Demography's Impact on Macroeconomic Recovery in Finland Post-Financial Crisis
This study delves into the role of demography in the macroeconomic development of Finland after a financial crisis. It analyzes Finnish macroeconomic performance in comparison to European countries, focusing on GDP per capita, labor productivity, and employment-population ratio. The research also examines the improvements in employment amidst deteriorating old age dependency, the effects of exports on financial crises, and the slowdown in productivity. Additionally, it explores external balance issues and their relation to the economic support ratio, shedding light on trade balance problems and market disequilibrium.
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Presentation Transcript
The role of demography in macroeconomic development after financial crisis in Finland Risto Vaittinen, ETK and Reijo Vanne, Tela 10thInternational Symposium on Demographic Change and Policy Responses, Beijing, 13-14.11.2014
Finnish macroeconomic performance in European perspective GDP per capita Labor productivity Employment population ratio (%) 2000=100 2000=100 2008 2013 2008 2013 2000 2008 2013 Euro Area 111 107 109 113 43,5 45,6 43,5 Finland 124 119 119 44,4 48,6 47,7 117 Germany 110 116 113 115 47,8 49,0 51,2 Non-Euro EU 127 129 43,9 45,5 44,5 126 125 Sweden 122 128 119 123 48,2 50,5 50,9 El keturvakeskus 2
Employment has improved in time of deteriorating old age dependency El keturvakeskus 3
Exports and financial crisis El keturvakeskus 4
Productivity slowdown El keturvakeskus 5
External Balance El keturvakeskus 6
Expot led story ignores changes in population sructure El keturvakeskus 7
External Balance and Economic Support Ratio ? + ? + ? = ? + ? C: Consumption (private and public) I: Investments (private and public) X:Exports M:Imports Y:Income/Production S: Savings (private and public) X M = ? ? ? S= ? ? X M = ? ? ? ?= 1 ? ?= 1 ? ? ? ? ? ? ? = 1 ? ? ? ? ? ?
Support Ratio and External Balance El keturvakeskus 9
Nature of external balance problem It is useful to formulate the balance of trade as an outcome of differences in supply (Y) and demand (D) of tradable goods (T) and non-tradable services (N) Income: ? = ???(p)+??(p) Expenditure: ? = ???(p,E)+??(p,E) ? ? = ? ??(p) ??(p,E) + ??(p) ??(p,E) ? ??(p) ??(p,E) = ? ? + ??(p,E) ??(p) Trade balance problems reflects either the imbalance between income and spendig or disequilibrium in home markets El keturvakeskus 10
Ageing and economic sructure The young and the retired have a negative effect on the aggregate saving rate. This implies a higher level of demand for all goods at any given national income. Deterioration in external balance Compositional effect of ageing Elderly differ from the working age population in the composition of their consumption. Their consumption is directed towards services which are non-tradable Raises relative price of nontradables and sifts resources to non-tradable activities Wealth effect Beyond any transfer of resources from workers elderly has accumulated wealth as a source of income Growing number of elderly add purchasing power without adding labor supply Raises the demand for labor relative to its supply and raises non-tradable prices El keturvakeskus 11
Structural Change in Finnish Economy 2000-2013 El keturvakeskus 12
Ageing and Economic Structure El keturvakeskus 13
Share of output by sector before and after crisis El keturvakeskus 14
Contribution of institutional sectors to the change in employment El keturvakeskus 15
Labor productivity before and after the crisis El keturvakeskus 16
Conclusions The change in population structure has already had a significant impact on macroeconomic development in Finland Deterioration in external balance has at least partly been a natural response to ageing Net borrowing is not sustainable forever Increase labor supply = Increased revenue from surplus producing age in life cycle Diminish consumption Do combination of both Acceleration in productivity growth helps to make the transition in income consumption profiles less painful El keturvakeskus 17
