Trésor-Info - Publications de la direction générale du Trésor - Demography

Italy and its Demographic Challenge

2023-10-24T00:00:00+02:00

Italy is the third most populous country in the European Union. After reaching a peak of 60 million in 2014, Italy’s population fell to 59 million in 2022 and could drop to 47 million by 2070. In 2022, while Italy recorded fewer than 400,000 births – the lowest figure since the country’s unification in 1861 – it posted more than 700,000 deaths, the highest level since the 2020 COVID-19 pandemic. Immigration can no longer offset this stark natural decrease.

Italy has a rapidly ageing population: life expectancy, which now stands at 83, has increased by three years since 2000. According to the World Bank classification, Italy has had a “very old population” since 2007, falling into this category three years after Japan and 11 years before France. Ahead by a few years, Italy’s declining population is a harbinger of the EU’s own depopulation by 2030 according to Eurostat projections.

A dwindling and ageing population is hampering GDP growth given changes in (i) the workforce and labour market participation and (ii) investment and productivity in an economy largely formed by family-owned VSEs and SMEs faced with the issue of their hand over.

This “longevity shock” puts pressure on public finances, since it increases the proportion dedicated to pensions, healthcare and long-term care expenditure in the budget. While the percentage of over-65s is growing, that of the workforce is shrinking, raising the risk to the sustainability of public debt which stood at 141.7% of GDP in 2022.

Measures – whose outcomes are as yet unclear – have been taken to mitigate the impact of unfavourable demographic changes: pronatalist policies, labour market reform and selective immigration. Changes to the pension system for 2024 have yet to be determined.

Japan's Growth Drivers

2023-04-27T00:00:00+02:00

After a dazzling economic catch-up in the post-war years, Japan has been experiencing low growth levels since the noughties – which distinguish it within the OECD – despite the efforts of successive governments to generate fresh momentum. Although it posted the highest GDP per capita growth in the G7 until the end of the 1990s, Japan, together with Italy, is the country in which growth has fallen the most on average since then (see Chart).

Initially buttressed by a rapid rise in capital stock, Japan’s growth has only been sustained by the workforce and total factor productivity since 2010, and this leverage is now weakening. The population is ageing and declining, and hourly labour productivity is growing meekly, especially in SMEs which are predominant in the manufacturing base and are less productive than large enterprises. Too much investment is earmarked to offset capital depreciation – a sign that this factor is poorly allocated. Potential growth, which stood at around 4.0% in 1990, is now estimated at less than 0.5%.

“Abenomics”, which were unveiled in 2013, aimed to expand the workforce and improve working conditions but they were only partly successful. Subsequent governments have focused on investments for the future to boost supply and lastingly lift productivity, through the digital transformation and the low-carbon transition initiated as from 2020, followed by the plan promoting a “new capitalism” which was introduced in 2021 and puts priority on entrepreneurship and vocational training.

Japanese growth will continue to be hampered by demographic trends and this calls for continued support for the employment of older workers, immigration and the birth rate by means of bold structural reforms. Japan also has headroom for improving the allocation of capital and the rollout of new technologies, a sector with strong growth potential.

Unequal Access to Day Nurseries and Related Economic Issues

2023-01-26T00:00:00+01:00

Government policies for childcare for the under-threes are two-pronged: to support parents’ professional activity and to foster children’s development until they start nursery school (école maternelle). They encompass all postnatal leave arrangements, financial support to cover the cost of formal childcare with a child minder or in a day nursery (crèche), and the provision of a day nursery service.

In the first few months of a child’s life, care by the parents is the most beneficial, all the more so when it is provided by both parents. However, after the first year, formal childcare, particularly in a collective childcare, is preferable for the child, especially if they are from a disadvantaged background. In the long term, funding childcare places for young children enables them to develop their abilities and human capital in general, and helps reduce social inequalities.

The unequal day nursery offering throughout France sometimes hinders access to formal childcare and limits the parents’ ability to work, in particular in single-parent households. In addition, the net cost of formal childcare restricts its use by low-income households. Childcare by parents is mostly provided by mothers and it distances them from the labour market when it lasts too long. As a result, it exacerbates social and gender inequality.

Improved governance by defining a leader from among the many stakeholders is required in order to expand the day nursery childcare offering. In addition, bringing the net cost for childcare by a child minder, which is incidentally less costly for the public purse, more into line with that for childcare in a day nursery, as provided for by the 2023 Social Security Budget Act, would spur recourse to formal childcare by low-income households.