Population Poker

The England and Wales results from the 2011 Census were published yesterday. There was predictable alarm about the biggest population increase since records began. Immigration was a significant factor in the population increase. By adding a lot of twenty-somethings to the population it also fuelled the mini baby boom. And, of course, greater longevity added more people at the other end too.

The airwaves and the internet were alive with people complaining about the rising population. The familiar Britain-is-Full argument was rolled out. MigrationWatch insisted that the UK population should stay roughly where it is now and be prevented from rising above 70 million, although they didn’t specifically say how.  Others warned about the proportion of old people, now over 16 percent of the population, and the dependency ratio.

It’s not difficult to see the contradiction here. If people are living longer, to keep the dependency ratio static requires an increase in population. If the population is to remain static, then the dependency ratio must increase unless we start killing off old people.

This interactive gizmo on the ONS website shows the UK population pyramid from 1971 with projections until 2085. In 1971, just as those big boomy postwar years were coming to an end, the population profile still resembled something like a pyramid.

There are more people at the base than at the top and the over 65s are around 12 percent of the population.

Now look at 2011.

There are a lot more over 65s, now over 9 million people, some 16 percent of the population.

But here’s the rub. With this number of over-65s, if we wanted the same dependency-ratio as we had in 1971, we’d need to have a population of around 80 million by now. It’s pretty obvious when you look at the charts. If top gets bigger, the bottom of the pyramid has to get bigger too, or it won’t be a pyramid any more.

It gets even more interesting when you look at the population projections for twenty years from now. By then, there will be close to 13 million over 65s.

To maintain even the current ratio of over 65s to everyone else, the population would have to be around 80 million. To have a 1971-style pyramid structure would need it to be over 100 million.

Yesterday, Migration Watch attacked the OBR’s claim that immigration could help to reduce the projected public debt. (See Friday’s post.):

OBR thoroughly irresponsible to promote high immigration to reduce public sector debt in 2060 without making clear that this would add 22 million to our population.

This is wrong on two counts. Firstly, the OBR made it quite clear that its High Migration scenario would take the population to 86m by 2060. Secondly, the OBR wasn’t trying to promote anything. That’s not their job. They were simply saying that, unless the ratio of working age to non working age people is maintained, the debt will continue to rise. Immigration is just one way of achieving that. Other ways include an increase in fertility or a re-definition of working age.

But, as these charts make clear, the problem with increasing the young population, either by having more children or importing them from elsewhere, is that they will eventually get old too and, to maintain the ratio between the generations, we would have to keep adding more young people. As increasing longevity enables more of each cohort to work their way up to the top of the pyramid, the bottom would have to keep expanding for it to maintain its shape. We would end up with a game of population poker with each generation raising the stakes for the next one.

Te recap, then, because more of us are living longer we have to find ways of avoiding an unsustainable dependency ratio. The options are:

  1. Increase the productivity level of the smaller working-age population. According to McKinsey this would require productivity improvements at least 33 percent greater than any we have seen in the last twenty years.
  2. Increase the birth rate – there is some evidence that this is happening and not just among recent immigrant populations.
  3. Increase immigration – or, at least, hold it at current rates.
  4. Raise the retirement age so that working until 70 becomes normal.
  5. Reduce the number of old people – not really acceptable in a civilised society!

Of these, 1 is unlikely to be enough on its own while 2 and 3 push the problem down the road for the next generation to deal with. Which makes it ever more likely that older people staying in work will become the rule rather than the exception over the next decade or so.

In all probability, we will get a mixture of solutions 1-4 and, sadly, a bit of 5 too as life-prolonging treatments become rationed due to cost.

The idea that society can maintain its current size and shape, though, is fanciful. Capping the population at 70m, as Migration Watch and others want to do, would imply a fundamental re-ordering of society with huge implications for work, welfare and social care. But opening the door and allowing lots more people in, or a ‘battle for babies’ to increase fertility, might get us out of a short-term fix but will commit us to ever-increasing populations.

There are no simple answers to this but, somehow, as I said last week, we will have to find ways of coping with an ageing population. Actually, I’ll rephrase that, as it is my generation forming that unsightly bulge in the middle of the population graph. They will have to find ways of coping with us.

Update: For a more humorous take on the consequences of an ageing society, see Mervyn Dinnen on the riot that never was.

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6 Responses to Population Poker

  1. Pingback: Population Poker - Rick - Member Blogs - HR Blogs - HR Space from Personnel Today and Xpert HR

  2. Rahul says:

    Rick – here is something you don’t acknowledge: the temporal element to your options. Option 3 above can be activated fairly quickly. Possibly option 4 too with enough political will (not demonstrated thus far). Option 2 more slowly and I would argue option 1 even more slowly. Surely we should relying on option 3 now when we can (when young people of working age still want to move to Britain, the counter possibility seems never to be acknowledged!) whilst waiting for the other options to come to fruition. The long run solution has to be a mix of option 1 and 4 (these are interdependent, the better technology the longer people’s working lives can be). But lets enjoy the breathing room of the short run when we have it.

  3. A further potential involuntary cause of Option 5 is the development of bacteria which are immune to penicillin and other conventional antibiotics – even if the Pharma industry bucks the recent trend and invests in R&D like there’s no tomorrow, there isn’t a guarantee that diseases that are currently treatable and rather trivial won’t become life-threatening in the future.

  4. The options you outline are based on the paradigm of a pyramidal age structure and the existing policies that support it. We need to think beyond the paradigm.

    Lloyd George’s 1908 Pensions Act assumed that the beneficiaries of state pensions would be few and short-lived, providing as it did for people over 70 at a time when 63% of the population died before 60. The pension was seen as insurance in case you had the “misfortune” to live on into old age. Since then, increased longevity has recast the pension as a common entitlement that most could expect to enjoy, but we have failed to change the economic model, i.e. a large working population funding a small pension burden through current taxation. There are alternative models, short of “Logan’s Run”.

    An increase in productivity does not necessarily help with pension or health costs as there is no guarantee that this will translate into greater public spending. The OBR can assume a relationship between the two because it is extrapolating current policy (i.e. if we spend 7.5% of GDP on public health today, then an increase in GDP will produce more for the NHS). In other words, we could fund a growing pensioner population even at zero GDP growth. It’s a political, distributional decision. Productivity is a red herring.

    History shows that efforts by states to manage levels of fertility are ineffective and often counter-productive. Major shifts in population will happen for a variety of reasons beyond state control. Consider the jaggedness of the 1971 chart above, due to the death toll of WW2 (mid-50s) and the shedload of unprotected sex that immediately followed it (mid-20s). Handing out “fertile mum” medals won’t have that much impact.

    In the context of aggregate productivity and public services, immigration must always be considered in tandem with emigration, i.e. net migration. It is emigration that is actually the problem, as we currently have no real control over it. We cannot easily turn the immigration tap on and off to meet an optimum net target, so regardless of one’s views on the social impact, we should not look to immigration as a planned solution. It simply isn’t a reliable enough lever.

    So what could we do? We could increase the retirement age to 70 but limit the increase to those who secured tertiary education and keep it at 65 for the rest. For these reasons:

    — The middle class live longer than the working class, by an average of 5 years for males, according to the ONS. College education is a reasonably accurate proxy for class, particualry when you consider those who benefited in the 60s and 70s. Differential retirement ages will ensure broad equality in terms of pensionable years.
    — The college educated are on average more likely to be highly skilled, so keeping more of them in work raises aggregate productivity (the caveat above re distribution applies).
    — They are also likely to be earning above-average wages, so keeping them in work for longer increases the average wage and therefore tax revenues.
    — They are also more likely to be doing a physically undemanding job and therefore more able to continue working to 70.
    — If you benefited from tertiary education, you will have started paying NI contributions 5 years later than a similarly-aged manual worker who left school at 15. Extending the retirement age means you get the chance to make up that shortfall.
    — Not only have you paid tax for fewer years, but you will have benefited from free further education. Though you will have ended up paying a greater quantum of tax, this is a factor of higher wages which in turn are largely a factor of your education.

    As a quid pro quo, we could dispense with student loans. Instead of going into debt, you just accept a deferral of your state pension, with the additional years of tax and avoided benefits offsetting the initial investment. This would encourage more of the young to commit to further education (which McKinsey’s among others agree we need to expand fast), would in turn raise national productivity and thus (potentially) tax revenues, and would in time lead to the overall cost of pensions stabilising. The last of these would come about because as the number of the over-65s increased, it would be offset by the increasing percentage whose pension would be deferred by 5 years.

    • Rick says:

      F.A.T.E. – I wan’t really advocating Logan’s Run or a battle for babies as a solution – I just put them there for completeness😉. Interesting idea making college grads work longer though. It might help with the problem of skills exiting the workforce described in the McKinsey report.

  5. John D says:

    I think the idea of free further/higher education accompanied by an agreement to work an extra 5 years makes a lot of sense. I also think we ought to consider if adding to GDP/growth is necessarily a good thing in itself, anyway? Surely, consuming less and working less (but smarter) is something we all can aspire to? Could not the concept of a working week of around 40 hours be left behind and a new target of – say – 28 hours (or three-and-a-half days) a week be sought instead, particularly when we all expect 7-days a week service from supermarkets, motorway services and all the other services we rely upon? It would also have the beneficial effect of eliminating almost all unemployment and could cut the government deficit level too.

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