Although an ageing population is primarily good news, since it means that people are living longer, frequently it is also depicted as an economic and social burden. It affects productive capacity (loss in productivity and decline in the workforce) and reduces per capita income (increase in the in active population). It can also lead to greater social spending on behalf of older people (retirement, health and dependence), and taxation to finance these programmes can seriously undermine incentives to produce wealth. Logically, Germany should be hit by more pronounced ageing than what is seen in France. However, it is not a foregone conclusion that France will reap a demographic dividend. While population trends point to a  bright future for France, recent economic developments have nevertheless tended to be very favourable to the German economy, while France is mired in mass unemployment and low growth

Touze, Vincent

SPIRE - Sciences Po Institutional REpository

briefing	paper
No.	5	/	11	october	2013
France – Germany
Is there a demographic dividend? 
Vincent Touzé
Although an ageing population is primarily good news, since it means that
people are living longer, frequently it is also depicted as an economic and social
burden. It affects productive capacity (loss in productivity and decline in the
workforce) and reduces per capita income (increase in the inactive population). It can
also lead to greater social spending on behalf of older people (retirement, health and
dependence), and taxation to finance these programmes can seriously undermine
incentives to produce wealth. Logically, Germany should be hit by more pronounced
ageing than what is seen in France. However, it is not a foregone conclusion that
France will reap a demographic dividend. While population trends point to a bright
future for France, recent economic developments have nevertheless tended to be very
favourable to the German economy, while France is mired in mass unemployment and
low growth.
France: A triumphant demographic future…
Eurostat projections (Figure 1) are clear: the size of the French population is
expected to surpass Germany’s by 2045. From 65.5 million inhabitants in 2012, 25%
fewer than in Germany, the French population is expected to reach 73.7 million by
2060, i.e. 11% more people than in Germany. As for the German population, it is
expected to fall from 80 million to fewer than 66.4 million in 2060.
The main driver of this demographic dynamic is France’s higher birth rate. The ferti-
lity rate is higher than 2 in France but less than 1.4 in Germany. Since 2005, the French
population under age 15 has been larger than that observed in Germany. At the same
time, the number of people over age 65 is expected to be smaller over the next
50 years. Germany is ageing faster than France, and its population will inexorably
decline, unless there is a very large inflow of migrants, which seems unrealistic.
In recent publications, Cornilleau (2012) and Krugman (2013a, 2013b) have argued
that French population growth would be a positive factor for the country’s potential
production. Based on this criterion, France could become a European champion. The
idea of the French economy making a comeback clearly seems interesting, and worth
further discussion.
f
France – Germany: is there a demographic dividend?… but the country’s economic performance is lagging behind 
Germany…
Over the past decade, French demographic growth has not produced a dividend
in terms of economic growth. The German economy has, it is true, been in strangely
rude health: the unemployment rate is low, with high economic growth and sound
public finances. Over the period 2001-2012, a comparison of relative changes in the
various criteria used to measure the success of France versus Germany (labour market,
national income, public debt and competitiveness) show a clear advantage in favour
of Germany.
The labour market has not shown any signs of this French demographic dynamism.
Figure 2 traces the relative changes in total population, the labour force (labour
supply) and the employed population (demand for labour) in France compared to the
figures for Germany. Before 2004, there was stronger growth in the supply and
demand for labour in France. But since 2004, France’s performance has stagnated, and
there has even been a decline (relative) in the employed population in France
compared with Germany: the number of workers with a job in France represented
64.4% of the total employment in Germany in 2012, compared with 69.1% in 2004.
In 2012, the number of unemployed in France was 22.1% greater than in Germany,
while in 2001 there were 27.6% fewer. In France, demographic growth has up to now
been counted mostly in the number of the unemployed.
It could of course be argued that what matters is the “quality” of jobs, and in that
respect, Germany may not be doing as well as France, given the 8 million people in
precarious work there (“mini-jobs”). But it should also be noted that in Germany youth
training is based to a great extent on apprenticeships, which involves an early entry
Figure 1. Population : France’s relative performance
              As a % of Germany
Sources : Eurostat, author’s calculations.
60
80
100
120
140
160
1995 2005 2015 2025 2035 2045 2055
Age 15-64 
Total population
Under age 15
65 and over2 briefing paper no. 5 / 11 october 2013
Vincent Touzéonto the labour market, and precarious jobs. On the other hand, in France many
unemployed youth are unskilled. The demographic dividend depends more on what is
done with the young people than on their numbers.
France has paid a heavy price for the economic crisis. In 2012, unemployment
affected 9.9% of the work force, against 5.6% in Germany. In addition, individual
incentives to work seem to be weaker in France than in Germany, which is reflected in
a significantly lower activity rate, with 70.4% of the 15-64 age group in the labour
force, versus 77.2% in Germany. France’s potential future growth will depend on its
ability both to create additional jobs and to encourage participation in the workforce.
Over the period 2001-2012, the productivity level of French workers, as measured
by real GDP and purchasing power parities (PPP), has remained on average about 11%
higher than the level of German workers (Figure 3). This level remained stable
throughout this period. However, the way that GDP per capita has changed is rather
unique. Until 2005, GDP (PPP) per capita grew a little faster in France than in
Germany, and reached 99% of the German level in 2005 compared with 97.4%
in 2001. But the trend has reversed since 2005, and in 2012 per capita French output
was only 89.4% of the German level. These results are not surprising, because since
2004 employment has grown more slowly in France than in Germany, which does not
correspond with the levels of the total population. Using the criterion of per capita
GDP, France has prospered less than Germany.
The performance of French public finances has also not been very satisfactory. The
level of public debt per capita grew significantly faster in France than in Germany
(Figure 3). In 2001, France had a debt of 14,000 euros per capita, i.e. a level 7% lower
than that observed in Germany (15,100 euros per capita). In 2012, the positions were
Figure 2. Labour force: France’s relative performance
           As a % of Germany
Sources : Eurostat, OECD and author’s calculations.
50
90
130
60
65
70
75
80
2001 2003 2005 2007 2009 2011
Labour force
Unemployed (right scale)
Population
Total employmentbriefing paper no. 5 / 11 october 2013 3
France – Germany: is there a demographic dividend?reversed: 28,340 euros of French debt per capita versus 26,500 euros per German, i.e.
France’s level was 7% higher. While growth in the public debt exceeded population
growth in both countries, this phenomenon was more marked in France. However, it
should be noted that Germany saw its debt soar sharply in 2010 due to its financial
support of the banking sector (recapitalization, takeover of risky assets). Even so,
the trend has not reversed, as since then the French economy has been mired in
unemployment and deficit spending. The OECD forecasts a deficit of 4% in 2013 and
3.5% in 2014. Germany’s public finances are, on the other hand, en route to a
healthier state, with a deficit of 0.2% forecast for 2013 and a return to a balanced
budget in 2014. This means that the debt gap between France and Germany is
expected to widen.
Due to Germany’s better control over production costs, based both on a policy
of competitive wage deflation in a context of a relatively strong euro and on careful
decisions about maintaining its industrial fabric (massive recourse to part-time
unemployment at the height of the crisis, and only partial outsourcing of the
production chain), it has been the big winner over the last ten years in terms
of competitiveness. Since 2001, Germany has accumulated almost 60% of its GDP
in current account surpluses. By contrast, France has run a current account deficit
since 2004, which has resulted in an accumulated deficit of around 8% of GDP.
The French demographic advantage has, for the time being, clearly been difficult
to export.
Figure 3. Household income and public debt: France’s relative performance
              As a % of Germany
Note: In 2010, German public debt soared in the wake of the State’s support for the banking sector – this
was treated as public debt.
Sources : OECD, author’s calculations.
Public debt 
(in Maastricht terms) per capita
GDP per worker
85
90
95
100
105
110
115
2001 2003 2005 2007 2009 2011
GDP (PPP) per capita4 briefing paper no. 5 / 11 october 2013
Vincent Touzé… and a social situation that’s not all that great
Under Schroeder and then the Merkel governments, Germany embarked on a
number of structural reforms (of the labour market through the Hartz laws; of public
finances through the adoption of a “golden rule”) that were designed to revive the
economy after a period of flat-lining, followed by crisis. These reforms have had a
social cost. Inequality rose sharply in Germany (12.4% of the population below the
poverty line in 2001, 15.1% in 2011), but far less in France (13.4% in poverty in 2001,
14.3% in 2011). Over the period 2001-2004, the poverty rate actually declined in
France, and since 2002 it has been higher in Germany than in France (Figure 5). This
process of the singularization of France relative to Germany came to a halt in 2004,
and since then the trend has reversed: on average, inequality grew faster in France over
the period 2004-2011.
A recent study by the French Treasury (DG Trésor, 2012) comparing the social
security systems in France and Germany showed that, “France’s socio-fiscal system
provides better protection against the risk of poverty ... essentially because of the
system of tax levies and social security, since the poverty rates prior to social and fiscal
transfers are comparable” in the two countries.
The return of poverty in France should not be surprising, as unemployment is a
social “disintegrator”. And unfortunately, France stands out for its very high
unemployment rates compared to Germany. While the absence of a minimum wage in
Germany is undoubtedly fuelling wage inequality (in particular due to the turn to
underpaid “mini-jobs” that are not subject to social security contributions), it is also
true that the primary income of an unemployed worker is zero. Ultimately, high
unemployment can be catastrophic for inequality, as the long-term unemployed sink
into extreme poverty and social security systems prove incapable of providing massive
Figure 4. Cumulated current account balance since 2001
            % of GDP
Sources : OECD, author’s calculations.
-10
0
10
20
30
40
50
60
2001 2003 2005 2007 2009 2011 2013
Germany
Francebriefing paper no. 5 / 11 october 2013 5
France – Germany: is there a demographic dividend?long-term funding of this level of social dependence. If France wants to take advantage
of its demographic dynamism to reduce inequality, it is imperative that its labour
market becomes more effective in reducing unemployment.
Why such anomalies?
During the last decade, French demographic growth does not seem to have
brought the dividends expected. What should have been an advantage may have been
a handicap, as evidenced by the poor capacity of the labour market to take in the
country’s newly educated young graduates: 23.8% of the 15-24 age group are
unemployed in France, versus 8.1% in Germany, while 50.7% of young Germans are
already in the workforce, compared with 37.8% of young French.
Two points for analysis need to be considered: the Malthusian effect and structural
policies. 
First, it is important to keep in mind that population growth is usually accompanied
by a major deleterious side effect: the dilution of wealth (Malthusian effect). In a world
where resources are available only in finite quantities (scarcity and decreasing returns
to scale), the phenomenon of dilution translates into fewer resources per capita:
productive capital, job positions and income. We can also see the impact of this at the
level of public services and environmental goods in congestion and pollution. Up to
now, the German economy has undoubtedly benefited from the virtuous effects of
lower population growth: competition is attenuated on the labour market, which is
favourable to employment and wages; the number of households is decreasing, which
reduces pressure on the cost of housing; with fewer pupils per class, it is easier to
improve the quality of education; and so on. However, demographic decline is not a
Figure 5. Poverty rate (60% of the average wage): France’s relative performance
            As a % of Germany
Sources : INSEE for France; German statistical office (Destatis) and retropolation using IMK data before
2005 for Germany and author’s calculations.
80
90
100
110
120
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20116 briefing paper no. 5 / 11 october 2013
Vincent Touzésolution, as running an economy requires workers most of all, and population ageing
increases the ratio of inactive dependents to the workforce. And once labour producti-
vity is not rising at a sufficient level, this increase in dependency in turn fuels
impoverishment. Demographic growth then becomes a necessity.
Second, Germany has taken non-demographic measures by implementing
structural reforms. Since 2003, the Hartz laws have had three major objectives (Conseil
d’Analyse Economique, 2012): encouraging a return to employment; promoting the
demand for labour; and increasing the effectiveness of its employment services.
Encouraging a return to work was accompanied by tighter control on granting
unemployment benefits. In addition, a programme to support the creation of
individual start-ups was established. Temporary jobs have also been proposed for social
welfare recipients so as to maintain their employability. These are community service
jobs that are paid one to two euros per hour, in addition to the benefits. Temporary
bonuses for any return to employment or for starting a company were also established.
During the crisis, companies could easily turn to partial unemployment. This practice
greatly reduces hysteresis effects, because it helps to preserve jobs and to maintain
skills.
It is also necessary to distinguish between the long term and the medium term. In
the medium term, the German economy has been very successful. In the long term,
Germany will have fewer people than France, and an older population. The political
weight of Germany in Europe will also weaken. Germany cannot escape a decline in its
labour force, which will eventually be detrimental to its productive capacity and its
ability to finance public expenditure on behalf of its elderly population. Germany
could, it is true, rely on immigration to benefit from the demographics of its European
partners. Indeed, migration is possible and is being encouraged in Europe. The call for
young engineers and physicians from southern Europe issued by Germany’s national
employment agency in March 2013 was in this respect no mistake.
Germany’s arguments are rather persuasive:
— It has a state-of-the-art productive system that is attractive to skilled labour;
— Its unemployment rate is low;
— It is easy to find housing;
— The tax burden is relatively low: the rate of mandatory taxation is approximately
40% (46% in France), and its good control of public finances is a guarantee of fiscal
stability;
— The pension system is balanced and its future funding is not based on unlimited
hikes in contribution rates. In fact, in 2004 a law capped this rate at 22%, which gives
employees a guarantee. In France, the rate is already over 25% and it may increase
further in the years to come, which means there is no guarantee for the younger
generations entering the labour market.
In this context, it might be wise for Europe’s younger generations to learn German.
While English is a must in the field of finance, German could very well become the
language of engineering, and, more generally, of industry. This would be good news
for German language teachers, who for many years have suffered from a lack of
students. This is a demographic dividend that they might really appreciate....briefing paper no. 5 / 11 october 2013 7


France - Germany : Is there a demographic dividend?

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France - Germany : Is there a demographic dividend?

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