The Nordic Model - Embracing globalization and sharing risks

4.2 AGEING – THE TREND IS TURNING
The welfare state was
created in conditions
of favourable demographics
The demographics
are changing because
of the retiring babyboom
generation and
increasing longevity
A straightforward implication of the social contract shown in figure
4.1 is that the financial balance of the welfare state depends critically
on the age composition of the population. There is no problem
with the financial balance if there are few children and old relative
to the working age population – then many are net payers and few
are net recipients. Financial problems arise, however, if there are
many children and old relative to the working age population, or
few payers to support many recipients.
Historically, the welfare state expanded when there were
“many to support few” in the sense that working age population
was increasing relative to the number of children and the old.
In contrast, the perspective for the future is now one in which
“few will have to support many”. This may be illustrated by the
so-called demographic dependency ratio, defined as the young
(below age 15) and old (age above 65) relative to the age group
in between (figure 4.4). The dependency ratio is in coming years
going to increase significantly in the Nordic countries as well as
elsewhere. In Finland the ratio has declined from the 1950s to the
1990s, but it is now starting to increase rapidly towards a new and
much higher level. Most of the change reflects the increase is in
the number of people aged 65 or more and will take place already
within the next 10–20 years.
The age composition of the population is therefore going to
change dramatically. For instance, according to the latest forecast
from Statistics Finland, the proportion of persons older than 65
years will increase from the current 16 to 26 per cent by 2030. In
addition, there is a “double ageing” in the sense that not only will
the share of old people rise, but the share of the very old (those
above 85) will increase even more (from currently 1.8 to 6.1 per cent
in 2040). The share of young people below 15 will diminish from
about 17 to 15.5 per cent in 2040. As a consequence of these two
trends, the percentage of the working-age population (age between
15 and 65) will decrease from 66.5 to 57.5 per cent by 2040.
The demographic shifts are driven by two main factors. One
is the so-called baby-boom effect created by high fertility rates in
Demographics: from tail-wind to head-wind · 69