The effects of international migration on the pension systems in Europe

Abstract

Ageing of populations in Europe is a well-known and ever-increasing process, so the pressure on pension systems becomes more and more acute in some European countries. International migration contributes to population dynamics in both origin and destination countries, easing or aggravating demographic problems. It is well known that in Europe the increase in migration flows is not enough to compensate for the population-ageing process and its negative consequences. Based on a data set of macroeconomic indicators for all EU member states and using panel data analysis, this article discusses the effects of some socio-economic indicators on the pension systems in selected European countries, the focus being on international migration. The current analysis is a follow-up on a previous approach that clusters the EU countries with respect to migration flows into EU/EFTA periphery-sending and centre-receiving countries. The central hypothesis in the paper is that the pension systems are affected by international migration (measured as the crude rate of net migration) and that a high level of emigration leads to a higher pressure on the pension system. The hypothesis was tested using panel data analysis for the period 2004–2013. The analysis was conducted for both the total sample and the two clusters (EU/EFTA centre-receiving countries and EU/EFTA periphery-sending countries), excluding Switzerland, Cyprus, and Iceland. The following indicators were selected for the state, society and economy sectors as they are the most relevant: average wage, adult education level, Gini Index, Human Development Index, urban population, median age, expenditure on pensions. The results showed that a higher ratio of immigrants leads to a decreased pressure on pension expenditure in centre-receiving countries, while for the periphery-sending countries, a great part of the emigrants consists of working people who leave their home countries and stop contributing to the pension system. The adult education level was found to have a similar effect on the expenditure on pensions in both clusters. The average wage had opposite effects for the two clusters: in the centre-receiving countries it has negative effects as a higher ratio of immigrants leads to a higher pressure on the labour market, whereas in the sending-periphery countries emigrants are mostly unemployed and, as a consequence, reduce the pressure on the labour market.