The social fabric of Ireland is showing signs of wear and tear as a shift in the population’s age structure emerges. Presently, there are over four potential employees for each pensioner in the country.
The ratio referring to the number of those aged between 15 and 64 (potential employees) in comparison to those aged 65 and above stood at 4.3 as 2022 concluded. It is noteworthy that not every individual in the first bracket is employed (numerous of them are students), and equally, not all completely exit the workforce once they hit 65, yet having more workers for each retiree is financially essential.
The national pension structure banks on working individuals’ contributions to sustain those retired. In the same vein, the revenue raised from the employed portion of the population – which summed up to around €33 billion in the previous year – mitigates the healthcare expenses of those who have retired from active service.
However, with the shift in demographics, we are seeing an alarming slide in the age-dependency ratio. The Central Statistics Office (CSO) recently sketched several population growth scenarios for the country up to 2057 which are based on different assumptions of both inward migration and birth rates.
What’s behind this declining ratio? When boiled down to its essence, it’s the downward trend in childbirth rates.
In every scenario outlined by CSO, the worker-to-retiree ratio contracts significantly. In one scenario with high net immigration, assuming an average inward migration of about 45,000 a year from 2027 onwards, the population would rise by 1.8 million (or 35%) to 7.01 million by 2057. The worker-to-retiree ratio would drop to 2.2, indicating that there will be 2.2 potential employees for every individual aged 65 and above.
In another low-immigration scenario, assuming an average inward migration of merely 10,000 per annum after 2032 and an increase in population to 5.73 million, the ratio would drop even further to 1.8, pointing at just 1.8 potential employees per retiree.
A decrease in births translates to a reduction in the workforce in the long run which in turn leads to fewer resources. This will inevitably impact economic growth negatively by curtailing output per person and making it challenging to sustain a large ageing populace.
It’s important to note that over the past fifty years, there’s been a substantial drop in global fertility rates.
In affluent regions, a noticeable decrease in birth rates is apparent, attributed to lower concentration of women in reproductive age. Delays in starting a family due to career and other factors have seen the mean age of new mothers in the Republic increase from 26 in 1985 to 31.7 in 2021. The birth rate of the State has experienced fluctuations over the last 50 years, reaching its highest value of 75,550 in 2009 before witnessing annual declines. It is forecasted that by the 2040s, fatalities will eclipse births, causing a shift from natural population growth to decline.
Alternatively, life expectancy has grown due to medical advancements. Predictions by the CSO suggest that by 2030, a million inhabitants of the Republic will be of 65 years of age or older. The shifting age demographic, according to the Department of Finance, will necessitate an additional €8 billion in expenditure by the decade’s conclusion. Larger bills are anticipated in subsequent decades.
Several progressive economies, including the US, EU, and Japan, are witnessing demographic changes with the peak working-age population now on a downward trend. Interestingly, amid increasing political debates around immigration, it is migrants that counterbalance this trend. A larger migrant community improves fertility rates, productivity, and ultimately, tax revenue. As per reports, half a million foreign-born individuals paid income tax in the Republic in the starting month of this year.
In 2019, we were alerted to an economic overheating risk due to labour shortages in Ireland. Despite this, we’ve seen an impressive job growth of 400,000, predominantly resulting from the influx of migrants, coupled with increased female workforce participation – the quickest employment surge across Europe.
Global ageing is undeniable, but its rate significantly differs among countries. Japan, with its mature population, low birth rates, and stringent immigration policies, has the world’s most elderly population, exceeding the two workers to one pensioner ratio.
Between 2015 and 2019, Angela Merkel, the former Chancellor of Germany, implemented an open-door immigration policy leading to around 1.7 million asylum applications in the country. Despite the ongoing disputes about the effectiveness of this policy and its swift disassembly by the present Berlin authorities (who are committed to enhancing border security and hastening deportations), part of the motivation could have been Germany’s demographic trend towards an ageing population.
The 2018 Department of Finance report states a demographic shift in various developed nations such as the US, EU, and Japan, where the workforce population has already hit its peak and is set for a decline. The direct consequence of this transition is a decrease in economic growth rates and an increase in public expenditure sensitive to demographics. To counter this fiscal pressure, the Government is considering creating a new sovereign wealth fund comprising the surplus €100 billion from corporate tax receipts. Yet, this may not suffice.