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A research carried out by the Network of Reference in Economics and Public Policies warns that crisis speeds up Spanish unsustainable welfare system

The research was presented at the Faculty of Economics and Business.

The research was presented at the Faculty of Economics and Business.

07/06/2013
 
A research developed by the Network of reference in Economics and Public Policies (XREPP in its Catalan abbreviation) states that Spanish welfare system, and particularly the pension system, is going to get soon into a dangerous phase characterized by increasing and continuous deficits. Predictions warned that the system will be in danger in 2020 (when the baby boom generation will begin to retire), but crisis has quickly turned the system unsustainable as expenditure is maintained —or increased as a result of a rise in unemployment—, while revenue decreases.
 
XREPP research analyses for the first time in Spain not only public reallocations and transfers, but also private ones. The analysis proves that 63 % of Spanish elderly consumption (mainly in health) depends on public resources; it is impossible to maintain this figure in the future as the number of retired people is increasing. On the contrary, Spanish minors expenditure (the other non-productive group) is mostly assumed by families (61 %); this do not facilitate saving to progenitors during a long period of their working life. Data points out that Spain is one of the European countries with worst prospects: in Europe, Spanish baby boom rate was the highest, its life expectancy is also the highest, and it will find a lot of trouble in affording aging costs with private resources (crisis has decreased savings by 8.2 %) Therefore, if the system does not undergo any reform, public and private transfers will not be enough to fund retired people consumption at the end of this decade.

Data were presented by Professor Concepció Patxot, from the Department of Economic Theory of the UB, who coordinates the project National Transfer Accounts (NTA) in Spain. Patxot remarked that “the pension system must be reformed now, but it must be made considering the welfare system from a global point of view”. She also affirmed that Spain will need more immigrants and an improvement of the fertility rate and it must socialize the cost generated by children like other countries which have a more advanced welfare system do. NTA is an international collaborative project to measure, analyse and interpret macroeconomic aspects of age and population aging around the world. This week the Faculty of Economics and Business of the UB hosts the annual meeting of this project.


Before 2020 the system will be at risk due to demographic transition and crisis

XREPP research warns that Spanish economic crisis worsens the predictions on welfare system sustainability. In this sense, 2008 data analysis proves that Spanish life-cycle deficit (the difference between public and private consumption and labour income) was more than 17 % of the labour income and not 9 %, as it was predicted before the crisis.

Furthermore, predictions made considering demographic analysis are devastating: in 2000, Spain had one potential retired person (older than 65) for each four potential workers (population aged between 16 and 64), whereas in 2050 the ratio will be of 2 retired people to 3 workers. Although the number of old people has increased since mid-20th century, from 2020 it will be increased drastically: the baby boom generation will begin to take retirement. The dependency ratio (the relation between dependent population and productive one) will go from today’s 25 % (it has remained stable from 1999 to 2012) to 28 % in 2020, and 65 % in 2050.

Viewing figures for general consumption and population projections, it can be affirmed that in 2008, before economic crisis, Spanish welfare system was unsustainable. However, crisis worsens predictions and the space of time to act is shorter. In fact, actions would have been done before 2013, which is the end of ‘population bonanza’ cycle.

XREPP research concludes that at the end of the 20th century and the early years of the 21st century were favourable for economic independency. The best population bonanza happened between 1982 and 2013 —when baby boom generation was part of the workforce—, and 2000 was the best year in history. Nevertheless, Spain did not take advantage of the increased producers-consumers ratio (4-1 in 2000) to accumulate physical (to save) and human (to invest in education in order to improve productivity) capital and face population aging in a longer space of time. Life cycle deficit was negative, even during the best population cycle.

 

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