Demographic change will permanently slow economic growth from the 2040s onwards, without a significant increase in the birth rate, an increase in immigration and an increase in the employment rate of immigrants. Reduced birth rate will improve public financial service during the childhood and adolescence of young age groups, but at the same time stratify the permanent deficit in future labor and public finances. Due to this phenomenon, there must be a significant perspective in politics, as well as the need to react in time to the change in the age structure by prolonging one’s career and compensating for the large increase in taxation.
The Finnish population is aging faster than expected due to the low birth rate. The labor force will start to decline in the middle of the century without a significant increase in fertility, labor migration and employment rate of the immigrants. The small number of children appears positive for the national economy and public finances in the first twenty years, but it accumulates at the same time future shortages in labor force and tax revenues.
The welfare state is not prepared for the demographic change and the resulting slowdown in economic growth, which will weaken the chances of maintaining the promised public services and the desired income distribution in the future. The position of future generations will deteriorate if the tax rate and indebtedness continue to rise.
“The Economic Effects of Population Ageing” studied extension of working careers from the beginning and end by shortening study periods and postponing the retirement age and streamlining the investment policy for pension assets. All these measures could strengthen public finances. In addition, it was investigated whether the intergenerational income distribution can be balanced by linking pension funding to birth rates.
This publication is part of the implementation of the Government Plan for Analysis, Assessment and Research.