In all societies the very young and the very old consume more than they produce. The survival and welfare of the human species therefore require transfers of resources across ages through family, public taxation or capital market saving. This fundamentally affects the working of financial markets, wealth accumulation and public finance. The project mapped these resource flows into a National Accounts framework as part of an international project to create comparable National Transfer Accounts.
The close collaboration between the partners encompassed various steps:
i) the partners collaborated to adapt the NTA methodology to the European setting,
ii) various papers explicitly addressed the European cross-country comparison of age profiles of consumption, income, asset reallocation and public and private transfers,
iii) the project started with a single cross country NTA data set in France, Finland, Sweden, Hungary, Austria, Slovenia, Spain and Germany and built up additional NTA data for those countries at different time points,
iv) Italy, Turkey, UK and most recently Poland joined the European NTA effort and built up NTA profiles.
Key findings:
Qualitatively, the age pattern of economic activities (i.e. the type and intensity of economic activities at each age) is found to be similar in all countries: while consumption is rather equally distributed across all age groups, production activities concentrate in the ages from 25 to about 60. Consumption by children is almost exclusively financed through transfers: mainly through private transfers (from the parents to the child), but to a considerable extent also through public transfers, e.g. in form of publicly financed education. Retirees finance part of their consumption through asset income but in most of the countries the bulk of the consumption of the elderly persons is financed through public transfers such as pensions and publicly provided health- and long-term care services.
However, the quantitative shape of the economic life cycle differs considerably across countries depending on country-specific characteristics of individuals (such as the level and type of education, labour market entry and exit ages, etc.), institutional arrangements (family policies, labour market regulations, etc.) as well as the overall macroeconomic situation of a country
Support ratios and dependency ratios are widely used indicators to measure the challenge of population ageing for economic development. Both of these indicators use fixed age limits to distinguish between working and dependent population. Based on NTA data we propose to apply actual profiles of consumption and labour income by age instead of arbitrary age limits. We built up an NTA based support ratio that relates the weighted share of the working age population in the numerator to the weighted sum of all consumers in the denominator. The growth rate of the support ratio (i.e. the first demographic dividend) is shown to be negative for the next five decades for the European countries for which we had NTA profiles available indicating that effective number of producers is growing slower than the effective number of consumers (Prskawetz and Sambt 2013).
However, there is another impact of changing population structures, termed the second demographic dividend. Rapidly increasing longevity can be a strong incentive for people to accumulate assets for their retirement. However, we have shown that this wealth effect induced by population ageing is shown to be almost negligible in most parts of Europe. The latter result follows from the fact that the public pension systems in most European countries reduce the incentives to accumulate assets (and thereby accumulate wealth) for financing consumption for elderly.
The same way as NTA introduces age into the national accounts, the economic realm of unpaid household labour – the household satellite account - can also be described as resource flows among people in different age. The extension of NTA by time use data is called NTTA, National Time Transfer Account. This research is motivated by two asymmetries. First, despite of extensive public education and wide-ranging early childhood development programs, supporting and carrying for children is still more a family responsibility than supporting and caring for the elderly. This asymmetry makes a significant part of resource flows invisible for the current statistical system and policy making. The second asymmetry is the typical division of labour by gender, which renders the view of female contribution to the intergenerational flow of resources distorted.
Our results on NTTA so far nicely demonstrate that the asymmetry between financing old age and financing childhood (that is already present in the NTA), increases when introducing time transfers. These results may have further repercussions for the measurement of externalities on child raising, for the measurement of the full costs of raising children and for the fertility effects of various social policies. Indeed over the entire lifetime people in some countries spend more time on unpaid work than on paid work. Flows of services from unpaid work have a strong age pattern - flowing especially from parents to children - and gender dimension – in all countries women provide more unpaid work than men. Therefore, unpaid work has to be included, since focusing only on the paid work would lead us to the wrong conclusions about huge transfers flowing from men to women. Further, we would underestimate the actual investment in human capital; we would not observe ages in which individuals sacrifice their leisure time for working two shifts – one in the formal economy and the second one in the household etc.
Conclusions:
The consequences of population ageing depend strongly on the degree of the changes in the age-structure of the population, but are also strongly influenced by the age-specific involvement in economic activities. A change in the age structure of the population requires also a change in the economic life cycle. Our results clearly indicate that a reform of the welfare system needs to take into account also private transfers, in particular those that relate to services produced by unpaid work.
Projected impact of the project:
Our results present evidence that EU countries exhibit quite a variety of patterns of the economic lifecycle and inter-age flows (transfers versus asset based flows). These heterogeneities in life cycle patterns across Europe are closely related to the institutions (government vs. the family or private flows) that mediate the reallocation of resources across age. Our results help to understand how alternative approaches to age reallocation embodied in public policy (pension, health care, education and social institutions) will shape political and economic implications of aging.
