NCPA - National Center for Policy Analysis


November 15, 2004

Europe's population is growing older and declining. By 2050, the European Union's population will fall by 20 million, while the number of retirees will soar. According to the Economist, this demographic challenge is daunting and threatens Europe's fiscal stability.

As the number of workers fall, the numbers dependent on them for pensions and health care spending will rise. For example:

  • In Italy, the population aged over 65 and over will jump by 44 percent between 2005 and 2050.
  • At the same time, the number of working-age people will decline over 30 percent.
  • This means that the ratio of workers to retirees will 3 workers-per-retiree to 2 workers-per-retiree.
  • In France, the ratio will from 4 workers-per-retiree to 2 workers-per-retiree.

This soaring elderly dependency ratio will test European budgets to the limits. According to the European Commission, adverse demographic change may push up public spending by between 5 to 8 percentage points. But Europe is already over taxed and cannot expect their populations to pay more.

Another option is to increase the overall employment rate. The authors note:

  • Europe has an overall employment rate of 65 percent and an employment rate of 42 percent among 55 to 65 year olds.
  • In contrast, the American employment rates are 71 percent and 60 percent respectively.
  • Boosting employment to American levels would increase the number of workers and decrease the dependency ratio.

Source: "Old Europe -- Demographic change," Economist, September 30, 2004.

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