REPORT 1: "State of knowledge in the field".
Introduction
The analysis of economic developments has traditionally been carried out separately from demographic developments. However, at the end of the last century, an influential paper by Bloom and Williamson (1998) introduced the term "demographic dividend" to refer to the interaction between the age composition of the population and economic growth. The demographic transition that developed countries are undergoing, from societies with high birth and death rates to others with high life expectancies and very low birth rates, is changing the demographic pyramids. Spain is precisely one of the countries where this transition is being most abrupt: its life expectancy is the second highest in the world, while its fertility rate is among the lowest. Graph 1 shows the evolution since 1950 and the projections up to 2100 of both variables for Spain: the fertility rate (not of children per woman) and the average life expectancy at birth. The forecasts tell us that the fertility rate will remain at minimum values at a European level and far from the replacement rate of the population, while life expectancy will continue to grow and far exceed the European average.
Graphic 1: Fertility rate and life expectancy at birth in Spain, 1950-2100
Thus, both past demographic developments and future projections inexorably lead to a radical change in the age structure of the population, as shown in the pyramids in Graphic 2.
Graphic 2: Population Pyramids in Spain, 1950-2100
The aim of this project is to carry out a historical analysis of how demographic evolution has interacted with economic development. In particular, our interest is to study the birth and evolution of the welfare state, and how different social policies have evolved and interacted with the role of families in intergenerational transfers. The life cycle of people implies that, while they need to consume throughout their lives, only during certain ages are they able to generate the necessary resources for it (typically in the working age). Conversely, in childhood and retirement, people need some form of financial support, either from the family or the state, to meet their needs. In the case of the elderly, there is a theoretical possibility of also resorting to intertemporal income reallocations (saving while working to evict during old age). Currently, family transfers are the main source of resources for children, while public transfers (pensions, health) are the main source of resources for the elderly.
It is obvious that welfare state policies have an important age component (pensions and health are mainly aimed at the elderly, while education, on the other hand, benefits the younger ones). Therefore, a change in the population pyramids will have important effects. Our aim in this project is to see how the welfare state in Spain has historically developed, and how it has interacted with demographic change. From this we intend to draw conclusions with a view to designing policies that allow us to face ageing with guarantees.
Methodology: National Transfer Accounts (NTA)
The methodology to be used in our historical analysis are called National Transfer Accounts (NTAs). This is a methodology developed since the early 2000s, in an international project led by the Universities of Berkeley and Hawaii. Currently, more than forty countries from all over the world (including Spain) participate in this project (see Graph 3). The methodology for estimating NTAs has been approved and published in a manual by the United Nations (Population Division).
Graphic 3. Map of countries participating in the NTA project in 2018
Countries participating in the project NTA NTA project (2018)
ATNs consist of estimating, for each moment of time and for a given economy (for the moment the analysis is carried out only by countries), all the resource flows that take place between the different age groups of the generations that live together. The ATNs do not only provide profiles of consumption and labour income, but also of all the variables into which these can be broken down, as well as of the different mechanisms for financing the consumption needs of the different ages. Thus, profiles are constructed by age of private transfers (both family and intra-family), and public transfers (all taxes, social contributions and all public expenditure). For their part, asset reallocations, in the absence of appropriate statistical information to be able to estimate them directly, are obtained as a balance, using the basic NTA equation. All the profiles are obtained per capita and, subsequently, at an aggregate level (multiplying each profile by the population in each age group). The aggregates must match those provided by each country's National Accounts, so that the ATNs are consistent with the National Accounts.
Graphic 4 shows the profiles of labour income and consumption for the United States and Korea, both of which were obtained for 2003. As can be seen, while labour income is clearly concentrated in the active ages, consumption remains much more stable throughout life, although there are noticeable differences between the two countries. While consumption in the U.S. soars in old age, in Korea it is declining slightly. The characteristics of the welfare state have much to do with this profile feature. The growth of consumption in old age is also observed in other countries such as Sweden, Finland or Germany, and is mainly explained by the strong public expenditure on care for the dependency of the elderly in these countries. On the other hand, in other European countries such as Austria, France or Spain, this growth is not observed.
In the case of the USA, children receive private transfers, but also a significant amount of public transfers, mainly in the form of educational expenditure and family allowances. In the case of the elderly, on the other hand, public transfers are much higher (given the weight of pensions and health care), while private transfers have a negative sign, indicating that the elderly transfer resources to the younger ones, and not the other way around. As for the central ages, between 22-23 and 62-63, individuals transfer resources either to the public sector or to other members of their families. Compared to Korea, the situation is slightly different because the role of public transfers is much lower. As can be seen, children and the elderly receive resources from public transfers, but their importance is less than those they receive in private transfers within their own families.
Grapchic 5. Profiles by age of net public transfers (NPT) and net private transfers (NPT) per capita in the USA and Korea, 2003 (in $PPP)
Graphics 4 and 5 are just a sample of all the information provided by NTAs, which are a very valuable tool because they introduce the age component into the data. This allows for a much more detailed analysis of how the age composition of the population and macroeconomic variables interact.
Project Objective
The objective of this project is to make a historical analysis of the evolution of the welfare state in Spain and its relationship with economic and demographic evolution. For this purpose, historical ATNs will be estimated for the period between 1900 and 1970. The estimation procedure of the NTAs is complex and requires a significant workload in terms of searching and processing statistical data at the micro level. But when working with historical data, the difficulties are multiplied by the lack of reliable data, which often requires imputation procedures. This is why in this project we have the collaboration of experts in Economic History, which will allow us to face the process with guarantees. We also have the support of NTA experts in the USA, who have already made historical estimates of NTA for that country.
Most relevant bibliographical references
Abio, G., C. Patxot, E. Rentería and G. Souto (2015). “Taking care of our elderly and our children. Towards a balanced welfare state”, in M. Gas-Aixendri and R.Cavalloti, Family and Sustainable Development, Thomson Reuters, pp. 57-71.
Albertini, M. (2016). Ageing and Family Solidarity in Europe: Patterns and Driving Factors of Intergenerational Support. Policy Research Working Paper 7678, Poverty and Equity Global Practice Group., World Bank Group.
Bloom, D.E. and J.G. Williamson (1998). “Demographic Transitions and Economic Miracles in Emerging Asia”, The World Bank Economic Review, 12(3), 340-375.
Esping-Andersen, G. (2002a). Why we need a new Welfare State. Oxford University Press.
Mason, A. and R. Lee (2011). “Population aging and the generational economy: Key findings”, in A. Mason (Eds), Population Aging and the Generational Economy. A Global Perspective, Edward Elgar.
Lee, R. and A. Mason (2011). Population Aging and the Generational Economy. A Global Perspective, Edward Elgar.
OECD (2014). Society at a Glance 2014: OECD Social Indicators, OECD Publishing. http://dx.doi.org/10.1787/soc_glance-2014-en.
Patxot, C., E. Rentería, M. Sánchez-Romero and G. Souto (2011). “How intergenerational transfers finance the lifecycle deficit in Spain”, in R. Lee and A. Mason, Population Aging and the Generational Economy. A Global Perspective, Edward Elgar, p.241-255.
Patxot, C., E. Rentería, M. Sánchez-Romero and G. Souto (2012). “Measuring the balance of government intervention on forward and backward family transfers using NTA estimates: the modified Lee arrows”, International Tax and Public Finance, 19, p. 442-461.
Patxot, C., E. Rentería and G. Souto (2015). “Can we keep the pre-crisis living standards? An analysis based on NTA profiles in Spain”, Journal of Economics of Ageing, 5, pp. 54-62.
Rentería, E., G. Souto, I. Mejía-Guevara and C. Patxot (2016). “The effects of education on the demographic dividend”, Population and Development Review, 42 (4), p. 651-671.
Sánchez-Romero, M., G. Abio, C. Patxot, G. Souto (2018). “Contribution of Demography to Economic Growth”, SERIEs Journal 9, pp. 29-64.
UN (2013). National Transfer Accounts Manual. Measuring and Analysing the Generational Economy. Population Division, Department of Economic and Social Affairs, United Nations, New York.