How to Mitigate the Consequences of Demographic Aging of the Population in Croatia?

The main characteristics of changes in the age structure of the population of Croatia from 1953 to 2011 are the decrease in the number and share of the young population (aged 0 to 14 years) to 15.2 percent in 2011, a slight increase in the number and share of the working-age population, and the most significant increase in the number and share of the older population – men and women aged 60 and over, which now stands at 24.1 percent, emphasizes Predrag Bejaković in the latest current review of the Institute of Public Finance.

In the review titled ‘How to Mitigate the Consequences of Demographic Aging of the Population in Croatia?’, Bejaković reflects on the results of the 2011 census in Croatia, ‘which surprised many, especially due to the relatively unexpected high average age of the population.’

The high average age of the population is largely a continuation of previous trends. While the average age of the population of Croatia in 1991 was 37.1 years, it increased to 41.7 years in 2011 (39.9 years for men and 43.4 years for women).

He also points out that in a relatively short period, from 1953 to 2011, the average age of the total population of Croatia increased by a full 11 years, and for women by as much as 11.5 years. Namely, the average age of the population in 1953 was 30.7 years, with men at 29.3 years and women at 31.9 years.

The increase in the average age of the population was somewhat slowed down during the period from 1961 to 1981, and after that, accelerated aging of the population is evident. In 2011, compared to the previous census, the average age of the population increased by almost two and a half years, notes Bejaković.

This is a phenomenon of demographic aging (which should be distinguished from the usual individual, biological aging), and is a consequence of the reduced number of young people due to a lower number of newborns and an extended life expectancy.

The average life expectancy in Croatia from 1953 to 2010 significantly increased, especially among women. Due to better nutrition and healthcare, it increases by more than three months each year, emphasizes Bejaković.

In 1953, life expectancy in Croatia was 59.1 years for men and 63.2 years for women, while in 2010 it was 73.5 years for men, an increase of 14.4 years, and for women, it increased by 16.4 years to 78.1 years.

As a consequence of declining birth rates and increasing life expectancy, the share of the population aged over 65 has increased, expressed through two indicators – the aging index and the age coefficient.

The aging index is the percentage of people aged 60 and over in relation to the number of people aged 0 – 19 years, and an index greater than 40 percent indicates a process of population aging. The share of the population aged over 60 in Croatia is continuously rising, and with an aging index of 115 percent, it has approached the share that the elderly population has in developed European countries.

The age coefficient is the percentage of people aged 60 and over in the total population, and when it exceeds 12 percent, it is considered that the population is entering the aging process. Since 1953, the age coefficient has more than doubled and now stands at 24.1 percent, while in 1953 it was 10.3 percent.

He emphasizes that changes in the age structure of the population of Croatia have many unfavorable effects, primarily related to the labor market and pension expenditures.

Croatia generally has a low activity and employment rate of the population, but especially low are the activity and employment rates of the older population. According to data from the Croatian Pension Insurance Institute, the average age of people retiring is just over 61 years with 32 years of work experience, while for disability pensions it is only 53 years of age and 23 years of experience.

“In short, we still retire relatively early. We live relatively long and use pensions for quite a long time: women for almost 20 years, and men for about 12. Although pensions are quite low, the large number of retirees results in significant expenditures that amount to more than 11 percent of GDP with a tendency to grow. Due to insufficient contributions, this requires large transfers from the state budget, which directly worsens the budget deficit,” notes Bejaković.

He also addresses the question of how to keep older people in the labor market?

Often, public pension systems penalize work and encourage older workers to leave the workforce because early retirement is very little or not at all penalized, while later retirement is not rewarded, notes Bejaković, who believes that decisions about retirement should be made based on personal views and preferences, not because longer work is penalized.

A significant role, as he emphasizes, should be played by the introduction of a capitalized pension system, and it is necessary to continuously explore the possibilities of retaining still employable older people in the labor market within the public pension system (the first pillar of intergenerational solidarity).

He also emphasizes the need to break the false beliefs that employing older people will reduce the space for employing younger individuals. “The number of jobs in the economy is neither immutable nor fixed, but depends on a multitude of factors, primarily on the cost of labor. If labor is cheaper, then there will be more employed,” notes Bejaković, emphasizing that due to the high overall cost of labor, the space for employing older and younger individuals in the formal economy is narrowed and/or increases the informal (grey) economy.

-For all the above reasons, it is important to explore the possibility of co-financing the employment of older individuals and their income – as well as the income of all employees – to be more linked to productivity. Finally, it is necessary to encourage legislative solutions that will allow for more flexible and shorter working hours than usual and consider a partial retirement system. Older individuals must have clear and better incentives and the opportunity and conditions to continue working, but they must also improve their employability, knowledge, and expertise through lifelong learning and education,” concludes Bejaković.