A country of old men? By Zane Varpina For AmCham Outlook series on - PowerPoint PPT Presentation

A country of old men? By Zane Varpina For AmCham Outlook series on May 24 2018 Photo source: University of Pennsylvania

What (almost) everyone knows about demographic situation in Latvia • Shrinking population since 1990 • 2.7m (1990) à 1.9m (2017) à 1.7m (e, 2030) à 1.5m (e, 2050) • Ageing • Median age ↑: 34.7 (1987) à 42.9 (2016) à 46.9 (e, 2030) à 49.3 (e, 2050) • Old-age dependency ↑: 17.3 (1987) à 30.2 (2016) à 43.2 (e, 2030) à 59.3 (e, 2050) • Due to: • Negative natural population growth and • Emigration Source: Eurostat databases, baseline projections

• Second • Under- Fertility transition demographic fertility in EU replacement 0.5 1.5 2.5 0 1 2 France Ireland Sweden United Kingdom Norway Denmark Lithuania 1.70 Latvia 1.69 Belgium Finland Netherlands Total Fertility Rates in EU, 2016 Estonia 1.59 EU-28 1.58 Slovenia Czech Republic Bulgaria Germany Austria Romania Luxembourg Malta Source: Eurostat databases [proj_15naasfr] Hungary Slovakia Croatia Italy Spain Greece Poland Portugal Cyprus

Migration Cumulative net migration in the Baltic countries, 2000–2017 • Total emigration from 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Latvia: approx. 270k -100,000 people. Estimates vary. -200,000 -300,000 -400,000 -500,000 -600,000 -700,000 -800,000 Estonia Latvia Lithuania Source: Eurostat databases, [demo_gind]

• Emigrants: the Migration educated) young (and the -1,500 -1,000 Net migration in Baltic countries by age, 2017 1,000 -500 500 0 Less than 1 year 2 years 4 years 6 years 8 years 10 years 12 years 14 years 16 years 18 years 20 years 22 years 24 years Estonia 26 years 28 years 30 years Latvia 32 years 34 years Lithuania 36 years 38 years 40 years 42 years 44 years Source: Eurostat databases [proj_15nanmig] 46 years 48 years 50 years 52 years 54 years 56 years 58 years 60 years 62 years 64 years

Crude rate of total population change by regions in Migration Europe, 2015 (per 1,000 inhabitants) • Growing regional disparities Source: Eurostat, regional statistics [demo_gind3, demo_gind], NUTS3 regions

So what?

Threat to competitiveness • Labour shortages à raising wages à wages grow faster than productivity à exports less competitive • How big is the shortage? • In the coming years Latvia to lose 18,000 to 20,000 working age people yearly (2%) – partly due to migration and partly to retirement (-240k in period 2017-2030) • 2017 Foreign Investors Sentiment Index: demography and access to labour are two of the most problematic areas. Investment attractiveness has decreased “because of unavailability of labour” (Sauka, 2018)

Slower economic growth • IMF, 2016: “Migration shaved 0.6 to 0.9 percentage points off annual growth rates” in several CE and SEE countries, including Latvia; i.e., 9- 14% lower GDP after 15 years • IMF: without emigration, by 2030 the GDP per capita in Latvia could be 3-4% higher than otherwise. In addition, the natural population shift into retirement age will slow down growth even further

Fiscal outcomes: pensions, social care, health and education • Public finances under pressure via: • Increased fiscal spending and • Slower economic growth • A retiring population increases spending on pensions and health care. • Reduced economic activity suppress tax revenues, governments become relatively more sizeable and costly • Latvia will not feel significant financial stress till 2030

Changing consumption patterns • Fewer people à smaller market • Pension savings are insufficient à seniors are cutting down their consumption in comparison to pre-pension spending (in US retirement spending drops by 37%) • The consumer basket for seniors differs from that of the younger population • Real estate • New business opportunities to replace the redundant goods and services consumed by the younger population

Structural changes in education and health • Education • Conventionally targeted at the young, • To be replaced by continued/adult education • Healthcare • illnesses and causes of death changing, reasons attributable to ageing • HLE stagnating • Shortage of medical personnel

Solutions? Options? What is the objective and goal? Areas of policy responses: Affecting fertility Affecting migration flows Labour market policies Mitigating effects of emigration

Affecting natural population change • Pronatalist policies that aim at affecting childbearing behaviour and boosting fertility rates: • direct financial transfers or reduced opportunity costs of childbearing • But: 900 90 Family support for third child, mother, fulll time equivalent, Total paid leave available to 800 80 700 70 600 60 weeks, 2015 EUR, 2015 500 50 400 40 300 30 200 20 100 10 0 00 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 TFR, 2015 TFR, 2015 Correlation between TFR and family support for third Correlation between TFR and mother leave child: 0.21 entitlements: -0.32 • And timing!

Affecting migration • Aim at affecting physical population change or migration • Remigration and engagement with diaspora • Role of ‘institutions’ • Immigration of other countries’ nationals

Remigration Return migrants as % of emigrants (calendar year) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Estonia 15 11 15 45 45 42 35 36 26 39 59 90 Latvia 31 47 25 36 30 Lithuania 10 9 19 22 29 14 5 27 45 53 59 50 Source: Eurostat databases [migr_imm1ctz], [migr_emi1ctz] and [demo_gind] • Remigration plan? • 40% remigrants leave again within next 12 months • New initiatives like latvijastrada.lv

Institutional environment and migration • Highly-skilled emigrants leave countries where institutions and governments are weak and move towards countries where they are stronger (IMF, 2016) • The Global Competitiveness Report 2017-18 Source: GCR 2017-18 (Swab, 2017)

Hiring from other countries • Unavoidable • Timing important Source: The Economist, 12 July 2017, based on Eurostat [proj_15npms]

Affecting labour market • Labour force participation • Productivity and efficiency • Technologies • Education • Retirement age • Health

Labour force participation • Gaps in participation for youth, elderly and Total employment as percentage of population by age, 2016 females Total Females • Access to affordable 15–24 15–64 55–64 15–24 15–64 55–64 kindergartens might EU28 33.8 66.6 55.3 32.0 61.4 48.9 Estonia 37.5 72.1 65.2 36.1 68.6 66.5 encourage quicker Latvia 32.8 68.7 61.4 31.6 67.6 61.4 re-entry into the Lithuania 30.2 69.4 64.6 27.8 68.8 62.8 labour market Sweden 44.5 76.2 75.5 45.9 74.8 73.5 Source: Eurostat data, [lfsi_emp_a]

Productivity, efficiency, and robots • Productivity = Nominal labour productivity per person employed (Index, number one policy EU=100) action area 200 180 • Efficiency 160 • Robots cannot 140 replace everyone 120 100 100 80 65.6 60 40 20 0 Ireland Luxembourg Belgium Norway Switzerland Austria France Sweden Denmark Netherlands Finland Italy Germany United Kingdom Spain EU (28 countries) Malta Cyprus Czech Republic Slovakia Greece Slovenia Portugal Poland Lithuania Estonia Croatia Hungary Latvia Romania Bulgaria Source: Eurostat data, [lfsi_emp_a]

Education Participation of adults (25-64) in education and training, % (2016) • Represents quality 29.6 of human capital 27.7 26.4 • Low participation in adult education 18.8 18.8 16.8 and training à 15.7 14.9 14.4 deteriorating skills 11.6 10.8 9.6 9.4 8.8 8.5 8.3 7.5 7.3 7.0 6.9 6.4 6.3 6.0 4.0 3.7 3.0 2.9 2.2 1.2 Zviedrija Dānija Somija Francija Nīderlande Luksemburga Igaunija Austrija Lielbritānija Slovēnija ES28 Portugāle Čehijas Republika Spānija Vācija Itālija Malta Latvija Beļģija Kipra Īrija Ungārija Lietuva Grieķija Polija Horvātija Slovākija Bulgārija Rumānija Source: Eurostat data, [trng_lfs_02]

Retirement and health • Working longer • Official vs. efficient retirement age • Wish vs. need to work longer • ‘Second demographic dividend’? • Life expectancy vs. healthy life expectancy

Mitigating effects from emigration • Remittances for investment, not consumption • EU-wide structural and cohesion funds to compensate for emigration

To conclude “Demographic policy” is not limited to family benefits, but includes wide spectrum of instruments from health improvements to education and fight with corruption