DEMOGRAPHIC AGEING AS A PROBLEM IN TERMS OF MACROECONOMICS

 

Rozpędowska-Matraszek D. (University of Łódź, Poland)

 

Introduction

The objective of this study is to present the formation process of demographic old age by means of a determined old age index in Poland. The old-age index is an important feature which characterizes the population and the financial standing of the Social Insurance Institution. At the same time this variable is strictly related to other economic values. The analyses within the framework of this study were carried out with the application of the econometric model calledа Error Correction Model (ECM). The construction of thisа model enables researchers to evaluate two kinds of elasticity factors long-term ones b_iаа and short-term ones c_j. Empirical studies were based on the annual data collected by The Central Statistical Office (GUS) from the years 1990-2006.

1.          Macroeconomic problems in the health care sector

Macroeconomics of health deals with analyzing the issues connected with expenditure, employment and various aspects of health as a part of economy, and first and foremost the biological state of health as a whole and its relation to economic changes [Getzen 2000]. Poland has been faced with the problem of ageing society. It is worth stressing that the demographic structure of the population of Poland is subject to dynamic changes resulting not only from natural reasons but also economic ones. The aforesaid changes necessitate a new approach entailing changes in respect to the ways of safeguarding health benefits and the adjustment of the supply of these benefits to the changing needs in terms of health.

The functioning of the health care sector may be subject to various aims, the most important of which being the safeguarding of a good state of health of the population and judicious management of resources [Suchecka 2006].

Consequences of population ageing constitute a process which may entail an acute shortage ofа labour force and a high dependency ratio of the population of retirement age on the population of working age. Population ageing is connected with many considerable changes pertaining to: the methods of financing public expenditure (i.e. social security for pensioners and old-age pensioners), investment structure, consumption, human labour productivity, innovativeness and political preferences.

Population structure with respect to age is reflected in the rates of incidence of diseases, which entails expenditure on health care. Due to a considerable number of the unemployed since 1999 the proportions of expenditure on health care sector have changed, i.e. there has been an increase in expenditure on social security and the share of the spending on health care in the overall public expenditure has decreased. The average length of life in case of both women and men has increased (see Graph 1).

Graph 1- Average length of life in the years 1995-2006

Source: compiled by the author of the study on the basis of the information contained in УBasic Demographic DataФ.

 

Such changes result in the extension of the period in which social benefits are drawn by the beneficiaries. There is a considerable increase as regards the demand for health care services and the whole health care sector. In order to maintain sufficient standards in terms of medical services it is necessary to have adequate resources in the health care sector. (see Table 1).

 

Table 1- Resources in the health care sector (per 10 thousand inhabitants)

Source: compiled by the author of the study on the basis of the data provided by EUROSTAT

 

Pursuant to the findings presented in the above table it can be stated that efficiency in civil health service is increasing. Changes in the organization system of health care and the methods of financing of health benefits constitute a modifying factor as regards the possibility of exerting influence on the state of health of the society. It has become necessary to take into account the possible negative consequences of the shortage of qualified health care employees on the effective fight against health problems of the society. An effective diagnosis may bring about necessary action in the form of specific preventive activities. [Raport 6: 2006][1].

 

2.            Old-age index models

Changes in the age structure of the population result from shifting population booms and declines specific to our country as well as demographic processes. The effects ensuing from the decreasing number of population of Poland will be noticeable in the long run but we are bound to experience some of them even in the next few years. Population ageing consists of a continuous increase in the number of elderly people in the population. In order to be able to analyse particular cases of population ageing it is necessary to determine the old-age threshold.а In the study the demographic dependency ratio was usedа [S.Sauvy came up with this term in 1948] which is referred to as the old-age index according to the following equation:

 

 

where Ws Ц old-age index; l₆₀₊ - the number of people of the age of 60 and over 60 years; l_0-19 Ц the number of people of the age period 0 to 19 years.

This is one of the first statistical indices used to analyse population ageing which is based on the assumption that old age begins when a person reaches the age of 60[2].

The old-age index is a variable which is strictly related to other economic values. Hereunder the author of this study presents an attempt at examining the relation between the old-age index and other variables determining the demographic and social situation of people over 60 by means of econometric models on the basis of annual data from the years 1990-2006 (17 observations). The old-age index was modeled in the overall manner (W_sO) as well as in the manner taking into account the division in terms of sex (for women - W_sK; аfor men - W_sM) in %. The following potential explanatory variables were taken into consideration:

PDR1 Ц average monthly disposable income per 1 person in PLN altogether;

NDDb Ц gross nominal disposable income in millions PLN altogather;

PcEPKB Ц ratio of average pension to Gross Domestic Product (2006 = 1);

LER Ц number of pensioners and old-age pensioners in thousands;

PcER Ц average old-age pension and pension in PLN;

GER1 Ц average monthly disposable income per 1 person in PLN - pertaining аааааааааа to the households of old-age pensioners and pensioners;

DS1 Ц income from social insurance benefitsа in millions PLN altogetther.

The following equation constituted the starting point for empirical verification:

Three equations pertaining to the overall old-age index and the one taking into account the sex division were evaluated. The equations describe the shifts in the old-age index resulting from economic factors. As a result ofа verification in terms of statistics and content (eradication of variables which are insignificant in terms of statistics, evaluation of correspondence between the assessment of structural parameters and the economic theory) the following models were chosen for the final presentation.

Pursuant to the results of the equation 1) it is possible to state that in the long run the old-age index is affected by the number of old-age pensioners and pensioners as well as the monthly disposable income in the households of old-age pensioners and pensioners. Both factors positively affect the old-age index. In the short run the effect exerted by the contribution of the average pension to GDP is also noticeable. A 1 %GDP growth leads to, ceteris paribus, a 0,05% decrease in the old-age index. Long-term elasticity of the old-age index in relation to the average monthly disposable income is lesser by 0,13 than the short-term one (0,076 to 0,602). Thus the old-age index very slowly responds to the change in the average monthly disposable income, which may suggest that old-age pensioners and pensioners do not derive considerable benefits from prosperous economy. The assessment of the correction parameter by means of an error (α - 1) = -0,066 constitutes a negative value. This means that the model which constitutes the subject of analysis is stable Ц when some disturbances to the old-age index occur the index tends to return to the long-term growth path. Each year after the occurrence of a disturbance in the performance of the index it is adjusted by 6,6%.

Pursuant to the results of the equation 2) it is possible to state that the average monthly disposable income exerts a considerable influence on the shifts in the old-age index in the case ofа a group of women both in the short and long run. In the long run, when the income from social insurance benefits remains unchanged, a 1% increase in the average monthly disposable income causes a 0,8% decrease in the old-age index and in the short run Ц a 0,05% increase. This may suggest that the growing old-age index lags somewhat behind the average monthly disposable income. When the level of average monthly disposable income remains unchanged, the income from social insurance benefits positively affects the old-age index in the case of women both in the long and short run. A 1% increase in the income from social insurance benefits brings about a 0,25% increase in the old-age index. Each year after the occurrence of a disturbance in the performance of the old-age index it is adjusted by Ц4,2%.

Pursuant to the results of the equation 3) it is possible to state that the average monthly disposable income exerts a considerable influence on the old-age index in the case ofа a group of men both in the short and long run. In the long run, when the number of old-age pensioners and pensioners remains unchanged, a 1% increase in the average monthly disposable income causes an approximately 0,9% decrease in the old-age index and in the short run Ц a 0,1% increase. This may suggest that the growing old-age index lags somewhat behind the average monthly disposable income. When the level of average monthly disposable income remains unchanged, the number of old-age pensioners and pensioners negatively affects the old-age index in the case of men both in the long and short run. A 1% increase in the number of old-age pensioners and pensioners brings about a 0,19% decrease in the old-age index. The model is stable, which is proved by the negative value of the assessment of the parameter by means of an error. Each year after the occurrence of a disturbance in the performance of the old-age index it is adjusted by 5,7%.

3.            Summary

The models presented above take into account various factors which affect the shifts in the old-age index. However, they coincide in some respects namely in terms of the evaluation of the influence exerted by average monthly disposable incomes and the rate at which the old-age index returns to the long-term growth path. Due to a considerable increase in the length of life and the growing number of people of 60 years of age and over 60 the demand for medical professions connected with palliative and geriatric health care is on the increase in our society. Maintaining a good state of health and safeguarding the adequate quality of medical care for the society constitutes a continuous challenge for successive ruling governments.

 

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