Economic Weakness and Demographic Challenges: EEAG Report

[00:00:59]okay welcome to our lunch debate today we will discuss today economic weaknesses and demographic challenges so that's a fairly broad title the reason is we have this report that is produced by a group of academics and uh can I say the leadership of offense venison or he's one of this at least he is writing the foreword so the group includes John Rafael Tom Anderson to Zappa bertola hello James Yannick bad storm Broncos a and enhance venison I don't know who leads but so this is a report that comes out annually and looks at the European economy and then always chooses one or two or three special chapters with different different focuses but the chapter one is always macroeconomic conditions and outlook which is what John will mostly talk about and then told them i think you will talk about intergenerational fairness but also about denmark a bit the danish system but mostly about intergenerational fairness so thank you to both of you for for coming today and for presenting that report and of course p our hotel is well known in this house she's a researcher here and she will be the discussion today and give her comments 22 the two presentations and then we open it up for for the for the audience I think John being being British there may be one or two questions on the UK it should be discussed that quickly so I so I think that's certainly something that also will have material impact on the European economy so I mean it is not just the matter for the UK whether UK leaves or not this matter also for the rest of the continent and I I think many in this room would be very curious to have a few thoughts by you or on this on this whole issue even though now it has become much more burning then it was when when you finish that report here but but certainly my take is that after this weekend perhaps the the chances of a no vote haven't have increased and so so I think more and more people would be interested in understanding what would what is your thinking on this so I think that's their small s the plan we have half an hour presentation then PR appear we'll discuss and then of course the debate with the audience John please thank you so much again okay well thank you very much for inviting us to speak to this event today reporters is just published today Tobin Anderson I are going to say a few words about a couple of the chapters I it's very kindly to come as particularly since this in some sense the star of the show isn't here hands venison I guess has been to talk about the report on lots of occasions and he's gone particularly charismatic and speaker and a great draw so tall a torn Tobin will fill in supplying some of that famous Danish charisma try area yeah we try to be tried to rise to the to the occasion enhanced venez absent some hope you won't be too disappointed but in view of his imminent retirement he wanted to he didn't want to push himself and he wanted to step back actually that's what that's what is and I the terminal yeah yeah I wanted to step back i think make weight of the succession is going to be succeeded by Clemens first at the in the first let me try to hit I have a couple of slides but somewhere but they're not strictly this intergenerational set the one or oh that good thank you very much yeah okay but the young sorry the title of the report I think looks as if we threw up her hands in despair said whatever next but we we decided to take a look at some long-term longer-term issues there are some issues that are too exciting and too fast moving for us to run to write about so we've we haven't of course talked about the migration crisis in this report we did address migration in last year's report but there's the migration is much too hot everywhere and the other thing we didn't address specifically in this report is brexit again the the situation changes too quickly and it seems far much too fast moving and everybody is writing rubber exit so we left that aside instead we looked at two issues of kind of medium long-term importance for europe which will be important whatever happens regarding brexit or anything else or migration one is intergenerational fairness and the bargain between the generations another one is a developments in secondary education which have been quite a number of policy changes in the UK France Italy and the number of other countries in the last few years and then looking at 22 countries or groups of countries that are a particular interest one being Denmark which has managed to achieve great things as a small open economy and the set in some sense defied many of the constraints that are popularly thought to restrict policy in small open economies and the last chapter is on the Western Balkans a group of countries on the eastern edge of the European Union which have changed enormously over the last few years of course an aspect of that is the fact that joining us on the panel this year is Bronco rossovich from serbia and so we had a lot of local expertise on which to draw for that chapter but those seem to be a particularly interesting group of countries in which there has been a tremendous lot of economic and social change over the last few years I've been asked to talk about the macroeconomic outlook conditions and outlook a chapter of the report and let me do that some briefly the I've this is this is a kind of screen dump of all of the pictures in the in that chapter so I'm not going to I'm not going to talk us through all of them because that would be rather dull but let me say let me say a few things about one or two features of the of the report of the chapter it's divided in two bits one is a survey of the current economic and recent economic conditions and the second part helps them more interesting one is the outlook for the future forecasting in economics is notoriously mug's game but nevertheless even if the answers are terrible the questions are so interesting I guess we can't shrink from attempting it this report i think is wonderfully modest in its in its forecasts we'd only looks at forecasts for 2016 we don't actually report any margins of error but partly because the the forecasts and assessments are based on a large number of different sources which so it's not simply forecasts from a single economic model so it wouldn't make much sense to provide precise margins of error this isn't some econometric forecast from particular model you know there's lots of judgments and things have gone into this and the resources of e fo have used of the general picture i think is despite all the answer tears and worries is one of jitter from modest improvements and a sort of cautiously optimistic and the story about the world it's the forecast to set against the background of low oil prices that are expected to continue obviously shifting the balance of incomes in fortunes between countries obviously dreadful for countries like Russia good for oil oil can consuming and importing countries there are the risks posed by the war in Syria and the Middle East and the prospect of more refugees more economic uncertainty we speak about the risks posed by tightening of monetary policy in the United States although I I rather think since the report was written that's kind of gone off the agenda I think it's it looks more likely now that the United States is not going to tighten monetary policy the economic picture of their has weakened considerably and it looks that's I think been put on hold for rather a long time and of course closer to home there are the uncertainties created by brexit and the referendum which now looks likely to take place on the twenty-third of June and of course some people are anxious about the QE program pursued by the European Central Bank which creates in some minds at any rate the danger of bubbles forming and also it reduces the pressure of on various member states to reform their economies the general outlook is one of in the that's the report for shadows is one of them continued global growth of around 3 or 3 3.3 % 3.3 sounds like spurious accuracy over the coming 12 months with most of that of course coming from Asia the United States growing fairly robustly at two and a half percent but with unemployment in the u.s. falling slightly because the United States must be close to capacity at the moment so what is foreseen is gradual increase in inflation and modest for than unemployment of course I mean they're in in Asia we've got continued continued slowdown in China that's been going on for some time and is expected you to continue Japan has extremely slow economic growth although of course that I mean Japan people talk about Japan's slow economic growth of the thing is about Japan is that the working population is in decline and so even as unemployment falls again to what must be close to full employment three percent unemployment you've got you've got one percent of GDP growth or something like that but that's really trend GDP growth for for Japan andaba nomics is perhaps running out of running out of steam one can go one could go around the world of course Latin America is you know it's a mixed picture with countries like Brazil in recession and Argentina and others growing robustly overall stagnation Russia in decline on the back of a collapse in oil revenues rising unemployment and collapsing government revenues and Europe I mean the picture in Europe is of assess a modest modest recovery is what the report presents I mean this this picture which happens to have come up here right now is sort of moderately encouraging is it not showing unemployment falling slowly in most European countries and the significant falls in even in in Spain and even in Greece which are forecast to continue although with with pretty sluggish economic growth overall but increasing funds growth in certain trance in France it's increasing the aya ok unemployment is increasing yes Ruth no no no no France France is one of the bad guys fried in France is kind of its just sort of limping along resisting reform growing extremely slowly uh-huh this is one of the yeah this is one of the countries that you know whom these warnings about diminished pressure for structural change is addressed obviously government ya know there's this huge disparity of growth of course across Europe absolutely there is a wonderful there's wonderful picture showing the further in this chapter showing the wide variety of forecasts and growth rates and some of them Greece still negative mostly less than one percent and and some countries steaming ahead the government structural about budget balances on the whole improving pretty good in the euro area actually you think well this should be occasion it just to touch under zero for the structural budget and budget barrel balance but I've got interest rates on rock bottom credits conditions marginally improving long-term bond yields falling everywhere you know where we're clearly still heading for a situation where the equilibrium real interest rate is zero or negative and central banks are going to have a hard time doing anything useful about it and fiscal authorities can do nothing of course there are still very wide disparities in the cost of borrowing for firms around Europe despite the low interest rates pursued by the European Central Bank this shows and let's have a look there are a couple of this this this picture i think is i'm going to stop in a second per saying the time is running at night but this picture is terrific because um it shows it suggests that some QE in Europe it has a fantastic list emulating effect by using the euro to and collapse against the dollar and so it's dropped out of the estimated range of purchasing power parity that's fantastic for stimulating Europe perhaps the the biggest contribution the QE is making to fostering growth in the euro zone oh the only thing is that I mean the range you know and the upper bound what I'd love to explain but life is too short okay this is these are these are estimates which are produced by the e fo all accessible yeah we fo provides a lot of the data and analysis of this chapter and we found we use there so i can't i can't give you a huge amount of form that this made this may be ending tremendous tonight request a motor from purchasing power parity exchange rate and ninety-five percent confidence Bank of ninety percent confidence bands around whether it's actually eighty percent isn't it because we've got the 90th in ten that these are eighty percent confidence bands okay right right yeah around the central wait oops and we each I think this is this is interesting because it shows very dramatically the long-term slowdown in Chinese economic growth course China's growth rate is guess is now below that of India or at least as forecast for 2016 Indians forecast to grow more more strongly than the Chinese economy see confidence generally rising wouldn't you say over the last few years in most areas of industry in Europe and modest growth that's some growth at about one point nine percent forecast for the European Union for 2016 mostly from private consumers expenditure of course and growing employment and slowly falling unemployment rates to about 10 and a half percent in the euro area oops and then this is this is absurd it's too tiny to this isn't touchscreens I can't and large it conveniently but it just shows the enormous variation in growth rates across the European Union everyone will have this large version of this picture in the copy of the report and possibly there you go so that's that's the that's the summary relatively optimistic yes i took i would say cautiously optimistic yes yeah modest improvements yeah many risks you know i'm all surrounded by enormous unspoken margins of error I hand over to toggle gate open okay thank you very much so we move on to the Michael yeah thank you so we want to the chapter on the intergenerational fairness which is sort of taking a broad perspective on this issue and a lot of the discussion here is related to the welfare state due to the intergenerational mechanisms running while welfare state of adopting sector so also means that many of issues which have been discussed recently demographic pensions etc pops up in this context so a main idea of this chapter is to bring this together and see it more generally in the perspective of how different generations fair given the changes we are we are seeing and the policy changes being made so if you look at the chart here which is showing the age-dependent knit transfer that eased forgiven ate an average person what is the sort of net interaction between that person and the public sector so that means that if it's a negative number the value of services provided for young people it could be daycare for instance or education or if it's positive it's usually tax payments either direct income taxes or could be indirect taxes paid on your consumption and that you get very clear age-dependent the profile here so these are based on so-called individualized expenditure items from the public sector of course there's also collective like military and others which you can well they cover everybody is classical public goods but you have in all economists all public sectors you have a lot of activities which I individualized in the sense that you know that specific persons benefit from this or pay contributes to this of course in the public sector the payment is why I general taxation so the whole idea is that for the individual there's not a one-to-one relationship between what you pay and what you get but of course for the system that need to be some relationship between the two otherwise we have problems with the budget center one so what is quite clear from this graph is what you will also expect a very systematic age dependency that on average when you're young you benefit from the welfare state day care education as the main things also health care and so on but mainly this then eventually you reach the ages around 2025 something and you can see the curve crosses 0 that means that you end education you under the labor market you start paying taxes so now you interface where your net contributor to the welfare state and then eventually you get older and there's relationship between 8 and how frequent you turn up in health care system and of course pensions and so on kick in at high HS retirement etc so of course for any age there's also distribution across individuals at a given aids but here we focus on the age dependency has built into the welfare state it's also quite clear from the figure that the the amplitude of this age dependency depends on the ambitions of the welfare state so you can see the sweetest one which is the green line for the for a young a day are sort of in the middle you can see that text as we all know taxes are higher so in the middle group where you're supposed to go to work and pay taxes we can see that the negative that is from the individual perspective that net transfer you make is is larger but then when you get older you also get more back in the Swedish system due to more extensive health care and pensions etc you we did not show that chart if you if you actually for Sweden we have a historical data and you can see when you you look for the back from the 30s and 50s and on what the amplitude gets larger and larger and that's also what you expect when you get a larger or most ambitious welfare states then the amplitude would be larger and more they care more education that creates expenditures when you have need a higher taxes who pay the taxes that would be those in the middle so that sense in the welfare state there is a clear intergenerational linkage that's all I've been generation at any point in time some being several two years five years and etc so that's a very very important that we have this overlapping generation and of course each individual will bond through these phases where first you on average would benefit from the system and you will contribute to the system and then eventually you'll benefit again so loosely speaking we could think of three generations the kids the parents and the grandparents and a bit black and white before the welfare state in the family there was care for the three generations under the same roof the family that's not the case anymore but then we have institutionalized the same thing with the three generations but now it's under the roof of the welfare state of course with huge differences across countries because there are systematic differences in the extent of the welfare state but as you can see the pattern is the same in all countries and that of course raises a lot of issues in terms of this the political support for it the economic sustainability of the system and so on and and from an economic perspective their various aspects which are interesting here one is of course that is obviously related to distributional aims when we have more ambitious welfare state it's usually the political motivation is related to distribution to making sure that everybody can get health care or education and so on equal opportunities and so on I in there and of course when you have something which is in an exposed sense helps you out if say you lose your job you get unemployment benefits so if you lose the ability to work you get disability pension or whatever then extended would also provide an insurance function you know it's there if you're the unlucky guy who's affected by these social events on the other hand if you're the log a guy who goes to life not experiencing any of these negatives social event you will or never contribute more to the system but that's like any insurance contract that there would be this thing so that's going on then of course there is this specific aspect related to the internet rational linkage here so let me loosely put a line here and then we can think of the social contract or the implicit contract as actually being made up of two contracts named the first one here when we're start receiving and then the early ages where you work and pay taxes then you sort of payback for the daycare and for your education that sometimes called the forward part of the contract you could also call it an investment you get something before you pay back so implicitly there's kind of boring in this and then of course the second part is the opposite you still keep paying taxes and then eventually get old and you get you to old age care or your pension or whatever so that's the backward part of the saving part now huge literature on this discussing how this could affect the economy even on strict efficiency aspects of closeness all the distributional aspects and so related to this but there's also an efficiency aspect because there's a huge difference between the forward part and the backward part because the forward part has this investment perspective and actually within the intergenerational contract in the welfare state you can have investment at a at the implicit return in the pay-as-you-go ski scheme which is the waste growth rate which is in a dynamically efficient economy lot smaller than the interest so actually it's cheaper to have this running in the forward part in the contract but on the savings part you had the opposite argument that the return in markets the interest rate is hired and the implicit return in public pay-as-you-go pensions and that has been the main argument why pensions should be funded so we have these two aspects and of course the point here is that the forward part in efficiency even on strike deficiency terms can be influential in improving efficiency in the economy and then of course we have the backward part which plays a huge important role in terms of distribution and redistribution of social concerns and so on and I stress this because in a forward perspective for a system as a whole it's important that we don't squeeze the forward part too much because that would be where the dynamic gains efficiency gains are and of course the risk it currently is that because we have more old people and demographics etc that we focus too much on the right-hand side in this figure here and of course in this figure you don't have to make sophistic sophisticated computation to work out that if there are more old people they will have a higher concentration of people out here and that would if you don't make changes impose a fiscal burden on the system i should add if you look at this chart you might start wondering how could this be financially viable because you have some it seems that the area area under this plus the area over here it's not it's larger than the area down here but then you should remember that this is H so they will of course be a mortality and not everybody would experience their 80 to 90 to 100 anniversary so if you wait these by their survival probabilities of course you get this into into the picture and then it does not look that bad of course some countries still have a sustainability problem but for instance the Swedish one is actually sustainable with the Swedish pension reform and so on even though it looks as if the old other expensive but still in Sweden after all the magics of the Swedish welfare state not everybody gets 90 so and since its sustainable okay so the one important thing here in this contract is of course all the demographic changes we see and we have seen it's not a new phenomena that we've seen a trend decline in fertility a trend decline in fertility is acted very important or crucial for this contract because fertility population growth is an implicit source of the return in the system as if there's population growth is always more young coming into the system of course in the first phase they need some education but then they become taxpayers so have more and more young entering as taxpayers and relatively then more young than old who should have a pension so if the system is always sort of feeded with another young people into the system which gets a job and get become taxpayers then of course you can offer an implicit return which is basically the growth rate of the weight some in in the economy and of course the reverse is when fertility goes down the implicit return in the system falls and politically that's of course a dilemma because then when you have fertility and boosting the population you can sort of expand things because you have always the tech space increasing and that's of course more attractive for policymaker you can start up all sorts of new things but now when fertility goes the other way it turns against you and just financing what you have already seen from an individual perspective gets a problem because small generations become taxpayers last generations should have a pension and then on top of that we have the mortality changes or increase in longevity which is of course I guess if you single the most important welfare improvement in the recent times its increase in longevity so it's it's really dramatic but of course for the social contract is an issue of how many years do you contribute to the system and how many years to your benefit from the system and if you live longer and you don't change the retirement age of course the average person would spend a shorter share of life contributing to the system than benefiting from the system and the social contract would not be viable under this so that's why of course in many countries we have seen in this person of whether the retirement age could be increased because longevity goes up and in some countries you also see an explicit indexation of the retirement age to longevity which from also from a fairness perspective makes sense because then you sort of try to keep a balance between the number of years you contribute to the system and the number of years you benefit from the system then we have a third demographic challenge to this contract namely migration and as I already alluded to the interpretation of this as an insurance contract on implicit insurance contract and some malarkey and some unlock etc and we all know that the insurance contracts or insurance is problematic if you have selection problems so if you don't have migration you don't have a selection problem because you're sort of in code and unquote you have the population under control and then you can have these redistribution mechanism sense etc going on but if you have migration of course potentially adverse selection could enter into the contract in particular if those who immigrated are those who have obtained higher education which was financed by taxes and then they leave when they are supposed to be tax payers and if those immigrants you get in have an employment rate which is below the average of the population then of course they would tend more to benefit them to contribute from the system and that is precisely adverse selection mechanisms into the contract so migration potentially can have huge effects on the financial viability of the contract and then of course across these we have a transition issue because not all of these changes are obviously new fertility decline has been running or decades the increase in longevity although it has accelerated in some countries more recently it's also being gone on going on for some decades so the fact that policy makers have been slow to reform to deal with this also implies that some burden shifting to future generations because the more you have refrained from reforming the system to to deal with this of course the more you have to do in the future and who can deal with it that would always be the future taxpayers so that would be future generations so that's of course one of the huge issues right now in the intergenerational fairness or conflict which is being built up that some core some generations have really been you could call it lucky or clever use that political power to benefit from this system and now some younger cohorts they face the bills so to speak of this so we have a distributional aspect here both across generations interred in racially some corned elderly they have had a high return in the contract because the fertility thing I mentioned they have experienced their got the game from the increase in longevity the retirement date was not increased when long gave us he went up acted in some countries it was decreased so the average through time and peered in a number of countries today is about the double it was just 20 or 30 years ago so that's of course a huge gain from an individual perspective but not a sustainable game and then we have the young they faced a falling return in the system they have the burden of dealing with debt to finance these things and perhaps the investment in the young education and so on so on in squeezed in the fido that the public budget so this has been recently a lot of discussion about inequality which has focused more on the distribution of income and a given point in time and here sort of we raise an issue saying that there is a huge disk youjizz you in terms of distribution across generations and then we just say that in track generational the welfare state is perhaps not that we distributive as it's often claimed to be because some of those who really benefit from the system are those who get tax finance education and they get high incomes of course they pay higher taxes but they own avarice also a more healthy they have longer lives and benefit from the welfare state in the in the old ages so in a lifetime perspective the the contract is actually less redistributed then than it is in a static interpretation okay let's run through some of these the first is the entry after young and one problem which is well known is and in particular in some countries the difficulties of young finding jobs and even those who find you if they find temporary jobs in and out of jobs and so on the chart on the right hand side is the well-known of the needs those who a night unemployment or an education and you could see in some countries it's a close to one-quarter of those in the age group to 19 to 29 so it's a significant proportion and mind you even for a contractor bulus we saw earlier then clearly it's important that the young they shift into the face where they become employed and pay taxes so the welfare model or this contract crudely relies on maintaining high employment rate so on top of the distributional or social consequences of having problems which you'd entering the labor market it is actually in dangers the financial viability of the system and currently of course the big issue is whether the extent to which these high youth unemployment rate translate into long-term unemployment for these cohorts that they never really regained their position in the labor market and then passed through entire life where these cohorts have below average employment rates that would both socially and financially be of a large importance then another aspect of this is housing and family formation in many countries you'd have difficulties in finding houses can be so supplied he'll also be expensive and of course it's also related to the unemployment problem if you're unemployed you don't have much money and so on if you look at the chart on the right hand side you see the proportion of those in the age group 25 to 35 who still lives at home and you can see in southern Europe and some Eastern European countries it's up to half of this age group still living at home we put it mildly saying involuntary staying at home here I one can make the claim that very few in this age group would have as their first priority staying at home so it's really showing a lot of problems in in one number and one statistic here and of course this raises a lot of issues not only in terms of labor market employment and sauce but also in terms of housing market why a housing market so inflexible why so difficult for young people young families to find housing and we see locking in that people stay in houses even big houses when they get older so there's not an that does not seem to be an efficient allocation of housing space in most countries the houses are very lenient text is sometimes claimed that this is to the benefit of the young which is actually not the case because low taxes on housing is capitalized so just increases the prices of the houses to the benefit of the old and then of course the inequality in the distribution of housing and housing wealth place over into the d into bequest so there's a reinforcing disequilibrium or inequality mechanism from the situation in the housing market and the texas meant to be quest and loba quest taxation implied by this then the exit of the young here and john already said this report is not about immigration into europe so we focus here more on exit of young educated as one part of the s adverse selection into the social contract and some striking numbers here which are from Italy if you look at the first graph up here the blue column is the number of young Italians will registered to leave Italy to go into the UK and you can see it's a pretty flat no trend in the blue column but if you ask in the UK how many young Italians registered to get a national insurance number there's the red column and you could see it's much higher so there's an interesting data problem here so if you look at the official Italian statistics you don't get what is right actually going on and about 60,000 young italian sleeve Italy each year that's quite a lot and most of them and most of them go to the UK yeah so it's quite a lot and if you look at the lower graph it's cos th distribution and the point is that the young so the young they leave and actually two thirds of those hold a university college degree so it's among the better educated who leave so it's really adverse selection from the top so to speak and that's of course I think it 300 something yeah so it's not a trivial proposal though yeah and when you have that the young leave and if especially if the if this if it's the young were educated in in in some sense you get a double aging effect because we have fewer young and if it's if it's the strong young you also have fewer potential taxpayer so the viability of the fine and all the financial viability of the welfare state on into the national contract is really very vulnerable to this so this is really a problematic aspect of course Italy is sort of them the most extreme case but but you see this also for the country's then we have pensions and medical care and this is of course something which has been discussed a lot obviously more all would immediately affect the budget even for unchanged pension schemes and so on and we have the increase in longevity and we have this point about increasing given time and AIDS you see here the graph showing the relative median income at 65 and and the point is that this the old has fared pretty well in terms of income even after they are comparing to hear 2007 to 2014 so one can interpret this positively saying well it shows that the pension schemes are resilient and more countries have more funded pension schemes and so on an increase in replacement rates on the other hand it also shows that the bird on the adjustment burden has more fallen on younger cohorts and you have this tension between cohorts who who were carrying the cost of of this and clearly delayed reforms have cute implications here and are shifting costs onto a few look cohorts much of the discussion has focused on pensions and pensions are of course very important but equally important is the health side and all countries they have significant public health care systems and health care is a important part of the internet based on contract and we have a very very strong expenditure drivers on the healthcare side the obvious one is the demographics the more old and there's this relationship between age and when you turn up in the healthcare system and that's also there even if you allow for so-called healthy 18 so it is true that it's not just one to one that you have more old it's sort of a phase shift but even if you take this into account the pure demographic effect is to increase health care expenditures but then health also is characterized by other things it's an area where you have a very high income elasticity so in process where countries individuals can reach it there's more demand on the healthcare system and if the public health care system sort us deliver set aside three standards and so on of course it translate into the public sectors and it's basically since the new opportunities locally in life sciences there's a lot of improvements new and better treatments and even though some of them also associated with the standard sort of productivity increases then they also shift your opportunity frontier and when the when these treatments are available there's also a huge pressure that they should be offered to the population it's very difficult politically to say no when there's a new treatment so this is a very important driver and then of course we have the decay apart in particular old ails all dates care is very intensive in human interaction and human interactions are extremely difficult to to make more effective increase productivity so that's the classic Obama example of things where the relative price goes up and if the welfare state has taken over many of these activities of course vamos cost disease becomes a problem for the public center what you see here is a EU Commission projection of the you see both the current or 2010 level of care and then a projection into 2060 and you see two things we refer to see huge differences across countries but you can also easily if you consider country names you can also vaguely and see a relationship here between the level of these expenditures and the income levels in these countries so one would expect that when some of these countries get richer there will also be more increases in health care expenditures and the other thing is of course the bread Colin that increases when we look forward they are there are a large so the financial viability or sustainability of the interent intergenerational contract is really under pressure and that applies even in countries where there has been pension reforms and the reason why it applies there is due to the health side so this charts have hears from an OCD analysis and you can see the green one is that the projected public budget burden of of 18 on pensions and you can see a lot of variation across countries and some countries is even negative and few countries it's very close to surroundin it's a large in a number of countries but the blue column which is healthcare is significant for all countries so the healthcare issue has not really been solved in any country even those countries who have solved their pension problem and of course it's technically it's easier to solve the pension problem because when longevity goes up technically increasing the retirement age is a straightforward proposal but politically it might not be that easy but technically it's easy to point to this but when there's improvement in hill the life sciences and you can do new things how can you finance this well either by increasing taxes which is not an option most with their pic or you had to make cuts in other areas which is equally difficult so that's why the health issue sort of romaine on the the table and then of course some countries face huge debt problems on top of this and you could say there's also an implicit debt namely in turf of environmental problems which is left to future generations so to conclude young generations are squeezed are at a disadvantage for reasons I explained and the social contract has been very favorable to some courts and will be less favorable to younger cohorts part of this is a result of failure to it just in time but of course also inherently here is an intergenerational distributional conflict and we see in some countries really some tension growing up and the Italian cases in an obvious example of this and in medium term perspective you can ask what how far can you go and how would affect social cohesion and so on and then you could say well on the other hand politically it does not seem that it might be smaller because there would be more old boaters so the political balance is shifting to the favor of the old and therefore there's a risk that the young would be even more squeezed so this is a tricky issue yes thank you very much thank you very much so let's now turn to to Pia Pia is the author of one of the authors of a recent legal study on the intergenerational conflict I think she will probably present something from from that from that report also and of course from from only experience can only confirm the Italian story I mean they get a lot of applications certainly from young Italians to come and work here at previous research assistants and so on and so I think that's I mean certainly something that that is very visible also in not just in the UK but also here in Brussels so so i think it is indeed a big issue but pia please yes thank you very much thanks to the speakers it was a really interesting report and it was a pleasure reading through it it definitely gave a lot of food for thought especially the chapters and in fact as gundrum highlighted I will focus more on chapter 2 which was talking about intergenerational fairness but i also have a small remark on chapter one regarding the the paragraph about monetary policy and often the link is made between the ECB quantitative easing program and and structural reforms and i would say it's not the role of the ECB to care about structural reforms in countries and even with the two percent inflation rate maybe structural reforms would be easier to implement and with the zero percent or even the leveraging and deflationary environment that was my small remark on chapter one in chapter two basically it's a really comprehensive analysis of the inter generational divide and it raised its really important points and invites to further reflections on the topic it's actually more comprehensive than the one we have written because we focused more on education and the pension whereas you also address housing issues and also wealth and taxation of inheritance so it's it's really a topic I think that covers the a chapter that covers the topic topic broadly and I think the main theme is basically that the generational contract is under threat so on one hand you have the medium voter or witch whose age is basically increasing so politicians become more and more biased towards the elderly and hence safeguard more spending on the elderly as opposed to spending on the on youth such as education and what was also discussed in the chapter what I missed a bit from the presentation maybe was that this idea of the young voters that actually might opt out so that they through migration exit this national scheme and therefore go away it was addressed in the brain drain discussion obviously from Italy but I think in the in the report you stress it even more and my I have two small remarks one is really really small it's basically when you showed the unemployment rates and how they are really high in for the young you looked at the not in employment education and training indicator and I think it's a bit difficult to interpret in the in the report your writing that those not in employment or education are those who are discouraged and that they opted out from the former labour market and trading all together this would mean that twenty five percent of Spaniards are discouraged I think that's overstated because we talk about people that are unemployed or inactive unemployed means that they are still looking for a job so they might be students just coming out from from school and they look for the first time for a job and this in fact in Spain if you decomposed not in education and training you can see that the big junk is is unemployed persons it's not inactive which are completely discouraged this is a small remark the second one is more about the pension challenge that you are addressing so basically you're saying that the pay-as-you-go system is under threat because of the obviously of fading productivity but also increased long longevity and decreasing fertility rates and as a solution you suggest to switch from a defined benefit to a fine defined contribution system so for who is not familiar with these terms so defined benefits is basically where you where you keep the benefits as they are so the cost will fall on the young because the benefits will stay the same but the young who are paying into the system are getting less so obviously their contribution rate is increasing so at the extreme all the costs of adjustment will fall on the younger generation whereas the defined contribution means that you basically crees the the benefits that elderly are getting so you have to cost that falls on the elderly as fewer contributions are paid in and and the benefits are hence reduced so on both extremes the system's look unsustainable and this is where i can finally cite the paper we have written together because we look at something called the mass grave roll rule where we basically identify it as a third option to kind of safeguard this social contract that you that you are describing and the mass grave rule basically plays a bit with both it plays both with the contributions and the benefits so that you keep constant the benefit wage which would which would be the average pensions divided by the average wage which put in a certain way not alter the distribution from the elderly to the to the young or vice versa so we were opting to this third one and I would like your comment on this one I think it's a nice solution out of this dilemma and i will also like to give a more positive outlook on the median voter growing older and hence capturing politics i do still believe that people are interested in the new risk coming up and we did a survey and within this report and it was done across seven countries in august 2015 and we were asking people what are the main challenges that are that are there for the welfare state looking ahead and basically nearly fifty percent of people cited education as the biggest challenge so I would say that the policy attention is there and it might not be that politicians are so captured by elderly voters as you were stating in the report thank you a lot that was it and I'm happy for your feedbacks great thank you very much so let's let's open the discussion but also of course Tom if you want to react already to the mass grave rule and why you know you sort of didn't didn't opt for that one because we were opting for it and just to repeat what Pierre said the the the mass grave rule of course tries to split the burden of aging equally among those that that work and those that are in pension and so so it seems to be to me quite a quite a quite a nice solution in terms of the intergenerational equity while you seem to banner to to favor the system shifting completely to the other one but if you want to write later I can also collect some you you have it please say ok yeah thank you very much very good comment let me just quickly run through them first on on the unemployment I agree that looking at this needs that does not imply that all which I included they are sort of disadvantaged store this car or anything like that because as we point out some of tomorrow unemployed a look for for jobs I think the spirit in which we put it obvious just to say that we have all that in this group those who are in this group have a high probability of becoming marginalized in the labor market and that's really the point not not as strict interpretation of 25% of twenty percent so that's really the problem that if because then you have what is sometimes called lost generations that you have some cohorts entering the labor market where all sorts of problems are there and they never get really a strong position in the labor market and their long-term unemployed and so on but I agree on the point on on the pension I think this is very interesting discussion I think actually we don't go very fine to discussing the finer details of pension reforms so first we just point out that if you don't do anything then a pay-as-you-go pension scheme obviously we'll be on the severe problems and and then we briefly say well increase new retirement dates make sense and of course also having more funded pension schemes make sense but we don't go fine to the discussion I I would maintain that as a medium long run policy objective moving towards more funded pension scheme is the right way to go but having said medium Ron Ron I also indicated that then we are talking 40 50 years or more so there's a quite a vital on till there and there is there's an issue how can we then adjust the current systems and I think this discussion about the musculus isn't very interesting mood and it has precisely as you say it is for balance between the young and the old and in that sense it maintains a kind of fairness in India Joslyn present so I think that that that's for sure very very interesting then on the median border and effect at least numerically the age of the median world increases and our forecast saying that in 2040 50 in most countries more than fifty percent of the voters would be above 60 years old so that's really a shift now with all old only vote for higher pensions or would some old either out of altruism think of the young or even rational me and Boulder would think if we squeeze the young too much there'll be nobody to pay the Texas and then it doesn't matter anyway for instance pushing the young to the young Italians to go to the UK then because then day we rode with the defeat rather than n in the ballot so there's a legit you on resna voters and how they would perceive the need to also care for a young because if they are not caring for the young they are sort of undermining their own position but even those models have as a prediction that when the hd2 bution shift towards high ages then policies would shift to be more favorable to let's just call it pensions but not that it would be entirely pensions because they would understand that they should also maintain some education and so on but still the balance would shift so I think that's the important point here is not 0 1 discussion that so we go to extreme varies just slightly that whenever there's political discussions about how should the budget be adjusted and so on there's a tendency that they would this would happen on the pension side and more on the education side that's basically the point we're trying to make thank you for station applause formerly with the European Commission thank you very much for a very interesting presentation for a good study I have not seen I was surprised to read the in the economic price in England in UK and added some statements by the chief economist of OECD in which the overall assessment is rather pessimistic about the prospects for globally and for the european union and they put a lot of emphasis on the same demand and therefore they argue that we need to boost demand for growth and employment within the european union of course that is dragging which is doing his job on with the monetary policy we have the yonkers investment initiatives both of them would take them together they go in the right direction of boosting demand there is no doubt about but my question is for John Griffin your study what was the the feeling is there any any evidence that really should we take very seriously okay OCD is a very serious thing tongue is the demand so deficient because this may imply somehow I mean I got impression that this is the latest conversion of OCD into the Kings and economics I didn't expect that actually but that's my Chris photon and also for you goodrem because we know quite well the economic profession in Germany the hell is slightly different let's say orientation with a V some of the things have happen around called guys are from mr. guard Rajon European office I have a question for mr. Andersen and I was impressed by your number sixty thousand young Italians going to the United Kingdom in order to work there as i remember a conference in the Tuscany office in brussels i think it was in 2012 with the president of Tuscany with the Commissioner of US law and off or social affairs etc and there was more a mood no we are against this sort of brain drain so my question is has the mood changed in Italy all right let's I think that's the first round it's already a lot of John I think it was I will also say something first um so on demand aimee mann's i saw you're a British I mean so not the German conservative well despite despite work despite being British um I mean this the signs I'm the signs are that it may have been helpful to add more I can get demand and of course there has been a big argument in Britain that the basis of the current government have slowed down the recovery but eventually a recovery house taking place an unemployment husband falling was um the thing that's been missing in the occasion productivity growth I mean higher employments perhaps achieved by a flexible labor market has come up with less productivity growth but it does seem to true in quite a lot of Europe that there's good economic growth happening in the United States as a you out of the Japan also approaching capacity I mean real economic growth and aggregate GDP growth is quite slow but then that's because the population of working ages is falling so I mean surprisingly and there does seem to be enough demand and there seems to be adjustments on the supply side taking place so that we're getting this slow recovery I mean more demand some years ago might have speeded it up and there are big chunks of Europe where more demand would obviously be very helpful I mean yeah it is true that inflation is a lot lower than target in Europe and Mario Draghi hasn't and the ECB have not so far I've been able to get inflation up and the new trends in inflation still download so from that perspective absolute say yes a bit more accurate demand would be a good thing to Japan to RV nomics is not much it's not managed to get the rate up to the target of two percenters still languishing between zero and one so ya head so maybe there is still a need for some a bit more demand but the supply siders but you know these economies have responded better than one might have expected i think but well the uncertainty about public policy and other things up is one thing's is always likely to reduce demand and growth a bit but by how much I don't know and of course these mark these these these forecasts they're meant to be forecasts anyway so they need to be well I mean the margins of error might be huge but we're not trying to do any wishful thinking yeah I mean we're not they're not saying it's cautious optimism portal it's not cautiously optimistic cause we like to be but we possibly think that that's the central best of it but yeah of course you may be revising our forecast down next year or up or up who knows and breaks it well yeah I'd have thought yes if Britain if the UK votes for brexit in June these Scots are going to redouble their attempts to their efforts to separate from the rest of the UK because they're much more pro-european I think although mind you I think whatever happens about brexit there is going to be more demands for referenda on on Scotland actually if it's Britain but if the United Kingdom boats not to leave the EU I suspect them be more than probably another demand for a referendum on brexit as soon as anyone can get away with it so it's not going to kill off these questions aren't you to get children off I don't see one annoyed like in the 75 for you know a supporting yourself well it's easy but it's been simmering discontent been there since in certain quarters since 1975 but perhaps it would I mean perhaps it is such a painful it becomes it would be such a painful experience that it could kill off further discussion obviously i don't know i think that this content as drone too much greater proportions of the population in britain and that's why i think now it would be it would be an issue that wouldn't go away I mean 1975 Europe was much less of a thing wasn't it the way it was much more it was doing less right the progress towards ever greater integration of the European nations had scarcely begun Williams as the common market and not a whole lot else at the time if i recall correctly whereas now we take it some actions extended too much wider areas of social and economic policy you asked about the gym orthodox sorry I I think I mean just 22 per se say two three words on this I think the perhaps many economists in Germany would actually accept the notion that there's not enough demand but they would disagree on how to do manage to get more amount and you know I think there's basically very strong line of thought that would argue that the key issue is the unresolved structural problems including you know debt overhang a dysfunction banking system that's not restructured and so on and that is holding back tomorrow and so you clean that up with structural reforms and then you know you basically get your gross going that is I think the view of many many economists but you know I personally think that Mario Draghi has put it rather well to say you know we need the demand side end to supply sir I mean we need to fix these deeper issues including by the way the productivity issues that you know I have been with us for for 20 years in some countries including the country where 60,000 people are emigrating from in this country that low productivity grows for 20 years of two don't fix that I mean it's not this fiscal policy that you're going to fix fix fix the Italian issues yeah but I mean so you need the you need those things as well so you need to double strategy meet the structure and the demands night but there was a question also to you I think and then I let me collect one more error was a quick about the Italian the piece used to micro oh yes the brain drain I wish that you said Webber told I was here because he's our Italian member of the group and he could answer and what's better I would be a bit cautious in saying something about the the mood in Italy and from what I understood also when we discussed this text and and this part that does not seem to be a change in in the mood and this thing is is going on and and and yeah there's no sign that the fewer young would would leave Italy so so the brain drawing thing is there yeah 60 of your report it shows that the numbers of people going out in 13 are much higher than in 12 so there might have been a change okay let me collect a few more you oh and then i'll go please yeah sociology employment on intern generational transfers I had one general question not we lose from the picture given the fact that standards like in the 1960s in some European countries when it comes to accepting employment to finding housing were very different from what they are now so whether we should not also forget maybe this aspect when we compare the outcomes from the generations now with all the generations which on paper look luck here but maybe the reality was not maybe we forgot a bit what was the reality or so in the 1960s you find employment you find housing but this was now this would be assessed maybe as housing which is not decent or employment with very low quality or very low income and a second remark which is more factor on focused maybe is the the graph to which you give prominence about intergenerational transfer so you flag the specific case of Sweden checking in the report which 55 the data for the member states showed are very old so Sweden the pension reform was only very gradually implemented on the phased out the survivors pension on our relative poverty of all the women is increasing in Sweden of course Sweden is doing well overall in terms of typing poverty but the picture given maybe now a bit outdated that is for Sweden thank you just increase the retirement age but I've read evidence that for example in the u.s. these increases in longevity has been rather unequal across income classes so it's mostly high-income people who have increased have seen increases in their longevity did you know if this is the case also in Europe and how would you address this and I take a third question please yes it seems like this has become becoming a problem when you look at this from the generational divide which might not have been discussed as much as the whole grain educational part of this problem you think this problem is been overlooked the people are using the freedom and also and it seems to be a political problem in perfect countries of origin any country countries of this nation taking example with easily one might imagine that this could lead to dirty problem easily the science of staying of course in the UK and when you look at UK each year right now in the breaks of the game huge majority polish improvement so it seems like it causes problems he told me I think most before you if I may rephrase the last question a bit more provocatively so shouldn't the Italians actually favored breaks it because then the Italians would be sent back to their to Italy and you know solve the demographic problem in Italy but I mean that was just a joke of course so it was just a joke of course I'm just real rephrasing your question I'm sorry so it's a job please thank you for these very good questions first on the the question about comparison across generations because you raised an issue which is not easy because if we take a entire lifespan and then want to compare with other cohorts bond later how do we compare because living standards in 1960 obviously we're much lower than they are today etc etc the convention in the literature is to correct for the productivity growth over time such that you say that future positively growth would be something which future generations would have and this can be discussed that's not necessarily the truth but the one reasons for doing that is if you don't do that then you will have a very strong distributional implication namely that you should do whatever you can to front-load redistribution to all the cohorts because they are pity poor cohorts and future generations would be fantastic rich and that's probably taking a bit too far so that's the reason why this is usually done but but this can be discussed and the other thing about Sweden you have to write on the numbers hit reason why they are bit dated is that we wanted to have more numbers than justice actually Sweden and Denmark because we have very precise data on this in both Sweden and Denmark for the reason that we have everything registered on individuals numbers so we can make these individual decompositions very precise and and the reason that we as I said we want to have more countries here but and I'll be happy to show you those numbers if you look at Sweden or recent years then as I said they if you take the long trend the amplitude got bigger we had more expansion of the welfare state and it were sort of dragged out this curve then the reason reforms after the and in particular pension reform has lowered in particular this thing out for the old so if you compare if you had the reason numbers for this year but those who have in the chart for say above the age of 60 it would go down a bit not below the other countries but it will come down so that's really what they reform one element of this reform is that the average old gets less from the contract due to these reforms so your point is absolutely right that does this movement which you don't see from the chart which which we produced here then there's a question on longevity and possible differences across social groups because the increase in longevity is not equally shared and first as a fact yes that's true but the question is where and the remain reason why it's true is that some groups who have various health problems of course even though mortality rates Falls for other people that would not be falling so that would usually be people who would be eligible as at least in some countries would be eligible for disability pensions so one can ask that a lot yes there is this problem but is it a problem which should be solved within the pension system generally or should it be solve because it has to do with other problems because if if you want to solve it within the pension scheme you really you get that you need very low retirement age because then everybody should be allowed in and that means that a lot of healthy still capable of working should be allowed out that that's that would not under any reasonable criteria be good way to solve this related to this just to raise something which at least for many would be a provocation is that if you start thinking about could we make retirement ages depending on some criteria the first thing which come up with the difference between males and females because females have on Everett's longer longevity so on that reasoning they should have higher over time a date I have difficulties finding any policy maker which would propose that so all were the most clear difference in longevity is already under unisex sort of ruled out but but it's an important discussion but I think it has more to do with disability pension and such then there is this thing about Italy and breaks it and so on it's it's well-established empirical facts that immigration flows in and out of countries are very closely related to economic development in countries so the fact this out migration from each silly is no surprise given us it was said that they have had low productivity growth for many years and so on Ireland is perhaps the best example where you can see huge flows for many years out and then we had the island doing very well huge inflows and then the crisis some going out again and so on so clearly these migration flows are are sensitive to the economic performance and in that sense an indicator of what's going on in comparative perspective in countries and that's also related to you a question about a little bit put it's slightly different a lot of discussion about migration and how it affects the welfare state and it has a tendency to focus on those coming in and benefiting from the system often forgetting that some high income groups who have got very well got a lot of education tax financed actually have a strong incentive to leave and when they leave they're really sort of yeah they leave the implicit contract and of course I optimally if you leave at the age 25 30 got a university degree say in one of the Nordic countries you did not pay anything yourself and then you go to say the UK you will go to a country or pay lower taxes and you have a much higher weight dispersion because people come with private finance education and then of course you your return of moving to the UK is extremely high so this tension in the contract is there and that was what we want to point out as a balancing discussion which has much focus on the other side of it I'm just rather than Robin yeah is a vociferous speaker in favor of Britain staying in the European Union nor modern is a once an economist at University College London to write I think was educated and did not subsequently moved to the UK but I'm pleased to hear see that he's a vigorous supporter of Britain's remaining the European to me I mean if they've got the supreme people moving between countries as one of the one of the our plans wasn't that free movement was it intended to be one of the safety valves and one of the adjustment processes that would help a car single currency area hold together that you have these so you know where there's high unemployment and low incomes people can move I've got it sir it's pretty well it's socially improved it's not a pro to improvement but it's but it's a potential Pareto improvement another place all these Italians are you know there are they're probably economics lecturers and economic students the British higher education you know if you shut between left Ramez well apart from one or two of us a few old natives the rest of British higher education could may as well move back move back to italy and greece and spain and and everywhere else it's it's a mystery really White's happening in Britain at all the staff at the staffer from other European countries the students are from your other European countries very nice of everyone to come and do it in Britain in the way those those was in the business appreciate but it does raise various questions all right BPO did you want to say inside word I think just the final remark on the the migration debate I think I found it quite nice the option you gave saying that you given that there is this labour mobility and people getting out of the of the national contract one of the options would be to actually think about the European sort of neutralization which is a line of reasoning I haven't come across before i have to admit so i really appreciate that this line of thought european country yeah i mean so if you move because of these these differences in you know as you say in denmark you get free education and then you make your money in the UK where you don't pay taxes and then you retire back in denmark where you receive generous pension i mean that we have a problem if that is sort of the incentives that are given that's the problem so anyway that's a another broad discussion let me thank our speakers and our audience and let's conclude for today so thank you very much and