26 Ekim 2013 Cumartesi

A very difficult trinity

The title is inspired by the well-known "Impossible Trinity" of macroeconomics, which asserts that one cannot pursue the following three goals at the same time: Fixing the exchange rate, having an independent interest rate policy and free capital movement.
But I would like to discuss today a different trinity. On Wednesday evening, I have been the host of the the minister of family and social policy, Mrs. Fatma Şahin, and the minister of development, Mr. Cevdet Yılmaz, at a working dinner where a very informative presentation was made followed by a hot debate on the crucial problem of the aging population and policies to mitigate the adverse consequences of this problem.
Ministers Fatma Şahin & Cevdet yılmaz
Minister Yılmaz defined very well the strategic framework: The Turkish population is rapidly aging while the birth rate is declining. The decline in the average number of children per woman last year reached 2.1, and this is expected, according to Turkish Statistics Institute (TurkStat) projections, to decline to 1.65 in the mid-2030s. The already increasing share of individuals over 65 in the total population will reach 16 percent by the end 2030s from its current share of 8 percent, while at the same time the share of the working-age population will reach a peak and start to decrease. In other words, the so called "window of opportunity" will be closed for Turkey at that time. The aging phenomenon is not, of course, specific to Turkey. Nevertheless, as Minister Yılmaz correctly pointed out, most of the countries facing an aging population have already achieved economic development and have put more resources into resolving this issue than countries that have not yet completed their development process, like Turkey. So, the consequences of the aging problem may be more severe in Turkey than in developed European countries.
What to do? The two ministries suggest a strategy comprising three goals: Stop the decline in the birth rate through various incentives; accelerate female labor force participation by encouraging women to work; and achieve these two goals without putting an extra financial burden on firms. Admittedly, this is the right trinity, but it is very difficult to achieve. Modern life negatively affects the number of children per woman. This is a rule of thumb that is almost impossible to change. However, during the presentation attention was drawn to an interesting finding. There is a gap between the number of children considered “ideal” and the "effective" number of children. This gap is particularly large among educated women who have a decent job. So, there is a room to maneuver. The policy recommendation consists of facilitating childcare through flexible working hours, longer maternity leave, etc.
It is true that these kinds of incentives might be effective, as the examples shown in the presentation proved, but to a limited extent. Thus, the aging population will continue although it can be decelerated and the closing of the window of opportunity postponed, giving more time to Turkey for its economic development. That said, another opportunity exists for Turkey. Its female participation rate is very low, around 30 percent. So, the present increase of this rate can be accelerated using aggressive incentives making childcare less costly, encouraging part-time work, lowering the cost of female labor for employers and last but not least, combating social prejudices against working women. The rapid increase of the number of working women will also be able to accelerate economic growth, and in this way the adverse consequences of aging can be better addressed. However, we know that more working women means fewer children, and the policies trying to prevent the decline of the birth rate can hardly compensate for the negative effect of the increase in working women.
Moreover, as promised by the two ministers, all the financial costs of the various incentives being considered will be met by the state. Now, there are other indirect costs than financial costs for companies, like long absences due to maternity leave. So the birth incentives are able to cause discrimination against women at hiring that will cause in turn an increase in female unemployment.
Finally, the task will not be easy for the government. It might be easier to consider another approach to the aging problem as was suggested by my colleague Eser Karakaş during the debate: a planned and controlled immigration of a qualified labor force from neighboring countries. In fact, this immigration has existed for some time, and it has been dramatically increased recently because of the Syrian civil war. Unfortunately, it is neither planned nor controlled.       

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