Monday, 19 May 2008

Structure of society key to policy goals

Strategic planning for changes based on shifts in population must take account of economic and social indicators, writes Brendan M Walsh

THE POPULATION and Labour Force Projections 2006-2041 recently published by the Central Statistics Office contain a wealth of information about the likely size and age distribution of the country's future population.

The projections are the result of applying a range of assumptions regarding fertility and migration to the results of the 2006 Census of Population. Only one assumption is made about mortality, namely that the recent improvement in Irish life expectancy will continue, so that by 2046 male life expectancy will have risen by a further 10 years, to 86, and female life by about seven years, to 88. Two fertility scenarios are explored. The "high" scenario assumes that the total fertility rate (roughly the average number of births per women) will remain at its present level of 1.9 over the projection period; while in the "low" fertility scenario this declines to 1.65 by 2016 and then stabilises.

Three migration scenarios are presented. The first assumes zero net migration over the entire period - reflecting offsetting inflows and outflows of 20,000 a year. Under the "low" migration assumption, net immigration falls from 50,000 annually to 10,000 a year after 2021, while under the "high" migration assumption, the annual net inflow falls from 60,000 to 30,000 between 2006 and 2021. The combination of three migration and two fertility assumptions yields six different projected populations for 2021, ranging from 5.7 million (high fertility and high net immigration) to 4.7 million (low fertility and zero net migration).

Under the bullish assumptions the total population will grow at an annual average rate of 2 per cent a year - much the same as that recorded during the exceptional growth spurt of the period 2002-06 - while the bearish assumptions bring the growth rate back to 0.7 per cent a year, still quite high by European standards.

Looking further ahead, the range of uncertainty increases. The projected 2041 population ranges from a high of 7.1 million to a low of 4.9 million.

These wide ranges highlight the uncertainty inherent in medium term population projections. Most of the difference - especially in the economically active age groups - derives from the migration assumption. Ireland is a classic example of a small, open labour market, whose rate of population growth has fluctuated widely depending on the flow of people into and out of the country. As recently as 1987-91 high emigration led to a falling population, while in the late 1990s and early years of the present decade unprecedented net immigration propelled population growth to the highest in the developed world.

The headlines following the publication of the population projections tended to focus on the higher end of the projection range. The possibility of surpassing the pre-Famine 1841 total of 6.5 million by the 2030s was highlighted.

Perhaps this emphasis reflects an optimistic psychology that became ingrained during the heady years of the Celtic Tiger when a strong demographic impetus was seen as one of the "fundamentals" underpinning the exceptional performance of the Irish economy. The demographic backdrop is still invoked to support the belief that we have an ongoing requirement for a high rate of house building. But if we look only at the upper end of the population projection range we risk missing the point that our demographic "fundamentals" are very sensitive to migration flows.

Even under the highest net immigration assumption in the CSO exercise, the rate of population growth in the main household-formation age group (20 to 44 years) will fall from the exceptional 29 per cent recorded between 1996 and 2006 to 20 per cent between 2006 and 2016. If, however, net immigration were to average zero over the coming decade, the population in this age group would reduce by almost 5 per cent, implying a fall of some 4,000 a year in the number of potential couples in this age group. The abrupt decline in the birth rate during the 1980s is now being reflected in the number of young adults in the population and a continuation of net immigration is required to stabilise it.

The Irish economy is slowing rapidly, raising a real prospect of a return to net emigration in the short term at least. Zero net migration represents a balance between the continuing outflow of a large proportion of each cohort of Irish school and university graduates and a continuing substantial inflow of new immigrants and returning emigrants.

Rising unemployment could easily tip this balance into net emigration, leading to a significant fall in the numbers in the household formation age groups.

This would exacerbate the downward trend in house prices. Uncertainty about future net migration is thus a key element in the short to medium-term outlook for the Irish housing market.

Of course, demography is only one influence on the demand for housing and any calculations made are only a rough indicator of the demographic component in housing demand.

Among the non-demographic factors that also have to be taken into account are income growth, expected house price inflation, and real interest rates, while the demographic component of housing demand needs to be refined to take account of changing household structures and internal population movements.

However, it is likely that these factors will play a much smaller role - if any - in boosting the demand for housing in the years ahead than they did during the past 10 years.

The author is professor emeritus of economics at University College Dublin.

Irish Times

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