Population Ageing: A Threat to European Welfare?

Population ageing is a global phenomenon, but it began earlier in Europe than in the rest of the world. By 2000, the share of the European population above 65 years was 17 percent – a share that the global population is calculated to reach around 2050. Until recently, the increasing share of the elderly has been compensated for by a declining share of the young, leaving the share in working age roughly constant. Now the share in working age is becoming smaller, and this poses serious challenges to the social welfare systems developed in Europe over the past century. This is a very serious threat to the universalistic welfare states of the Nordic countries, but it poses an equally serious difficulty for those countries in Europe where a larger share of elderly care is performed by the family. In fact, all countries in Europe will face challenges providing pensions, health care and elderly care as the share of elderly increases in the face of a shrinking workforce. At today’s rates, the situation will likely be even more serious for southern European countries, where we see the most rapid population ageing. A welfare state such as that found in the Nordic countries and, to varying degrees, throughout the rest of Europe, is characterised by the costs of the elderly being covered largely by the public sector, which, in turn, is financed through tax revenues. This implies that the collective wages of the workforce provide an important foundation upon which the system is financed. If costs within the public sector rise, such as is the case when the share of elderly increases, then the tax base must grow or the taxation levels increase. Taxes in Europe, in general, and the Nordic countries in particular, are already quite high in an international perspective, leading our attention towards other solutions. The question then arises as to what other solutions are available to cover these increasing costs.