October 2012
What is the link between youthful out-migration and Poland’s current pension crisis? And why do some business experts believe that ‘global greying’ presents an economic opportunity, not just a pensions challenge?
This article provides a useful subject knowledge update for migration and population studies at AS-level and GCSE level, based on recent news reports. Firstly, we take a look at how out-migration from Poland has contributed to a pensions crisis for the country. The argument is that because of out-migration there are no longer enough youthful Polish workers paying sufficient taxes in their homeland to meet a rising pensions bill as life expectancy continues to increase. While migrant remittances are helpful for economic development, would Poland be in a better position to pay for its pensions if more young migrants returned home?
Secondly, we take a wider look at how the issues associated with an ageing population are beginning to affect more and more countries globally. But not everyone sees ‘global greying’ simply as an economic challenge. People in the business sector increasingly see opportunities here too - and a homework assignment is provided that focuses in on this interesting issue.
In parallel with many other European nations, Poland’s government is taking steps to increase the age of retirement for workers. The reform steadily pushes up the retirement age, hitting 67 for men in 2020, up from the current 65, and for women in 2040, up from the current 60. The move is unpopular with the general public in Poland - so why has this step been taken?
Poland’s government has warned that its whole state pension system will soon become unsustainable - unless people are prepared to work longer. The news was greeted with dismay by the general public. Before the announcement, hundreds of union activists gathered in front of parliament, setting fire to pictures of ministers (Financial Times, 11 May 2012). What factors have led to this unpopular decision being taken?
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In common with other European countries, people are living longer. Life expectancy is now 76; just 4 years lower than the UK. Increased longevity pushes up costs for the state which is obliged to pay pensions to elderly people who are surviving for many years or decades after their retirement from the workplace (after which point they no longer pay taxes). Poland is a country where pension costs, at 11.4% of GDP, are already huge (the UK figure is 5.7%). Part of the problem is early retirement, with many people stopping work before they reach 60 (Guardian, April 11 2012)
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Taxes to pay for current pensions are raised from the incomes of the working-age population. However, Poland has lost more than one million workers (from a total population of 38m, and a working-age population of 27m) since it joined the European Union in 2004 (along with seven other eastern European nations including Latvia and Lithuania). EU accession resulted in the total number of Polish emigrants living overseas rising from two to three million. Out-migration of the young has accelerated the rate at which Poland is experiencing an ageing population, with all of the cost concerns that this brings
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Poland also has a very low fertility rate of 1.3, one of the lowest in the EU, meaning that two out of three woman now give birth to just one child on average. This will begin to put further strain on the pension system in years to come as the size of the working-age population shrinks further in relation to numbers of elderly dependents (this same problem is faced in China, where a one-child rule has been enforced by law for decades)
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The finances of the European Union have meant that all EU governments are under pressure to show they can reduce spending in order to keep attracting overseas investment. The Financial Times (11 May 2012) suggest that the new pensions rules may be in part designed "to soothe risk aversion on the part of investors worried about peripheral EU countries... (these are) tough measures designed to reduce public spending and to put government finances on a sounder long-term footing"
But I thought that out-migration brings economic benefits, due to remittances?
Remittances are the payments that migrants send home to their families. Some money is transferred formally, through banks, while much is sent informally (personal carriage, postage and money transfers using mobile ‘phones). Remittances comprise a very important global financial flow that can be an important source of income for migrants’ families. However, they do not directly benefit the governments of migrant source regions, such as Poland, as taxes cannot be raised easily from remittances to pay for pensions and other welfare costs.
Additionally, much of the money earned by Polish workers living in London, say, is re-injected into the UK’s economy, not Poland’s. Migrants may spend the majority of their wages on local services where they live, including housing costs, fuel bills, travel fares and supermarket shopping. Whatever is left, after these costs have been met, can be sent to relatives in Poland. However, Poland is losing out too. Polish landlords cannot collect as much rent, for instance, if demand for housing has slackened. Equally, Polish shops have lost many of their young customers, who have emigrated overseas.
Another concern is that the value of remittances has recently fallen: less money is now being sent to Poland than in 2008. Over time, the value of remittances is likely to fall further, for two important reasons:
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Polish workers in Ireland and much of the UK are not always finding it as easy to gain work at present, or may be earning less than in the past (the slowdown in construction, especially in Ireland, is a major contributor to this). This downturn is related to the global credit crunch that began in 2008-09 (see our previous article)
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As greater numbers of migrants settle and have children overseas (many young Poles are now doing so in the UK), less money is sent home to parents and siblings. Priorities change once migrants have their own children to care for
On balance, therefore, the out-migration of young workers may not have been especially beneficial to Poland. You can use the figures below to investigate this issue more thoroughly.
Remittance facts
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Poland has a population of 38 million, of whom 27 million (about 70%) are working age (15-64)
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There are currently about 3 million Poles working abroad, equivalent to around one-ninth of the resident income-generating working age group (15-64)
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Poland’s GDP is approximately US$500 billion
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Remittances were valued at just under US$10 billion last year, a contribution that is equivalent to about 2% of GDP
Based on this information, do you think that out-migration has been economically beneficial for Poland?
Is there any other economic information that needs to be taken into consideration before you can provide a definitive answer?
Will Poland’s working-age migrants ever return home?
Popular destination countries for Polish migrants in recent years have included Germany, the United Kingdom, the United States, Belarus, Canada, France, Italy, Israel, Ireland and Spain. Around 3 million working-age people born in Poland have emigrated to these and other countries. In addition, around another 20 million people of Polish descent form a global Polish diaspora.
Pull factors common to these host countries include a range of well-paid employment opportunities (such as construction for men and service industry work in hotels and restaurants for women). Some professionals, such as Polish dentists, have filled specific gaps in some overseas labour markets (notably in the UK).
Push factors from Poland have historically included low pay levels. In 2004, when Poland joined the EU, its GDP per capita was just US$12,600, around two-fifths that of the UK. However, in a global context of increasing economic hardship and austerity, economic and social data for Poland suggest that fewer young people may need to leave in search of work in the future, while some existing migrants could be enticed home (provided they have not put down roots elsewhere).
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Poland’s GDP has risen to US$13,540 (equivalent to US$20,000 when adjusted for purchasing power parity), growing at just under 5% per annum up until last year
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Poland scores highly on the Human Development Index and is ranked in 39th place
Despite the lack of intervening obstacles to migration within the EU, it does seem possible that migration flows from eastern Europe to western Europe may weaken in the coming years. Ultimately, perhaps the pensions deficit will not be as bad as some Polish politicians fear.
An ageing population is one whose median age is rising. In the UK, meeting the cost of care for the growing elderly population poses a major challenge, especially in local areas where selective in-migration of the over-60s, accompanied by out-migration of the young, has generated a ‘top-heavy’ population pyramid. However, this is an issue that does not just affect the UK of course. More and more countries are experiencing the effects of an ageing population.
Increasingly, "greying" is a phenomenon that is of a global scale, as increasing numbers of countries enjoy improvements in:
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health care (medical breakthroughs have helped more people to be screened for, and treated for, a range of conditions including cancer and heart disease; prescribed medications, such as statins to lower cholesterol, help prolong people’s lives in a growing number of countries)
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food supply and nutrition (reliable food supplies in high and middle-income nations have made famine a thing of the past except in the world’s least developed countries)
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hygiene, safety and risk management (education and legislation have combined to bring a fall in the numbers of smokers in high-income countries; improved local and global responses to disasters have helped reduce mortality over time)
The evidence speaks for itself, as the chart shows - ageing is a global phenomenon! Japan and Germany, whose baby boomers are coming of age, have the largest ageing populations in percentage terms, while China will soon have the world’s largest elderly population measured in numbers (on account of its exceptionally large population size).
Homework assignment
Read the following newspaper extract (below) describing the marketing opportunities associated with Japan’s and Germany’s ageing populations. With reference to these examples, as well as to Poland and the UK, complete the following short essay.
Using named examples, discuss the causes and consequences of an ageing population.
According to the Financial Times (14 August 2012): "Elderly shoppers in Chiba, just outside Tokyo, have never had it so good. While shopping for rice and apples, senior citizens can pop in for a diabetes check, top up on stocks and bonds, pull some yoga poses – and even bag a hot date. Welcome to the newest retail concept in Funabashi: a shopping mall designed with the elderly in mind. Here older shoppers can access medical clinics, benefit from 5 per cent discounts on pension day and partake in any of 140 leisure activities ranging from calligraphy to hula dancing. Retailers and manufacturers of consumer goods are swooping on this market segment, which is both expanding and spending more – unlike most consumers in the developed world. Daiichi Life Research Institute estimates that the over-60s account for 40 per cent of Japan’s consumption spending."
Globally, those over 55 will account for more than half the consumer spending growth in developed markets over the next two decades, bringing a range of market opportunities:
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Kaiser, one of Berlin’s biggest supermarket chains, has fitted out its elderly-friendly stores with brighter lighting, extra-wide aisles that can better accommodate mobility scooters, non-slip floors and even emergency call buttons
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While Germany and Japan head the league table of ageing nations, this is not just a developed market phenomenon: China, thanks to its one child policy, is snapping at their heels and Aeon plans to use feedback from Japan to build similar stores there
Unilever, the Switzerland-based manufacturer, the world’s biggest food and drinks company by sales, is working on health and wellness products, including those tailored for the elderly and infirm such as nutrient-packed drinks that can be fed to hospital patients. Nigel Bagley, director of customer relations at Unilever, is interested in niche marketing to the elderly:
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"As people get older their taste buds start going, so, in the USA, Mexican food is doing well, not just among the Hispanic community. Older people want spicier tastes"
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"Easy to open packaging is key. We have a lot of work to do on this. It is all a new area for us, it’s a new area for the whole industry"
‘Retailers target grey spending power’ Financial Times 14 August 2012
‘Pension reform sparks Polish protest’ Financial Times 11 May 2012
‘Poland's steady economic progress matched by growth in social inequality’ Guardian, April 11 2012
World Bank fact-file
Compiled by Dr Simon Oakes, a senior GCSE, A-level and Diploma examiner who teaches at Bancroft’s School, Essex