Juha Alho

Uncertain demographics and fiscal sustainability

There is widespread acceptance that much of the developed world faces a potential pensions and welfare crisis as a result of declining birth rates and an ageing population. However, there is considerable uncertainty about the specifics of demographic forecasting and this has significant implications for public finances. Uncertain Demographics and Fiscal Sustainability addresses the economic consequences of uncertainty and, with particular reference to European economies, explores the impact of demographic risks on public finances, including pension systems, health care and old-age care expenditures. Covering a spectrum of theoretical and empirical approaches, different types of computational models are used to demonstrate not only the magnitudes of the uncertainties involved but also how these can be addressed through policy initiatives. The book is divided into four parts covering demographic, measurement, policy and methodological issues. Each part is followed by a discussion essay that draws out key elements and identifies common themes.

Controlling the effects of demographic risks: the role of pension indexation schemes

Within a model featuring demographic uncertainty, this paper studies a pension reform where public pension benefits are indexed to the total wage bill rather than to the average wage level. This implies a decline in the variability of contribution rates and an increase in the variability of replacement rates. While thus shifting some of the adjustment burden following demographic shocks to pensioners, the trade-off in risks is found to be fairly moderate.

The magnitude of error due to different vital processes in population forecasts

The accuracy of population forecasts depends in part upon the method chosen for forecasting the vital rates of fertility, mortality, and migration. Methods for handling the stochastic propagation of error calculations in demographic forecasting are hard to do precisely. This paper discusses this obstacle in stochastic cohort-component population forecasts. The uncertainty of forecasts is due to uncertain estimates of the jump-off population and to errors in the forecasts of the vital rates. Empirically based of each source are presented and propagated through a simplified analytical model of population growth that allows assessment of the role of each component in the total error. Numerical estimates based on the errors of an actual vector ARIMA forecast of the US female population. These results broadly agree with those of the analytical model. This work especially uncertainty in the fertility forecasts to be so much higher than that in the other sources that the latter can be ignored in the propagation of error calculations for those cohorts that are born after the jump-off year of the forecast. A methodology is therefore presented which far simplifies the propagation of error calculations. It is noted, however, that the uncertainty of the jump-off population, migration, and mortality in the propagation of error for those alive at the jump-off time of the forecast must still be considered.

Letter to the Editor: Probabilistic population forecasts for informed decision making.

Demographic forecasts are inherently uncertain. Nevertheless, an appropriate description of this uncertainty is a key underpinning of informed decision making. In recent decades various methods have been developed to describe the uncertainty of future populations and their structures, but the uptake of such tools amongst the practitioners of official population statistics has been lagging behind. In this letter we revisit the arguments for the practical uses of uncertainty assessments in official population forecasts, and address their implications for decision making. We discuss essential challenges, both for the forecasters and forecast users, and make recommendations for the official statistics community.

Modeling Incidence of Nuptiality

The statistical description of the formation of marriages is hampered by the fact that the intensity of marriage of one sex depends on the available supply of potential spouses from the other. Unlike the situation that occurs in the study of fertility, there is no reason to give a preference to either of the sexes. To address the fundamental problem caused by the two-sex nature of the process, a solution is proposed that considers the sexes jointly. The solution relies on a novel use of generalized averages. The model is formulated in stochastic terms, and it is parametrized in terms of the overall level of nuptiality, the relative propensity of nuptiality by age, and the mutual relative attraction of spouses at different ages. Although national statistics collection relies on data aggregated by age groups, the models are formulated at individual levels to show how estimation could also be carried out in small populations. In particular, examples of how maximum likelihood estimation can be carried out are given for specific parametric models. The methods are illustrated by both monthly and annual nuptiality data from Finland.

Occupational Class Differences in Trajectories of Working Conditions in Women

The aim was to examine occupational class differences in trajectories of working conditions in ageing female municipal employees. Longitudinal survey data were collected among 40 to 60-year-old employees of the City of Helsinki, Finland. The 2000–2002 baseline survey (N = 8960, response rate 67%) was followed up in 2007 and 2012. Only those female participants who remained employed through all three phases were included (n = 2540). The effects of age, occupational class, and time period on physical and psychosocial working conditions were estimated using a mixed linear growth model. Physical workload decreased with age, except for manual workers, for whom there was no change. Manual workers also had less control over their work than managers and professionals, semi-professionals, or routine non-manual employees. Job control declined similarly in all occupational classes. Although occupational class differences in the levels of job demands were found, with the managers and professionals reporting the most increased demands, job demands were fairly stable and there was virtually no age or period associated linear change in them. Age trajectories in physical workload differ by occupational class, and the differences in psychosocial working conditions between occupational classes do not converge with age.