Population time bomb

Growing Old Disgracefully

sinn
Germany needs more children: Hans-Werner Sinn.
  • Why it matters

    Why it matters

    Without interventions, Germany’s dwindling workforce will be unable to support its pensioners by 2035.

  • Facts

    Facts

    • Germans are having fewer and fewer children.
    • By 2035, Germany will have 7.5 million more retirees and 8.5 million fewer people capable of work than today.
    • In 2013, a net total of 437,000 people came to Germany.
  • Audio

    Audio

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When Hans-Werner Sinn, the head of the Munich-based Institute for Economic Research (Ifo), looks at the huge political challenges facing Germany, he sees a ticking time bomb. But the economist is convinced that even the problem of the nation’s aging population can be resolved over the long term. He spoke recently with Jens Münchrath, Handelsblatt’s editor for economics and monetary policy. 

You have warned about the catastrophic consequences of Germany’s demographic shift. Could you give us a brief picture of the German economy in the year 2030?

From 2025 to 2035, the baby-boomers who are powering Germany’s economy will retire. Then, taking immigration into account, we will have 7.5 million more retirees and 8.5 million fewer people capable of work. The retirees will want to receive their old-age benefits from children who don’t exist. Our workforce won’t be large enough and it will be a grave burden on the economy.

Some might think that would at least solve the unemployment problem?

Utterly mistaken. The aging process removes not only workers, but also employers from the labor market. As a rule, new companies that create new jobs are founded by younger people in their mid-30s. No, the overwhelming demographic shift will threaten the basic capacities of the state social system, and also the function of the state as such.

Are we condemned to this development, or can its worst effects be alleviated by a deliberate policy of immigration?

The possibilities shouldn’t be overestimated. In order to maintain the ratio between old and young at today’s level, we would need approximately 30 million young immigrants by the year 2035.

That doesn’t sound possible.

No, it can’t be done. The capacity to assimilate so many immigrants simply doesn’t exist. But managed immigration is certainly an important instrument for softening the impact of Germany’s aging population.

What would an effective immigration policy look like?

First, the political establishment should decide whom it wants to allow into the country. It is clear to everyone that Germany is going to change.

Already 20 percent of the population has an immigrant background. One third of newborn infants are the children of immigrants. We should follow the American or Canadian example and, by means of a points system, work towards a targeted immigration policy.

But Germany is a member of the European Union, so it has limited freedom to set immigration policies.

That’s right. We need a uniform, E.U.-wide immigration policy. Many other E.U. countries have the same problem as Germany. Our country is currently profiting from a wave of immigration that is reminiscent of the era after German reunification.

In 2013, after subtracting the number of emigrants, a net total of 437,000 people came to Germany. Until recently, people were leaving Germany. Now people are arriving in droves. Why shouldn’t we exert a guiding influence on this process?

What other political measures should be taken to reduce this demographic problem?

We desperately need a pragmatic handling of family planning and fertility to counteract our aging population. The state needs to do some rethinking here. It has to participate more actively in the costs of raising children and also offer more tax breaks for families with children. The generous French model needs to be taken into account here.

We desperately need a pragmatic handling of family planning and fertility to counteract our aging population.

Is the state responsible for this disaster, since it ignored these issues for decades?

Yes. Through its systems of social security, which separate the fate of the individual from the consequences of his or her decisions regarding fertility, the state has been a decisive factor in contributing to the phenomenon of childlessness and to a decline in the social status of the family.

The Pope couldn’t have said that better himself. But seriously, is Germany’s pension system the sole cause of the scarcity of children in this country?

It is the main reason why Germany has the lowest rate of newborns per population, according to the Organization for Economic Cooperation and Development. It is not by chance that the country, which was the first to introduce a comprehensive system of old-age insurance, is today at the very bottom of the list.

Ever since 1889, when Otto von Bismarck introduced the program of state pensions, generations of Germans have been able to cope with old age without having children of their own. Social security freed people from taking responsibility for their income in old age, and thus it is a major contributing cause to the low number of Germans who have children.

That sounds more like a pedagogic plea …

No, it’s a question of economic stimuli. The most generous system of old-age insurance in the world has turned Germans into champion tourists and created a breathtaking infrastructure of seaside resorts in Spain. Hordes of retirees, financed by the German system of apportionment, enjoy being conveyed in luxury liners across the seven seas.

But children are what the system neglected to create. We need to reform the retirement system.

I am in favor of completely eliminating the fixed age for compulsory retirement, as is the case in the United States.

What should the reforms look like?

First, we need a pension eligibility that is dependent on the number of children. Second, I am in favor of completely eliminating the fixed age for compulsory retirement, as is the case in the United States. The worker should have the right to demand from his employer a continuation of the labor contract under the same terms. Whoever chooses this option gets his pension later, but calculated at a higher rate.

Right now, the government is doing the exact opposite and facilitating an early retirement at 63.

That is exactly the wrong signal. We need more years of working, not less.

Because of its inability to achieve fiscal reforms, France is generally considered the sick man of Europe — but it has a significantly higher birth rate. In spite of its sluggishness with regard to reforms, does our neighbor have the better economic perspectives over the long term?

Yes, things look better for France than for Germany. We think we’re strong and vigorous because the baby boomers are still among us. But the impression is deceptive. The truth is that we are on the best path for making our farewell as a dynamic economic nation.

 

To contact the author: muenchrath@handelsblatt.com

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