Demographic Change and the Labour Market

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Demographic Change and the Labour Market
() by Robert E. WrightDepartment of
Economics, University of StrathclydeFraser of
Allander Institute Scottish Economic Policy
NetworkCentre for Economic Policy Research,
LondonInstitute for the Study of Labour,
BonnInternational Longevity Centre, London ()
I am grateful to Carrie Doole of the Census
Office for Northern Ireland for her assistance
with data matters.
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Overview of Presentation

• 1) Scotlands Demographic Past and Present
• 2) Scotlands Demographic Future
• 3) Population Decline and Ageing and the Labour
  Market
• 4) Simulation Modelling of Macroeconomic Effects
• 5) Conclusion and Policy Implications

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1. Scotlands Demographic Past and Present

• Summary of Current Demographic Situation
• in Scotland
• 1. Below replacement level fertility
• 2. Declining mortality (e.g. increasing life
  expectancy)
• 3. Zero net migration (i.e. No. of immigrants
  No. of emigrants)

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Comparison with Northern Ireland
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2. The Future?

• Government Actuarys Department (GAD)
• Annual population projections
• 2004-based projections
• Assumptions Continuation of the status quo
• Principal and Variant Projections
• (Now at ONS!)

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• If the Current Demographic Situation Remains
  Unchanged
• 1. Population will decline from its current level
  of about 5 million
• 2. Population will age rapidly, e.g.
• Increase in the number and percentage of people
  aged 65
• Increase in the number and percentage of people
  aged 85
• Decrease in the number and percentage of people
  aged 20-64
• Decrease in the number and percentage of people
  aged lt 15

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And What About Northern Ireland?
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And the UK as a Whole (i.e. England)
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Ageing of the Scottish Population
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Numbers Employed in Scotlandfrom the 2001
Census Both Sexes

• Age Group Numbers Employed of total Employment
• 16 2,163,035 100
• 16-64 2,132,907 98.6
• 20-64 2,058,736 95.2

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Age Pyramids For Scotland
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(3) Population Decline and Ageing and the Labour
Market
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Figure 20The Labour Market
Wage
Supply
A
W
Demand
Employed
E
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Figure 21Decrease in Labour Supply
Wage
Supply
Supply
B
W
A
?E lt 0 ?W gt 0
W
Demand
Employed
E
E
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Figure 22 Labour Market for Younger and Older
Workers
Younger Workers
Older Workers
Supply
Wage
Wage
Supply
A
Wo
A
Wy
Demand
Demand
Employed
Ey
Employed
Eo
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Figure 23Typical Age-Earning Profile
Wage
A
Age
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Figure 24 Labour Market for Younger and Older
Workers WithPopulation Ageing
Younger Workers
Older Workers
Supply
Wage
Wage
Supply
Supply
Supply
A
Wo
B
Wo
B
Wy
A
Wy
Demand
Demand
Employed
Ey
Ey
Employed
Eo
Eo
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Figure 25 Typical Age-Earning Profile with
Population Ageing
Wage
A
B
Age
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Figure 26 Policy ResponseIncrease Labour Demand
Labour Market for Older Workers
Supply
Wage
Supply
A
C
W
B
W
W
Demand
Demand
Employed
E
E
E
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Figure 27Population Ageing and Increasing the
Retirement Age
Wage
Supply
Supply
Supply
A
W
B
W
C
W
Demand
Employed
E
E
E
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4) Simulation Modelling of Macroeconomic Effects

• Project The Macroeconomic Impacts of
  Demographic Change in Scotland
• Funding Joint Initiative between Economic and
  Social Research Council and Scottish Executive
  concerned with Scottish demography
• Investigators Peter McGregor, Kim Swales, Robert
  Wright
• Researchers Katya Lisiankova, Nikkos Pappas,
  Karen Turner

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AMOSA Micro-macro Model of the Scottish
Economy

• Single-region Computable General Equilibrium
  (CGE) model of the Scottish economy
• Similar to input output model but prices, as well
  as output and income, are consistently modelled
• AMOS incorporates scarcity, substitution and
  competitiveness effects

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The model is dynamic, in that investment updates
capital stock period by period The labour market
is modelled as a wage curve w
f(u) General parameterisation is based on the
Social Accounting Matrix, relevant econometric
work and best guess estimates
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Basic Idea of Modelling Exercise

• Assume different future time paths of the number
  of people of working age (AMOS 16-64) and total
  population size
• Simulate out the effects of these different paths
  on output (GDP), wage rates, employment and
  competitiveness (prices)
• Scenarios considered
• GAD 2004-based principal projection
• Different net migration levels
• Zero, 20,000, 40,000 and 60,000
• 50 male/female
• All migrants age less than the age of 40
• 25 lt age 15
• POPGROUP
• Remaining assumptions same as in GAD principal
  projection

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5) Conclusions and Policy Implications