Explanation of the population pyramid
The yellow-blue figure shows three so-called population pyramids for Germany for the years 1970, 2020 and 2070, arranged like a tree. Population pyramids graphically represent the age structure of the population separately for men and women. Each age group is represented by a bar. The bars are arranged one above the other so that the youngest age groups are at the base of the pyramid and the oldest age groups are at the top. The length of the bars shows the absolute size of each age group. The shape of the pyramid depends on population trends, i.e. birth rate, death rate and immigration (see also Destatis External link).
At the beginning of the last century, the population in Germany still had the shape of a broad-based pyramid. In the meantime, the younger age groups are numerically smaller than most of the older age groups. The shape is moving further and further away from a pyramid.
Consequences of demographic change for fiscal sustainability
The population pyramid provides information on the numerical ratio of different age groups and its change over time. This helps to assess the sustainability of public finances, i.e. the impact of demographic change on fiscal sustainability. For example, relating the number of people aged 65 and older to the number of people aged 20 to 64 gives the so-called old-age dependency ratio. This indicates the ratio of the generally economically inactive elderly to the (potentially) economically active.
In past decades, the baby boomers, i.e. the cohorts born between 1955 and 1969, actively participated in the labor market and were responsible (together with other active groups) for the country's economic dynamism. With their tax payments, they made an important contribution to financing public budgets. In addition, as employees subject to social insurance contributions, they paid into the social security system.
The baby boomers faced relatively few pensioners and, due to the decline in the birth rate since the early 1970s, also relatively few younger people.
With the gradual retirement of the baby boomers, the so-called demographic pause is coming to an end. The old-age dependency ratio, which was 37 in 2020, will rise to around 50 by 2035. With an old-age dependency ratio of 50, there will be 50 people of retirement age for every 100 people of working age, i.e., for every person aged 65 and older, there will be only two people aged 20-64.
This demographic transformation, which is already taking place, represents a major challenge for public budgets and even more so for the sustainability of social security systems, especially statutory pension, health and long-term care insurance. These systems are pay-as-you-go, i.e. direct and indirect transfers take place between the generations. This is particularly clear in the case of statutory pension insurance, where the pensions of today's pensioners are financed by the contributions of today's workers. If 13 million people reach retirement age by 2035, while much smaller age groups enter the labor market, the expected imbalance becomes clear.
In research, we are concerned, for example, with the question of which reforms of the statutory pension insurance system are necessary for improved sustainability in view of demographic change and how its acceptance by the population can be increased (see VHAlt External link). For policy advice, the question of the sustainability of public budgets, among other things, is of growing importance (cf. Stabilitätsrat External link).
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