Generational economic dependency in aging Europe: Contribution of education and population changes

Abstract

Europe is experiencing the challenges of aging. However, different evolutions of their dependency ratios are observed, stimulated in many cases by the baby boom generation entering retirement ages. Simultaneously, a huge educational expansion also started in the second half of the 20th century, but at different speeds and levels. Education has been pointed out as a possible solution to offset the impact of aging on the sustainability of the welfare state, but, is this true for all European countries? Have all of them taken advantage of previous lower demographic dependency ratios? In this paper, we try to answer these questions by estimating the change in demographic dependency from an economic perspective considering the implications of a changing educational composition. We combine economic profiles of production and consumption by age and educational level (obtained using the National Transfer Accounts methodology) and population projections by level of education to estimate the Economic Support Ratio (ESR) growth rates from 1950 to 2080 for 19 European countries. Results show that the positive ESR since 1970 for a majority of countries is, in most cases, driven by an universal educational expansion, as the expected positive effect of the post-war baby boom is not observed in all countries. Around 2010–15, the ESR growth turns negative in many countries, as population aging cannot be offset anymore by on-going educational increases. In the future, the age effect will be the main driver of the ESR evolution due to the strong aging process, and an educational expansion almost fulfilled.