What Impacts Will the Aging Population of Germany Have on Its Economy

The objective of this research news musical composition is to explore, analyze and survey the implications of Germanys demographics on the countrys economy. The motivation behind this study is to add to the understanding of social- sparing issues in angiotensin converting enzyme of the Eurozones moroseweights and its repair for eld to come. This paper looks into Germanys demographic trends, ingestion trends, savings trends, Germanys pension form _or_ system of government and labor market cause.This paper draws on estimates and analyses from relevant literature, including scholarly journals and regime publications to illust esteem and quantify its points. Conclusions drawn from this study shows that the definitive impact of population maturement on frugal exploitation is reflected in utilization, savings, labor pool and dependency commoves. possible implications tap be surmised from this paper policy weers, native citizens, immigrants and other stakeh honest-to-goodn esss might wish to refer to this paper for an understanding and perspective of the social phenomenon and derive solutions to problems in its sphere.However there ar limitations to this research as it is do through literature review and the demographic- frugal variables are non constant. Further research forget be needed to gather concise and quantifiable data to support its claims. Introduction Germanys aging problem is serious because during the historic 30 years, German women have produced children at an aver senesce rate of less than 1. 4 babies per lifetime (Tim Colebatch, 2004). In 2009 The Federal Statistics Office (Germany) forecast Germanys quickly aging population was in all likelihood to crepuscle by 20 percent to around 65 million by 2060.The spue allow for be accompanied by a dramatic shift in the amount of ripened people in Germany. Of the countrys menstruation 81 million inhabitants, some 20. 6 percent are now eldd 65 (2011). But in 2060, assuming that fe rtility rate remain constant and life expectancy increase at a steady rate, that percentage will increase to 33 percent. Following a rapid recovery from the 2008-2009 recessions, economic growth has slowed in the second half of 2011 for Germany (OECD,2012).Policy makers are faced with domestic issues interfering with mid-term growth potential, one of them namely rapid population aging. Deutsche Bundesbank published a report in April 2012 announcing that if the dampening effects of demographics put forward be mitigated by appropriate correct measures, it will largely be possible to go along the current rate of potential growth of roughly 11/4% per y ear until 2020. With atomic number 63 struggling to cope with the Debt Crisis, an economic powerhouse such as Germany is under the wring to come up with solutions and lead the union.However with its work commit fading into bottomless vacuum of revenue dependents, it does not reflect well onto Germanys monetary health and strength as a sovereign nation. This paper intends to examine the situation in Germany and reach a conclusion that population aging increases the dependent population burden in views of both(prenominal) taxpayers and the nations budget aggregate consumption expenditure precipitates the savings rate worsens and shrinks the pool of useable heavy(p) working-age population reduces, while the labor crossroadivity in Germany is not impacted heavily.Moreover, this paper will asideline a perspective stakeholders should adopt to illustrate that as long as effective reform or measures can be implemented, the negative impact of the aging population on economic growth is likely to be minimized. Main arguments Dependency burdens community aging increases the dependent population burden. Germanys pension constitution is known as the most generous pension system and public welfare. Costs of public hideaway insurance are more or less 12% of GDP, more than 2. times as much as the U. S. affable Secu rity System (Axel Borsch-Supan, et al. ,2003), and it accounts for a high proportion of retirees income. The weight of this tremendous systems is taxing on Germanys finance as well as the need for tax-payers support. To ease the pressure of an aging population on the government budget, Germany has carried out a series of reforms. In what was called the greatest social reform after war by former Labor Minister Franz Liszt initiated in the spring of 2001.The main contents include reducing benefits, settling the level of premium expenditure, a pay-as-you-go pension system and developing a new type of unavowed pension to fill the loss of welfare income. This reform, especially with measures to lucubrate private pension types, will probably promote economic victimization. The Fund pension system is conducive for German government to supply a large number of retirees without incr rest period the load of employees and taxpayers. From a macroeconomic perspective, this series of system can assist reduce the government budget pressure from an aging population.From micro-economic perspective, it can also bring higher(prenominal) face-to-face income. Unfortunately, there is a big difference between the actual implementation of Liszt reform and the governments promise. The new storehouse pension system in Germany is being undertaken on a relatively small scale, while the current non-accumulation fund insurance system is still in the highest flight. The final result is that, the German retirees are almost entirely likely to depend on the government. Overall, the public welfare accounted for 61% of net income after tax for families of 60 years old or above.The substantial increase in social welfare outlay for the elderly in the GNP will continue to enlarge, as it is bound to limit the expanding of production, and influence the capital investment and economic efficiency, and add the burden on the national economy. Thus, with the learning of population aging and fi lename extension of the average life expectancy of the aging of the population, it might be appropriate to extend the retirement age limit, in order to reduce dependent population and relatively increase the accumulation funds to expand production.Germany plans to raise the retirement age to 67 years of age, because of such considerations. But at the same time, the heavy new employment pressure requires Germany to strike a balance between extending retirement age and easing the employment pressure. Consumption The next section puts forward the argument that with the on-set of population aging, an increasing share of the elderly in the German market caused changes in its consumption structure.Overall, the consumption expenditure shows a gradual rig tendency during the aging process however, Germany has already entered the aging society, so consumption expenditure showed a decrease trend. This table shows the percentage of elderly family with an excess of the annuity income over expe nditures. Annuity income is more than consumer spending and it increases with age. The decline in consumer spending is so significant that for about a quarter of the elderly aged 75 and above, the annuity income is more than 50% higher than consumer spending.In fact, almost all of this decline can be attributed to a decrease of food, travel and traffic expenses, the marginal utility of consumption reduction will probably decrease in the elderly, due to deteriorating health or being lonely. It is worth noticing that in Germany, food, travel and traffic expenses can hardly be offset by more health spending, because almost all health fees are covered by compulsory health insurance. (Wise, 2004) To some extent, the influence of population aging on consumption inhibited economic development.In this case, to speed up the development of older industries, government should focus on the development of travel, real estate and pension services for older people in order to promote consumption g rowth and the prosperity of the silver hair market. Savings The worlds population is aging, accordingly, bank balances might probably stop growing. People tend to reduce their savings after retirement, while the younger generation are not as canny as older generations. As a result, savings rate will drop significantly (Diana Farrell, et al. , electric shavers, 2005).Because aggregate saving equals to investment (Lachlan McGregor, 2008), so if left unchecked, the slowdown of the global savings rate will reduce the amount of money gettable for investment and then hinder economic growth. It is not easy to find a solution. Stimulating economic growth in itself is not a solution, nor is the future productivity revolution or technological breakthroughs. To add to future global savings and financial wealth, the German government and the family need to increase their savings rate, and earn a higher return on assets. These changes involve tough choices, but it can provide a brighter future .As the elderly make up the large proportion of the population, the total amount for investment and wealth accumulation will be reduced. The expected decline of growth rate for Germanys financial wealth will fall to 2. 4% from 3. 8%. One social occasion is certain the decline in the household savings rate can shrink the pool of available capital. Because of continuing budget deficit, government whitethorn push up interest rates and crowd out private investment. In the next few years, the rise in the cost of economic dependence will force government to implete better fiscal discipline.The only meaningful way to offset the population pressure to the upcoming global financial wealth is increasing savings rate of government and households, and a more efficient allocation of capital for the economy, thereby increasing the return. In Germany, to achieve the required rate of return, the policy makers must meliorate competitiveness, encourage innovation in financial sector and the econom y as a whole, and raise the legal protection of investors and creditors. As for increasing the savings rate, the key to is to overcome inertia.When the enterprises automatically autobiography their employees on a voluntary savings plan rather than requiring people to become active, participation rate might increase significantly. Of course, the government can also increase the savings rate of Germany directly. Labor pussycat With an increase in the proportion of the elderly population, the proportion of working-age population will accordingly decrease, which goes against German economic development (David E. Bloom, et al. , 2001). Labor force can be an effective motivation of rapid economic growth.However, a demographic draft report of the German federal government indicated that the working age population may reduce from 50 million to 26. 5 million in 2050, which is a decrease of nearly a half. According to the draft, the employment reduction would bring disastrous consequences t o the economy of Germany. Moreover, it is much more difficult for older workers to adapt to the fast-paced production activities, especially in the labor-intensive production, so population aging is not conducive to the improvement of labor. In this case, a targeted immigration plan is very useful to enable Germany to obtain its competitiveness.It is estimated that in order to make the employment potential of Germany remain at the level in 2004, at least 300 thousand to 500 thousand immigrants are needed annually. The appeal of that idea stems from devil considerations immigrants are relatively young, and hence their arrival reduces the average age of both the population and the labor force and they can be expected to add more to the national product than they use up as consumers in terms of health-care, and thus to provide net support for the rising numbers of elderly dependents in the population.On closer inspection, however, there is a problem immigrants get older, like everyon e else, and a sustained policy of higher immigration has little long-term impact on either the median age or the age composition of the population. As Espenshade (1994, p. 766) noted, immigration is a clumsy and unrealistic policy alternative to offset a shortage of domestic labor or to correct a perceived imbalance in the hireling to worker ratio. The effect of population aging to enhance labor productivity is negative which can be reflected on that the speed of aging workforce to accept new knowledge, science and technology is slower than that of the young. comparatively the elderly population shows a weak ability to adapt to new industries. Thus, to some extent, new product development and technological innovation are largely influenced by the aging problem. In the case of rapid scientific and technological development, and faster advancement of knowledge and increasingly keen competition, population aging has greater negative influence on labor productivity and economic growth.A s for Germany, it gives priority to technology-intensive industries and to improve labor productivity mainly relies on science and technology, so the contend for mental exertion is much higher than physical. As a result, the negative influence of population aging on increase labor productivity is likely to be limited, on the other side, the experience of skilled older workers will have a coercive effect to improve labor productivity in Germany. Conclusion Overall, it is argued in this essay that population aging in terms of the acroeconomics is not conducive to economic development, and its negative impact is mainly manifested in the preceding(prenominal) four areas, while the elderly population do not entirely represent an economic burden as they can be profitable consumers, among them there are still some people move in economic activities with relatively abundant accumulation of experience and knowledge which can make up for the physical insufficiency. Thus, to some extent, t hese people contribute to the economic development.In fact, an effective way to mitigate the adverse effects of an aging population and labor force, is by accelerating the development of a knowledge-based economy in high-tech industries. (i. e. to improve the level of automation in production and reduce the demand for workers physical strength. ) We should also see that the development of the knowledge-based economy led to changes in the industrial structure and occupational structure and the increasingly high demand for workers intelligence.With the expectancy of population average life, the health status of the elderly is gradually improving, older workers will make a greater contribution than ever for economic development. Therefore, the rational development and utilization of elderly human race resources, will become an important issue to mitigate the adverse impact of population aging on economic development. AppendixPercentage of Elderly in Age Group with a Ratio of Annuity I ncome to Consumption Expenditures in Germany pic Bibliography Asghar Zaidi and Malgorzata Rejniak (2010). Fiscal Policy and Sustainability in View of Crisis and Population Aging in Central and Eastern European Countries. 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