The continuous decline in Greece’s population by 2070 will approach 25 percent and this could threaten the sustainability of the Greek pension system.
By Dr. Steve Bakalis
These are some thoughts against the background of the forthcoming Hellenic Union of Institutions for Occupational Retirement Provision Forum titled: “A new developmental paradigm for Occupational Insurance” which seeks to record and decode the latest developments which took place over the past year on a national and European level in the field of Occupational insurance as well as Greece’s retirement-social security system in general.
We argue here that the absence of such reforms is inevitably associated with emigration to other nations with pension systems that provide income stability over one’s life cycle, when compared to Greece.
The phenomenon of brain drain, which refers to the emigration of highly skilled individuals from their home country, has been a long-standing challenge for Greece. After the global financial crisis of 2007-2009 struck the country, scholars have observed the escalation of brain drain, the loss of valuable human capital in terms of social and economic growth and development.
The continuous decline in Greece’s population by 2070 will approach 25 percent was one of the warnings at 10th Delphi Economic Forum; this decline could threaten the sustainability of the Greek pension system. The consequences in the coming years to identify possible ways to stop the phenomenon through public and private initiatives were raised in the discussion between bodies, economists and lawyers.
Greece, with its huge demographic problem, is at risk of national decline if it is not taken seriously through the adoption of strong and top-notch reforms for its reversal.
Against this background, the latest projections produced by Eurostat, the EU’s official statistics agency, suggest that the bloc’s population will be 6 percent smaller by 2100 based on current trends – falling to 419 million, from 447 million today.
But that decline pales in comparison with Eurostat’s scenario without immigration. The agency projects a population decline of more than a third, to 295 million by 2100, when it excludes immigration from its modelling.
Greece, as one of the EU “less developed countries” (Bulgaria is another one in the diagram), stands out as a nation that will face a demographic crisis with or without migration, in comparison to other EU nations, like Denmark and Norway. These nations are “pro-reformist” in the sense that they aim for improvement or change, often through government action, and a willingness to work within the existing system to achieve those changes.
At the very core of such an approach is economic growth and higher incomes. Furthermore, the migration and life cycle hypothesis suggests that migration patterns correlate with an individual’s stage in life and economic development. It posits that emigration rates initially increase as countries develop, reach a peak, and then decline as countries become more affluent. This theory is closely tied to the idea of the “emigration life cycle,” where the decision to migrate is influenced by factors like age, income, and life stage.
The IZA (Institute of Labor Economics) explores how migration and pension systems interact, particularly regarding the portability of social benefits. Pension reforms, which imply a reduction in the generosity of pension benefits, are becoming widespread in response to the demographic transition. The scale, the timing, and the pace of these reforms vary across countries.
Individual migration decisions, by adding a component linked to the expected old-age pension benefits in sending and receiving countries in two cases: when the pension system rules are known, and when there is a risk of pension system reforms. The results indicate that when individuals fail to take future pension wealth into account, they can make sub-optimal migration decisions.
In the case of Greece, and according to the IMF, the Greek pension system has been costly, complex, and distortive, which has contributed to Greece’s fiscal problems and discouraged labor force participation.
Several attempts to reform the system faltered due to lack of implementation, pushback by vested interests, and court rulings leading to reversals. The Theory of Second Best, in the context of pensions, suggests that if one or more distortions exist in the pension system (e.g., market imperfections, government regulations, or individual behavior), then attempting to improve one aspect of the system while ignoring others might not necessarily lead to the best overall outcome.
Greece essentially needs to work from “scratch” its way through its pension system (among other things) to prevent a demographic crisis.
Dr. Steve Bakalis is an expert in international business education and management, having worked with the Australian National University, the University of Adelaide, and in administrative positions at universities in the Asia-Pacific and the Gulf region.
