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The growing intergenerational divide in Europe

Author

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  • Pia Hüttl
  • Karen E. Wilson
  • Guntram B. Wolff

Abstract

Highlights During the economic and financial crisis, the divide between young and old in the European Union increased in terms of economic well-being and allocation of resources by governments. As youth unemployment and youth poverty rates increased, government spending shifted away from education, families and children towards pensioners. To address the sustainability of pension systems, some countries implemented pension reforms. We analysed changes to benefit ratios, meaning the ratio of the income of pensioners to the income of the active working population, and found that reforms often favoured current over future pensioners, increasing the intergenerational divide. We recommend reforms in three areas to address the intergenerational divide - improving European macroeconomic management, restoring fairness in government spending so the young are not disadvantaged, and pension reforms that share the burden fairly between generations. 1. The emergence of an intergenerational divide During seven years of economic crisis, the intergenerational income and wealth divide has increased in many European Union countries. In the bloc as a whole, young people on average have become significantly poorer, while poverty among pensioners has been reduced (Figure 1). Unemployment among the under-25s has risen notably while older workers (aged 50-64) have been less affected (Figure 2). While this pattern has been particularly pronounced in southern Europe, it can also be observed for the European Union as a whole. In the EU as a whole, unemployment in the 15-24 age group increased by 7.8 percentage points between 2007 and 2013, peaking at 23.7 percent in 2013, while unemployment among older workers in the 50-64 age group increased somewhat less, by 2.4 percentage points to 7.8 percent in 2013. A more precise measure of forced inactivity of young people is the 'not in employment, education or training' (NEET) rate, which varies significantly between countries. In the countries most hit by the crisis (Cyprus, Greece, Ireland, Italy and Spain), the NEET rate increased by more than 7 percentage points between 2007 and 2013, peaking at over 20 percent in Greece and Italy (Figure 2). By contrast, the NEET rate declined in Germany in the same period, from 8.9 to 6.3 percent. Figure 1 - Pre and post-crisis material deprivation rate and unemployment rate in the EU Source - Bruegel based on Eurostat. Note - The material deprivation rate is defined as the enforced inability (rather than the choice not) to pay for at least three of - unexpected expenses; a one-week annual holiday away from home; a meal involving meat, chicken or fish every second day; adequate heating; durable goods such as washing machines, colour televisions, telephones or cars; or being confronted with payment arrears. Figure 2 - 15-24 year olds not in employment, education or training (%) Source - Eurostat. Material deprivation rates are typically higher for young people than for those aged 65 or over (Figure 1). In 2007, 20 percent of young people below the age of 18 were materially deprived, compared to 16 percent of people aged over 65. As with the NEET rates, there are major differences between countries. While less than 10 percent of young people faced poverty in Denmark, Finland and Sweden in 2007 (the proportion is even smaller for older people), more than 20 percent of young and old people were materially deprived in Cyprus, Greece and Portugal. In Latvia, Hungary and Poland about 40 percent of young people were poor. Figure 3 shows the percentage change per country in the material deprivation rate during the crisis (2007-13). The rate increased substantially more for the young compared to the old, especially in the countries hit most by the crisis (except Ireland), meaning that already high levels before the crisis in those countries were exacerbated. Only Italy and to a lesser extent the United Kingdom experienced deteriorating ratios for both the young and old. By contrast, Finland and Sweden, with low levels to start with, saw their respective material deprivation rates decline for both young and old people over the same period. The same is valid for Poland1. Figure 3 - Change in material deprivation rate (2007-13, %) Source - Bruegel based on Eurostat. Overall, a worrying picture emerges. First, poverty indicators have shown the emergence of an intergenerational divide, especially in crisis-hit southern Europe. Second, unemployment has become a major concern, with young people hit hardest during the crisis in the most stressed countries. Surges in youth unemployment and youth poverty are particularly worrying because they have long-lasting effects on productivity and potential growth, marking young people for their lifetimes, reducing their productivity and often excluding them from the labour market for an extended period of time (Bell and Blanchflower, 2010; Arulampalam, 2001; Gregg and Tominey, 2005).

Suggested Citation

  • Pia Hüttl & Karen E. Wilson & Guntram B. Wolff, 2015. "The growing intergenerational divide in Europe," Policy Contributions 10806, Bruegel.
  • Handle: RePEc:bre:polcon:10806
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