Introduction.

Ermisch, John

Two demographic developments with important consequences for European economies in the coming years are population ageing and immigration. These developments are likely to become increasingly linked, as a declining and ageing European labour force puts upward pressure on wages, particularly those of young and skilled workers, thereby increasing the demand for immigrant workers. Population ageing will put pension and health care systems under financial strains, particularly in the public sector. This special issue of the Review focuses on the demographic trends contributing to population ageing, its influence on public pensions and the policy issues surrounding the scale and composition of immigration into European countries.

Population ageing primarily stems from low fertility, although improvement in the expectation of life, particularly at older ages, also increases the retired population and the numbers of 'very old' (aged 85 or more). The first paper in this special issue, by Francesco Billari, describes how low fertility came about in Europe, its variation across countries and what factors might explain its decline and variation. The extent of the fall in European fertility may surprise some British readers because, below the roughly 2.1 children per woman required for a population to replace itself, UK fertility is relatively high and has been fairly stable for three decades. It has fluctuated around 1.7 children per woman, but this masks substantial declines in Scotland and Northern Ireland since the mid-1970s, with Scottish fertility reaching 1.5 children per woman in recent years.

Billari shows that few European countries had fertility below 1.5 children per woman in 1980 (e.g. Germany), but at the start of the new millennium, 22 countries had fertility below this level and half of them had fertility less than 1.3 children per woman. Most of the latter are in Eastern or Southern Europe. The highest levels are 1.9 children per woman in France and Ireland, and 2.4 in Turkey. In Southern Europe, very low fertility is associated with the postponement of leaving home, marriage and motherhood, but this is the case to a lesser extent in Eastern Europe, suggesting persistence of very low fertility there. Billari paints a rich picture of the demographic, institutional and cultural factors that are associated with fertility decline and differences in Europe.

In the second paper, Katsiaryna Lisiankova and Robert Wright trace the implications of low fertility and improvement in mortality for the age structure of European populations. They use the 2005-based UN 'medium' population projection. Because it assumes a recovery in European fertility, converging to 1.85 children per woman by 2050, this projection may be considered relatively optimistic in terms of population ageing and decline. Despite this, the population of working age (20-64) declines nearly everywhere between 2005 and 2050; one exception is the UK, with little change and another is Turkey, with a 44 per cent increase. Within the working population, the ratio of persons aged 35-64 to those aged 20-34 increases steeply over the next quarter century, and the retired population (65 and over) increases dramatically everywhere.

The consequent fall in the number of people of working age for each retired person, from about 4.5 to 2 between 2005 and 2050 in the current EU member states in aggregate, is indicative of the growing pressure on pay-as-you-go pension systems and public provision of health care. In assessing policy options it is important to consider the uncertainty surrounding future demographic developments as well as the broad tendencies suggested by population projections. In the third paper, Ronald Lee and Michael Anderson address this issue in the context of the U.S. Social Security pension scheme. They characterise the uncertainty in terms of the probability distribution of the hypothetical immediate and permanent tax increase needed to balance the system over the very long run. For instance, they estimate this tax increase to be between 1.3 per cent and 10.5 per cent with 95 per cent probability. As they stress, this understates the uncertainty involved because they incorporate into the forecasts 'only uncertainty that arises within the context of assumed structural continuity and homogeneity.' Random variations about expected values (e.g. wage growth and fertility) occur, but the expected values themselves are assumed to be constant. Their main conclusion from their stochastic simulations is the importance of formulating adaptable or self-correcting policies for addressing the long run imbalance.

Over the last two decades, there has been large-scale immigration into the European Union. While by no means the largest recipient of immigrants, the UK has experienced an increase, particularly since 1997. The 513 thousand people entering in 2003 (representing 0.9 per cent of the UK population) is much higher than the 337 thousand in 1991, and the net balance of inflows and outflows was 151 thousand in that year (cr. 73,000 in 1991). Much of the political attention to UK immigration appears to be driven by concerns about the number of asylum seekers in the past decade, particularly since 2000. According to official statistics on 'total international migration' and on the 'main reason for migration', at most 30 per cent of immigrants in 2003 were seeking asylum, and about 20 per cent of people leaving the UK also were in this category. There are important issues about how immigrants seeking asylum fit into integrated labour and immigration policies and about the correct policy toward asylum seekers in a European context. The final two papers of the special issue address these issues.

Amelie Constant and Klaus Zimmerman survey what we know about the economics of labour migration and empirical evidence on the effects of immigrants on native workers. They also present new evidence for Germany and Denmark comparing immigrants arriving through three different channels: family reunion, asylum seekers or refugees and with a work permit. In both countries, only a small minority of immigrants came through the work permit channel, and indicators of labour market skills played only a small role in distinguishing them from the other two types of immigrants. Even after controlling for age, education, time in the host country and nationality, immigrants arriving for family reunion or seeking asylum fared much poorer in terms of earnings from paid employment than those who came with a work permit. Thus, there appear to be long lasting effects of legal status at entry on subsequent labour market integration. Constant and Zimmerman outline a selective immigration policy aimed at attracting people who will be more successful in the labour market, a goal that is likely to be increasingly important as native labour forces decline and age.

The final paper, by Tim Hatton, addresses the controversial topic of policy toward asylum seekers. Reason for UK concerns is evident from his Table 1, which shows the UK to have the largest number of asylum applications during 2000-2003 in Europe, although Germany had much larger numbers in previous years. He points out that the EU has reached a critical stage in the development of a new Common European Asylum System, and his paper seeks to shed light on what form this policy should take. It summarises the development of policy to date, and uses an economic framework to examine scenarios with different degrees of policy harmonisation and integration among EU countries. In this framework, granting asylum is treated as a 'public good' that provides benefits to countries other than the one providing asylum, and there is 'deflection' from tougher asylum policy countries to others. He concludes from his analysis that policies have been too tough, even from the point of view of EU citizens, and that there is an important role for enhanced burden-sharing arrangements.