up to eight percent after ten years, while the debt ratio could decrease by more than 16 percentage points .
Whoever protests immediately:
Firstly, the election campaigners of all parties, because they do not like challenging messages, and at most in the vague context of climate policy for the voters, they courageously dare to make imprecise proposals. As a result of aging, there is initially no need for action, left-wing parties even want to abolish the pension at 67.
Second, labor fighters in the service of people enslaved in the world of work, because their health is at stake. They should be told that life expectancy (from birth) for men and women is significantly higher in both countries than in the Federal Republic (Sweden plus 1.3 and Switzerland plus 2.5 years).
How it should ideally continue:
Politicians take demographic aging as seriously as it is inevitable and start a social debate about greater labor force participation and longer working hours. The possible macroeconomic results are worth investing in. It is also about securing skilled workers, which is just as important for the entrepreneurial change to climate neutrality as it is reliable framework conditions and a fiscally effective growth strategy in order to make the public financial contribution.
Professor Michael Hüther is Director of the Institute of German Economy (IW Cologne)
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