Grey future ahead for ageing Scots; Economist warns jobs market will

0 Comments | Sunday Herald, The, Jul 7, 2002 | by Douglas Fraser

The shortage of younger people in Scotland ought to be good news for the older worker - but it doesn't turn out that way.

The jobs market will become an increasingly hostile place for the older worker, warns one of the country's leading economists, with falling wage rates relative to the young, while the average tax bill is set to soar.

It is not a problem for the elderly today, however, those who should start to worry were born from the 1960s onwards, the same people who are being told they ought also to be tearing their receding hair out about the dire state of pensions.

This continues a week of particularly bleak news for the Scottish economy, which has seen major Silicon Glen job losses from Compaq in Renfrewshire, sharp falls and continuing uncertainty in stock markets worldwide and a gloomiest ever long-term assessment of the Scottish economy that has Scotland falling behind the rest of the UK with stagnant growth.

Yesterday, news broke that Tality, the Californian next- generation microchip designer that was hailed as the bright new value- added future for Silicon Glen, faces a claw-back of subsidy because it failed to reach expectations on promised jobs. At Project Alba in Livingston, it was supposed to create 1800 jobs, mainly for graduates. But there are only 250 workers on site for the company, a subsidiary of Cadence. Some redundancies are expected, and Scottish Enterprise is reported to be seeking the return of part of its (pounds) 25m support funding.

The SNP has picked up on the theme this weekend, with a challenge from economics spokesman Andrew Wilson to the enterprise minister Iain Gray to have a public debate on what can be done to turn around Scotland's growth rate.

Wilson has been spearheading a nationalist drive to persuade business that fiscal and economic autonomy for the Scottish government is essential to growth. Wilson says the state of the economy is so urgent, the debate should take place without waiting for the return of parliament in September.

Neither side of the nationalist divide can take any comfort from the new assessment of Scotland's demographic woes from Professor Robert Wright, an economist at the Fraser of Allander Institute at Strathclyde University. Apart from Italy, Scotland is the only country in Europe to have a falling population.

Wright's analysis takes the government's own figures which assume the share of Scots aged over 65 will double from the current 15% level to nearly 30% by 2040, requiring more healthcare, social work, pensions and specialist housing.

Those still working will be a shrinking proportion of the population, as well as shrinking in numbers. And they will have to fund an increasing burden of tax to pay for the old. At present, there are three people of working age for every pensioner.

In 2040, it is reckoned there will be 1.6 working-age Scots supporting each pensioner.

"There is a growing consensus that the Scottish government will not have the financial resources available to accommodate the pressure of population ageing," says Wright. His argument goes on to point out that a successful, efficient, competitive economy relies on the right mix of workers from different age groups. But if there is an imbalance of older workers relative to younger workers (a rough dividing line being the age of 35) productivity will suffer, leading to lower economic growth.

"Population ageing has a clear effect on the wages and unemployment rates of young and older workers," he says. "If current demographic trends continue, which seem likely, the Scottish labour market will become an increasingly hostile place for older workers. Their wage rates relative to younger workers will decline and their unemployment rates relative to younger workers will increase."

But as fertility rates have fallen in Scotland every year since 1960, it would now require Scotswomen to start having 40% more children just to hold the native population steady.

Wright says the problem is so great that even child-friendly government policies, such as bigger child allowances and free daycare, would not make a big enough difference. "It appears that there is little the government can do to stop it," concludes the professor, in an article written for the periodical Scottish Affairs.

The increase in tax to pay for the ageing population is impossible to calculate, he says. But if there are to be massive tax rises to pay for services to a greying electorate, the country needs to understand the scale of the problem soon.

The beginning last Monday of the taxpayer providing free personal care to all Scotland's elderly is seen as potentially ruinous for public finances when the numbers of elderly continue to rise.

It was also economists at the Fraser of Allander Institute whose forecast for the economy last week showed economic growth to be struggling under 1%, largely because of the troubles of the manufacturing sector, with growth expected to remain below both the UK and Scotland's historically low rates.