Getting Older: Demographic challenges in South East Europe

On June 1, 2022, a SEESOX panel, chaired by Kristijan Fidanovski (Department of Social Policy and Intervention, Oxford), examined the causes and consequences of Southeast Europe’s rapidly ageing population. While all European populations are graying, the Balkans are ageing in the context of absolute population decline over the last few decades, with potentially serious ramifications for the intergenerational social contract in South East Europe.

Arjan Gjonça (Department of International Development, LSE) took stock of the three drivers of population ageing: low fertility, growing life expectancy, and net emigration. Fertility is much below the replacement rate (1.3 to 1.8, instead of 2.1 births per woman)—despite earlier marriages and first births than the EU average—and regional life expectancy is quite long. However, it is clear that the main driver of distortion in the population pyramid is the significant net emigration from the region in the past thirty years. In Albania, the most extreme case, one-third of the 1989 population has since emigrated.

Dijana Spasenoska (Department of Social Policy, LSE) drilled down into health aspects. Life expectancy has increased, for both men and women, while still below the EU average everywhere except Slovenia, with Serbia and North Macedonia lowest. Some groups, e.g., Roma women in North Macedonia, remain particularly disadvantaged. The rise can be explained by reductions in heart disease, traffic accidents, etc., offset somewhat by more incidence of cancer. A main risk factor for the region is that tobacco and alcohol use are exceptionally high; e.g., 60% of Albanian males smoke. The high risk-factors suggest that preventative health measures should be a policy priority, to preclude a high health bill later. The economic cost of non-communicable diseases is not only their direct health care cost but also the associated loss in productivity. The underdevelopment of the health system means that much health care remains informal, borne by families. Catastrophic health bills (of more than 40% of income) were suffered by a significant share (6.5% of North Macedonians), of which much is related to eldercare costs. Older men and widows (with weaker social networks) are at greatest risk and more likely to self-harm.

Vladimir Nikitovic (Institute of Social Sciences, Belgrade) drilled down into migration—while cautioning that data deficiencies constrain precise conclusions. Projections in most countries have underestimated migration, with eventual census information showing worse outcomes. Despite data issues, it is clear that migration has a strong impact on the size and structure of young generations. Patterns of migration have changed over the last ten years. For instance, Serbian migration to Austria between 2011-18 was heavily concentrated in the 20-30-year age cohort. The motives for migration can be explored by looking at relocation permits. Unsurprisingly, work residency permits for the EU are high for the Western Balkans, with new EU member states having much higher first-residency permits than other countries. Conversely, family reunion permits are the main expressed motive for travel into the Western Balkans. Germany’s Western Balkans regulation of 2016 significantly simplified the process for job immigration to Germany. Nikitovic’s projections suggest a continued strong decline in the West Balkans 20-30 year-old age cohort—which in turns suggests that policies should pivot towards net immigration.

Branimir Jovanovic (Institute for International Economic Studies, Vienna) discussed the socio-economic challenges from ageing in Southeast Europe. He raised two main issues.

o The first is the problem that ageing is closely associated with lower growth (since the neoclassical growth model is driven by the labor force (with capital and technology)). The likelihood that the labor force will continue to decline suggests poor prospects for growth over the coming decades. Other recent EU members have achieved a convergence of income over time. Baltic income is now 85% of the EU average and Visegrad countries’ 80%. But the nine economies of SEE have been extremely slow to show signs of converging. Together their income is about 50% of the EU average, and, if new member states are excluded, only about 30%, with clear non-convergence.

o A second, related issue is that the old-age dependency ratio has shot up in the Western Balkans. It has risen from 9-14% in the 1990s to 20-29% in the 2020s. This remains lower than in the euro area (32%), but the upward trend is much steeper, so it will catch up. The dependency ratio is a measure of people living off passive income rather than producing. Societies with this characteristic require greater redistribution and face higher healthcare costs. In turn, this calls for more active government policy. It is thus a problem that social systems in the Western Balkans are so underdeveloped compared with the euro area’s—where total government expenditure of more than 50% of GDP is the norm. Western Balkan governments can afford to spend only 30-40% GDP, since their tax revenue is much lower (e.g., Albania’s tax ratio is 27% of GDP, compared with Germany’s 47%). With these more limited possibilities for redistribution, the at-risk poverty rate in the Western Balkans is much higher than in other EU countries.

The informal discussion focused on possible policy responses to the ageing problem. The panelists were clear that economic development is just about the only feasible solution—with Ireland being the best example of high emigration followed by catch-up and eventual migration reversal. However, they were not optimistic about prospects for this in the Western Balkans. Opening the doors to migrants from elsewhere would be another logical strategy, but panelists saw the region as being “extremely unenthusiastic” to follow this path. Certain policies to support fertility could be helpful, but they tend to be expensive and have limited results (for instance, generous cash transfers to parents tend to be attractive only to the poorest, who usually have multiple children regardless of policy). One panelist was of the view that left-wing redistributive policies, financed by higher taxation, would be the best way forward, but did not discuss how this would be consistent with encouraging catch-up economic development.

Adrienne Cheasty, Europaeum