Research activities

This research field aims to analyse future demographic trends and their interaction with private and public economies. It also simulates outcomes of specific policies that targets to increase human capital of elderly people and to encourage its use.

The first task provides a concise, but comprehensive up-to-date literature review to describe the implications of the demographic transition and some recent policy reactions for the elderly individuals and their families, the public finances, the national economies and the EU. In addition, alternative measurements of ageing are explored and the challenges stemming from an ageing Europe is put into perspective.

The second task studies demographic trends. Future developments of household structures and mortality are proven to be highly uncertain within the relevant time horizon for public policy and the private provisions for old age. Stochastic household and population projections provide quantitative guidance for the uncertainty involved and allow making probabilistic quantitative assessments of the social and economic outcomes.

We used the most advanced new methods to project mortality and household structures in representative member countries. In particular, new probabilistic household projections were computed for Germany and the Netherlands, while existing ones for Norway, Finland, and Denmark were updated. Existing statistical techniques of dimension reduction were applied to the multivariate time series of household variables, leading to consistent extrapolations of the complex multivariate household patterns.

In another demographic study the convergence of men’s and women’s mortality rates is assessed. A general conception is that they are converging in the future. But this has not been invariably true previously and also current trends have regional variation. We aim to make a profound statistical study on this subject using Human Mortality Database, which covers 23 EU countries and several other European countries.

The third task utilises the above mentioned demographic projections for Finland and analyses their implications for public finances. It also simulates various policy options which aim to enhance the informal and formal labour supply of elderly citizens. For this purpose we use both a stochastic lifecycle model that separates people according to their age, gender and education, and a numerical overlapping generations model calibrated to Finnish economy. We pay special attention to the incentive, redistribution and fiscal sustainability results of public policies, such as pension reforms.

The fourth task studies EU-wide results of policies that aim to strengthen the human capital of individuals and to encourage them to participate in labour markets also in old age. We analyse the impact of the interdependent demographic, fiscal and economic transition paths of industrialised as well as developing Asian countries.

For this reason, we extend the multi-country computable general equilibrium (CGE) model which included three industrialised regions (EU, USA, Japan and North East Asia) and two developing countries (China and India) in three directions. First, we disaggregate the EU region in the model into three regions (EU-north, EU-south and EU-east) with region-specific population dynamics. Second, we model endogenous human capital formation so that we can study the impact of ageing on human capital formation. Finally, we plan to update the production and demand structure of the present model.

Given these extensions we generated a baseline path of the model which quantifies the consequences of the worldwide demographic change on national consumption demand patterns, production structures and international trade flows. Of course, as in our previous study we also quantify the impact on skill demand and factor prices, but with our extended model we expect differing (and more precise) results.

Next, we studied the impact of policies in various countries and regions. The most important aspect analysed was a reform of taxation policies which intended to redistribute resources across cohorts and income classes. In addition, reforms of the existing pension systems should be implemented to raise savings and help to finance the costs from population ageing.