Future population ageing and productivity in Finland under different education and fertility scenarios

Abstract

This study projects different dependency ratios under various scenarios of future fertility and tertiary education in Finland to assess how the economic consequences of population aging depend on these trends. Applying a multidimensional demographic approach through a discrete-time microsimulation model, we project the newly introduced productivity-weighted labour force dependency ratio for Finnish scenarios until 2060 and compared it with the labour force dependency ratio and the traditional age dependency ratio.
 Results show that population aging looks less daunting when considering labour force dependency ratios as compared to purely age-based ratios, yet all measures and scenarios show a deterioration of the dependency ratio. While the old age dependency ratio is projected to increase by 73 per cent, the labour force dependency ratio would increase by 32 per cent, and the productivity weighted labour force dependency ratio by 28 per cent. Provided a more rapid increase in educational attainment, the last indicator is expected to increase less, with 21 per cent until 2060. Should the stalled trend in educational achievement of the 2010s continue, there would be very modest future gains in the productivity-weighted ratio. In other words, the consequences of population ageing look less dramatic for economic productivity, were Finnish men to become as educated as Finnish women.
 Of the three fertility scenarios considered, a total fertility rate of 2.0 is most advantageous and a low fertility of 1.2 least optimal for adult dependency ratios, but only after 2050. Interestingly, a combination of recovered fertility to 1.6 with a more rapid educational expansion would be better for productivity than only raising fertility to 2.0. Boosting educational levels would hence mitigate the negative effects of a shrinking labour force more than increasing fertility within reasonable bounds.
 Our results suggest that implementation of the current government goals for educational expansion, combined with a not unrealistic recovery of total fertility rates to around 1.6, would both clearly alleviate the worsening dependency ratio. We conclude that although there is no quick fix to the economic effects of population ageing, these can be proactively mitigated with different and complementing policies, and taking into account multidimensional population trends.

Declining Fertility, Human Capital Investment, and Economic Sustainability

“…To conclude, our analysis builds on the recent papers by Marois, Rotkirch, and Lutz (2022) and Mäki-Fränti et al (2023) by combining realistic fertility scenarios, including stability at the current level of TFR 1.3, with an educational investment strategy that increases per-capita investments but does not require additional funding. We argue that such a strategy is politically feasibleespecially in a country context like Finland, where the population is rapidly ageing, period fertility is at a lowest-low level, and educational expansion has stagnated.…”

Declining fertility, human capital investment, and economic sustainability

“…Two recent papers that focused on the Finnish context also found results that highlight the importance of human capital for economic sustainability. Marois, Rotkirch, and Lutz (2022) forecast productivity weighted labor force dependency ratio under various fertility and education scenarios. They conclude that a TFR around 1.6. should not be a major economic concern if the labor force productivity increases along the lines that they project, with an education intervention that removes the gender gap in education.…”

“…Two recent papers have analyzed the potential of investments in human capital to attenuate the inevitable economic burden of an aging society in the Finnish context. Marois, Rotkirch, and Lutz (2022) forecast the productivity weighted labor force dependency ratio, which is a proxy for economic sustainability, under various education and fertility assumptions until 2060. These include two increasing fertility scenarios (TFR stabilizing at 2.0 or 1.6) and one decreasing (TFR declining to 1.2).…”

“…Three scenarios are analyzed: one with modestly increasing investments in education (baseline), one with strongly increasing investments (optimistic scenario), and one with no additional investments in education (pessimistic scenario). Important differences with respect to Marois, Rotkirch, and Lutz (2022) are that fertility is held constant at TFR of 1.45 throughout the scenarios, and that each scenario has stronger in-migration than what official Statistics Finland forecasts assume. The amount of migration varies across the scenarios, such that the high education scenario is combined with high in-migration, and the low-education scenario with low migration.…”

“…The conclusion of the analysis is that investments in human capital are key to economic growth; however, separating the effect of education from migration across these scenarios is not straightforward as the high-education scenario also includes highlyeducated and employment-based immigration. Marois, Rotkirch, and Lutz (2022) and Mäki-Fränti et al (2023) are key studies on the interlinkages of education, population structure, and economic sustainability in the context of Finland. We aim to build on these analyses by combining realistic fertility scenarios, including stability at the current TFR of 1.3, with an educational investment strategy that increases percapita investments but does not require additional funding, and is therefore politically feasible.…”