The dynamics of human capital-specific old-age dependency ratio in Europe

Dimiter Philipov, Wittgenstein Centre (IIASA, VID/ÖAW, WU)
Anne Goujon, Wittgenstein Centre (IIASA, VID/ÖAW, WU)
Paola DiGiulio, Wittgenstein Centre (IIASA, VID/ÖAW, WU)

Rise in human capital can boost economic growth mainly through innovation and increase in competitiveness and hence have the potential to alleviate economic problems related to population ageing. Yet little research is available on the dynamics of this effect and on conditions under which it holds. We have constructed a human capital-specific old age dependency ratio (HC-OADR) where populations in both the numerator and the denominator are distinguished by their level of human capital, measured with earnings and pensions differentiated by education and age. The dynamics of the HC-OADR was first examined using data for Italy (Philipov et al., 2014). Multistate population methods were utilized for long-term projections under two scenarios: with constant and with increasing rates of transition to higher education. The HC-OADR under the constant scenario produces a trend of population ageing that is faster than the trend received with the conventional OADR i.e. under specific conditions, a constant or a moderately increasing human capital may cause aggravation of consequences of population ageing rather than their alleviation, which can be achieved under a faster increase in human capital. Based on the dataset of the Wittgenstein Centre population projections (2014) and European Union Statistics on Income and Living Conditions (EU-SILC), we will apply the same methodology to a large set of European countries (about 30 countries) to explore whether our findings hold in different educational, income, and pension settings in a dynamic way. Preliminary results show that they do tend to hold.