Spain’s Population: The Bigger the Better? Ways of Guessing the Future

Spain’s Population: The Bigger the Better? Ways of Guessing the Future

Theme: On March 16 the European Commission published a Green Paper on confronting demographic change. This analysis contrasts the findings of the Green Paper with the population data produced by Spain’s Instituto Nacional de Estadística. Its main purpose is to analyse the differences between the population forecasts of the two institutions. The result is then used to open a debate about defining an immigration target that is both acceptable to Spanish public opinion and that fulfils the country’s socio-economic immigration needs.

Summary: This analysis addresses Spain’s demographic developments of the coming 45 years. I set out to show that we are to a great extent ignorant about the future direction of the country’s demography. I contrast two demographic forecasts: one produced by EUROSTAT and the other by Spain’s Instituto Nacional de Estadística. The difference between the two institutions’ final estimates for Spain’s population in 2050 is a stunning 10 million people. While forecasts of this nature are typically imprecise, a difference of 10 million makes it almost impossible to engage in social planning, while leaving us largely ignorant about the need to address demographically-induced economic challenges, especially since the two institutions providing the data are the official sources for data on the European Union and Spain. To gain a more precise estimate about its future, Spain must start addressing its immigration needs in a far more explicit way. Most importantly, the country must start the painful process of reaching a decision about where it would like to be in terms of immigration in the future. Large scale immigration could be highly beneficial for economic growth, while it would reduce the demographic pressure building up in Spanish society. However, there is also a downside. How much immigration is Spanish public opinion likely to accept? I make a point in saying that the need for immigration might not coincide with the desire for immigration in the future. If this is the case, Spain might be facing a much more complicated demographic development than predicted by its national statistical agency. Hence, it is of paramount importance for Spain to increases its knowledge about how the immigration phenomenon operates and what future policies can help prevent a conflict between the need and the desire for immigration.

Analysis: In a recent Green Paper by the European Commission titled Confronting Demographic Change the European Union paints a bleak picture of the demographic challenges that Europe must confront. In the following analysis I focus on how the Green Paper applies to the situation in Spanish situation and I contrast these findings with national data from the Instituto Nacional de Estadística (INE).

The European Commission’s Green Paper concludes that EU member states will soon be unable to rely on demography to drive economic growth, and that ‘never in history has there been economic growth without population growth’ (pp 5 COM (2005) 94). The Green Paper states clearly that lack of population growth, and population decline when applicable, will speed up the ageing process. In turn, ageing, and the changes implied by the phenomenon, has been recognised as being able to provoke a potential slowdown of as much as 50% in average annual GNP growth. A country experiencing substantial stagnation and decline in the size of its population is at risk of economic slowdown as a result of ageing. It should be prepared to take on the challenge of generating economic growth in the absence of population growth, adjusting its economy and welfare system to a very rapidly ageing population and accommodating to socio-demographic changes whose consequences are if not incomprehensible at least very difficult to understand (see the Commission’s Green paper for an ample sample of implications and the OECD’s Economic survey for Spain 2004 for an account of the economic burden of some of the demographic changes in Spain).

With few exceptions, most member states will experience population decline between 2005 and 2050. Among the countries set to avoid population decline are the smaller states, such as Luxemburg, Ireland, Malta, Cyprus and Sweden. According to the Green Paper, of the six large member states only the UK and France will experience growth between 2005 and 2050 (8%-9%),although from around 2040 the size of the British and French populations are expected to contract.

As for Spain, the Green Paper concludes that the population will grow by 5.7% between 2005 and 2030, but that it will decline by 0.8% between 2005 and 2050. This would imply that Spain’s total population should peak at around 46 million in 2030, while it should subsequently start contracting to 43 million by 2050, which is slightly less than its population today. These estimates of Spain’s demographic future are based on the EUROSTAT 2004 projections as reported in NewCronos (EUROSTAT’s online data base). Hence, according to the data reported by EUROSTAT, Spain’s population is facing similar developments to most European states and as a result should prepare to confront a series of demographically induced economic challenges.

However, a comparison of the estimates stated in the Commission’s Green paper and the latest projections made by Spain’s INE adds a great deal of confusion regarding the future course of Spain’s population size. The INE’s projections indicate that Spain’s population should stand at 45.6 million already by 2010. By 2025 Spain’s population should be above the 50 million mark, and in 2050 the total population should be somewhere in the range of 53 million. In other words, the INE projects a population growth of more than 20 percentage points between now and 2050 (see Figure 1).

To some extent, comparing EUROSTAT’s forecasts with the INE’s is like trying to compare black with white. The difference in population growth between the Green Paper’s estimates and the INE’s is around 20 percentage points or, put differently, 10 million people. The magnitude of the difference provides plenty of reasons to be cautious when assessing the implications of the future population growth (or, rather, lack of growth) alleged in the Commission’s Green paper.

Given the enormous differences between the figures provided by EUROSTAT and those provided by the INE, there are also reasons to question whether there are similar differences in the population ageing forecasts of the two institutions.

The most straightforward way to assess population ageing is by estimating the share of people above a certain age interval over time. In this case, I focus on the group aged 65 and above, and how the share of this group in the total population changes over time. The result is shown in Figure 2.

As shown in Figure 2 there are some very appreciable differences in the way the two institutions estimate the level of ageing in Spain. EUROSTAT’s forecast implies that the share of people over 65 should increase by around 20 percentage points from its current level of 15 % to over 35 % by 2050. This forecast implies that Spain’s ageing process is significantly worse than the EU-25 average of around 30 % of the total population. In other words, EUROSTAT’s scenario places Spain among the EU countries with the most difficult outlook as regards ageing. If instead we focus on the INE’s forecast we find that Spain’s ageing process is practically in synch with the EU-25 average. It would even be possible to infer that for the coming 35-40 years Spain’s ageing process will be even more favourable than the EU average.

However, as shown in Figure 2, whether we like it or not, ageing is and will continue to be the most significant challenge to the Spanish welfare state. As shown by the figures based on the INE’s forecast, even if Spain’s population were to grow by 10 million between now and 2050, it could only hope to moderate the ageing process, not avoid it.

Still, there is a big difference between having a share of 35% and 30 % of the total population aged 65 and above. To appreciate the difference we can look at the dependency ratio, ie, the number of people aged over 65 over the number of people of active age (aged between 15 and 64). Today this ratio is approximately 1:4, ie, one person over 65 for every four persons between the ages of 15 and 64. According to EUROSTAT’s forecast this ratio should stand at 2:3 in 2050, while according to the INE’s the ratio should only be 1:2. In other words, the INE’s forecast predicts a reduction in the old age dependency ratio in the range of 75 % relative to the dependency ratio indicated by EUROSTAT’s forecast.

Finally, a third concern raised in the Commission’s Green Paper is the decline in Europe’s active population. In many ways the growth of the active population is synonymous with the concept of a demographic motor for economic growth. The more people that can potentially engage in economic activity in a country, the larger the country’s potential economic output. The size of the active population is also essential in providing for the growing share of the elderly among the general population, as shown in Figure 2. Not surprisingly, the Commission’s Green Paper paints a gloomy picture with respect to the development of the size of Europe’s active population. With the exception of Sweden, Luxemburg, Cyprus, Malta and Ireland, which should enjoy active population growth beyond 2035, all EU member states will experience, if they are not already doing so, a continuous decline in the size of their active populations from around 2010, Spain included.

Again, comparing the two institutions’ forecasts we obtain almost opposite conclusions (see Figure 3). If the INE’s figures are accurate Spain would, contrary to most of the other EU member states, record a relatively long run of continued growth in its potential labour force up until around 2030. Thereafter it would experience a decline, which in magnitude is much smaller than EUROSTAT’s prediction. The INE predicts a decline of 2.5 million from a peak in 2030 whereas EUROSTAT predicts a decline of close to 8 million people from a peak in 2010. Clearly, the INE’s predictions would make Spain the sixth member of the current group of five EU countries with a favourable outlook for the size of its labour force.

The far more optimistic figures regarding Spain’s future population size provided by the INE suggest that we reassess its risk profile as reported in the Commission’s Green Paper. According to the INE’s figures, and given its forecasted 20 % population growth, Spain is in a substantially better position regarding the development of its population than assumed by the Green Paper.

The INE’s figures suggest that Spain is a member of a very small group of privileged countries that will see relatively strong population growth beyond 2050. In fact, the population scenario provided by the INE suggests that Spain will enjoy the fastest relative and absolute population growth of all EU member states. Hence, Spain is likely to be in a significantly better position when it comes to cater for the economic challenges posed by a changing demographic landscape than, for instance, Germany, Greece, Portugal and Italy, whose demographic development has been typically compared with Spain’s (see p22 in COM (2005) 94). That is to say, the Commission’s Green Paper is substantially wrong in its assessment of some of Spain’s future demographic risks if instead of basing our analysis on EUROSTAT data we use the data provided by Spain’s INE.

However, before making such a bold statement, we should analyse why there are such large differences between the EUROSTAT and INE projections and determine which of the two forecasts are most credible.

Not surprisingly, the main explanation for the differences outlined above is how the two institutions estimate the size of future immigration when simulating Spain’s future population development and, to a lesser extent, the assessment of the average number of children that Spain’s potential mothers are likely to give birth to in the years to come:

  • EUROSTAT claims that Spain’s immigration should be in the range of 100,000 per year and that average fertility should be around 1.4 children.
  • The INE claims that future immigration into Spain are likely to number over a quarter of a million a year between now and 2050, and that average fertility should be around 1.52 children per mother.

Translated into real numbers this means that the INE expects that between now and 2050 Spain should receive approximately 14 million new immigrants and not the 6 million predicted by EUROSTAT (net-migration). Moreover, the difference in the magnitude of immigration at the same time justifies and explains the difference in the two institutions’ estimates of future fertility rates. Since non-EU Spanish immigrants normally have a higher fertility rate than Spanish women, it follows that the Spanish total fertility rate should approach the immigrant’s fertility rate as the share of immigrants in Spain’s population increases. Hence, immigration is a key factor in understanding the difference between EUROSTAT’s 42 million scenario for 2050 and the INE’s 53 million scenario for the same point in time.

Isolating the reasons for the differences between the institutions is, however, not sufficient to allow us to dismiss the Commission’s conclusions regarding Spain’s demographically related problems. We also have to asses the likelihood of the immigration scenario advocated by the INE.

Based on the inflow of new immigrants in past years, the number assessed by the INE is not unreasonable. On the contrary, it could even be argued that it is too low. In 2002, new immigration into Spain was close to 700,000 people. In 2003 it dipped to 370,000. New census data for 2004, making the first page in most of Spain’s newspapers on April 28, puts the number of new immigrants for 2004 at 650,000, while data for the first three months of 2005 (200,000 new immigrants) indicate that immigration in the current year should approach, if not exceed, the figure for 2004.

However, while immigration in the past few years is impressive in both relative and absolute terms (Spain receives more immigrants than any other EU country and more than a quarter of the total immigration into the EU), it is less clear if an intake of around a quarter of a million new immigrants per year is possible or, indeed, sustainable in the medium and long term.

In contrast to many other European countries Spain is relatively new to the immigration phenomenon, and the full social implications of large, or even very large, immigration has yet to materialise. Based on the experience of other European countries, as the share of immigrants grows there is an increasing risk that Spanish public opinion becomes less welcoming towards new immigrants in the future. Public opinion polls have shown a move in this direction. If it continues we could expect Spanish politicians sooner or later having to adjust their views to those of the electorate, with the possible response being more restrictive immigration policies than at present. The Netherlands is a case in point of a sweeping change in immigration policy in response to a changing public opinion. France, Denmark, Austria and Italy have experienced similar trends. Unless Spain is an exception, it is likely to become much more cautious on its level of immigration in the near future.

The question is: how much yearly immigration is the Spanish electorate willing to accept? With an immigration of 250,000 a year, by 2050 the immigrant population would account for around 28 % of the total population, compared with 8.4 % today (see the OECD’s Economic Survey for Spain 2004). If the intake is closer to that of the last five years, that is 400,000-600,000 per year, the future share would be much greater. Regardless of scenario, by European standards, an immigrant share of 28 % of the total population would imply that Spain could easily become the European country with the largest foreign population by 2050. While this is not an impossible development, the empirical evidence from other European Countries suggests that getting there is not without a political cost.

Another obstacle is the way in which the country deals with immigration and how it plans to deal with immigration in the future.

Currently, neither the immigration target assumed by the INE nor the target assumed by EUROSTAT are reflected in the legislative framework regulating Spanish immigration. That is, Spain lacks a political agreement as to the target size of its current and future immigration. Moreover, there are no unambiguous mechanisms in place to generate immigration of the size assumed by either of the two institutions.

Spain’s immigration has been almost exclusively the result of irregular immigration, with an overwhelming majority of Spain’s new immigrants being recognised as regular immigrants only after being in the country irregularly over a relatively long period of time (three to five years) through the so called arraigo procedure (see the Elcano Report on Immigration for a detailed discussion of this issue).

The new regulations adopted by the current government have made provision to shorten the time necessary to become eligible for applying for work and residence permits through the procedure of arraigo to one year. Still, shortening the length of time for arraigo is hardly the same as putting in place a mechanism for legal immigration and formulating an immigration target.

The law in force since 2000 and the new regulations (2005) are largely silent on how to immigrate legally into Spain and how many immigrants Spain will accept on a yearly basis. The mechanism for regular immigration currently embodied in the law has in the past never been able to generate immigration at the level suggested by the INE (in the past few years, legal immigration, which essentially consists of a system of contracting labour in the country of origin, has made up around 1%-2 % of the new ‘irregular’ immigration each year, or around 10,000 to 30,000 people depending one’s definition of the term).

This means that the Spanish approach to immigration in recent years has been passive rather than active, making it almost impossible to control how many or what immigrants enter Spain in any given year. A passive approach means that managing the size of the contingent is haphazard. For example, the recent upswing in Latin American immigration can easily be associated with economic factors in the countries of origin as well as with the opportunity structure (ie, changes in EU visa regulations, etc). A reversal in economic conditions in Latin America could easily influence the desire to emigrate and it is not unlikely that many of those already here might consider returning. Similarly, if economic development in Spain turns sour it can be expected that potential immigrants will prefer a different destination than Spain.

Political action concerning domestic laws could also alter the size of future immigration. For example, through the Ministry of Labour and Social Affairs the government has set out to combat irregular immigration by means of tighter domestic controls of illegal contractual procedures. Should these measures be 100 % effective, there could be a significant drop in immigration since it would effectively shut out irregular immigrants from the illegal labour market and thereby significantly reduce the incentive to immigrate irregularly. Thus, if the measures are not accompanied by the simultaneous introduction of means for legal immigration of a magnitude comparable with the INE’s immigration assumption, Spain’s future population size would be far distant from the 53 million projected by the INE.

In sum, immigration as managed so far in Spain implies that it is a highly volatile phenomenon and there are many factors that have to coincide to be able to count on a sustained level of immigration in the range of the INE’s forecast, or even the levels assumed by EUROSTAT. In the absence of clear directives about future immigration targets any estimates concerning future immigration are reduced to mere guesswork. The fact that both the INE and EUROSTAT make assumptions about immigration with no real political foundation, and that immigration alone explains the lion’s share of future population growth, implies that we are to a large extent in the dark regarding Spain’s future population size.

Hence, the only thing we know with certitude is that the size of Spain’s native-born population is set to decline from about 2010, with a substantial restructuring of the population’s age structure, and that any deviation from this trend can only be achieved by means of immigration (see Figures 4 and 5).

This means that Spain’s ‘demographic engine’ is conditional on future immigration. This is both good and bad news. Good in the sense that immigration can be controlled by political intervention; bad in the sense that it requires difficult and sensitive political debate and decisions regarding the size and nature of the desired immigration in the future.

Concluding Discussion

This is not the place to identify the ‘magical’ level of Spain’s future immigration, nor is the author in a position to do this by himself. Arriving at an estimation concerning future immigration levels is far too complicated and depends on a wide range of factors that require expertise on both social and economic processes. The purpose here is merely to point out that perhaps the time is ripe to initiate a serious discussion about where Spain wants to be in terms of immigration in 2050.

I have shown in some detail that in addressing immigration, Spain is at the same time addressing its demographic future. Put differently, by addressing immigration in an optimal way Spain could offset some of the problems associated with the poor demographic outlook it faces if the ‘no immigration’ scenario shown in Figure 4 materialises. This means that Spain has an important question to answer: how large should Spain’s immigration be between now and 2050? Furthermore, in asking this question the country simultaneously addresses the question about how large Spain’s demographically-related problems should be in 2050.

The decision about future immigration is not only likely to be influential in offsetting demographically-related problems. The future size of the population is likely to influence the country’s geo-strategic and economic outlook. A population increase in the range of the one forecasted by the INE, over a period of time when the population in many other European countries is contracting, would imply that Spain will be approaching the larger countries in terms of population size over the coming decades. Obviously this would introduce some changes in regard to power distribution in the EU, since power in Europe is to a large extent contingent on population size.

The same is true for economic power. If Spain is able to absorb yearly immigration at the level suggested by the INE without a drop in current GDP per capita it would not only strengthen its position as one of the world’s 10 biggest economies, but it could very well improve its current ranking (8th-9th). Although the emerging markets in the Far East and Latin America could still challenge Spanish membership of this exclusive club of economic actors, its economic outlook would be greatly improved by a population increase of the magnitude predicted by the INE, particularly if we consider the worrying population outlook for Italy and Germany.

If, instead, we base our assumptions on the Green Paper’s forecast we find that Spain is likely to experience stagnation in its population growth and that it will be approximately as populous in 2050 as it is today. Most likely such a scenario would cause a fall in Spain’s rank in terms of the size of its economy. Neither can we rule out that Spain’s influence in the EU could weaken relative to France and the UK, which according to the same forecasts are set to grow by 7%-8 % over the same period.

In Figures 6 and 7 below I show the difference in Spain’s relative share of Europe’s population (EU-25) under the two scenarios. If we accept immigration at levels suggested by the INE’s projections, Spain would pass from a relative share of 9 % to 12 % of the EU-25’s population. Furthermore, Spain would surpass Italy in terms of population size, making it the fourth largest EU-25 country by 2050. In addition, the country’s relative size difference vis-à-vis Germany, France and the UK would be significantly smaller than under the immigration assumption made by EUROSTAT. Obviously, the changes in size relationships implied by the INE’s forecast have far reaching political consequences as the country would no longer be considered a runner up in the exclusive club of large EU countries. For example, comparing Spain with Poland would no longer be possible. A more likely scenario is that Spain would aspire to equal treatment in terms of power as France and the UK, and demand equal treatment or better than Italy, if the forecasted scenario turns out to be reasonably accurate.

How then should Spain’s decision makers approach immigration in the future? If we start from the situation today it is evident that current policies are poorly adapted to ensure a continuous inflow of immigrants, regardless of whether the goal is to provide a more modest rate of immigration, as assumed in the Commission’s Green Paper, or if the goal is to provide more a substantial immigration, as assumed by the INE.

If the objective is to ensure immigration of the magnitude projected by the INE it would be sensible to revise current immigration policies in such a way that they could effectively generate legal immigration in the range of 250,000 people a year. Most importantly, the policies should consider that while the demand for immigration today seems to be unproblematic, this could change abruptly in the future. Spain’s future immigration policies have to be proactive so that Spain can attract immigrants also at times of low demand for immigration to Spain. The latter is particularly important if the objective is to gain immigrants with a varied skill profile, which is a necessary condition if Spain is to enjoy the full benefit of having a large immigrant population and to successfully counteract the most negative effects of the demographic transition. This implies formulating an explicit political ‘regular’ yearly immigration target and mechanisms that can generate the desired levels.

But even if such a target and the methodology for generating it materialize, it is still unsure whether Spain’s political authorities are willing to formulate a target that coincides with the size assumption made by the INE or even the lower number assumed by EUROSTAT. The equation is more complicated than that.

It is easy to say that immigration at the level assumed by the INE would be an excellent tool for reducing many of the demographically-induced problems that Spain would face in the absence of immigration. Furthermore, immigration levels close to those assumed by the INE would place Spain in the pole position in the race for economic growth in the coming three or four decades. But immigration should not be confused with natural population growth. Immigration is and will always be a source of social conflict that sooner or later will entail political costs.

The optimal level of immigration is not a numbers game by which we seek to maximise the economic benefits generated by the phenomenon, nor is it a unproblematic tool to smooth out unprecedented demographic changes. The optimal level of immigration is more likely to be associated with what Spanish public opinion and the electorate perceive as an acceptable immigration target. This target can, but not necessarily does, coincide with the economic need for immigration and the need to reduce demographic problems.

There are reasons to be cautious about the future size of immigration. For example, the magnitude of immigration used by INE implies moving from an immigrant share of around 8 % to 28 % of the total population in a relatively short period of 45 years. This is no doubt a challenge. It requires the capacity for economic growth and the logistical capacity to absorb the immigrant population, as well as the capacity of acceptance by Spain’s population. To accomplish this Spanish society has to accept that it has to generate much more information and knowledge about the development of the immigration phenomenon. Failing to integrate the immigrant community will sooner or later deprive the authorities and Spanish society of the benefits of immigration, reduce the size of its immigration and expose the country to the full forces of the demographic changes that immigration is partly counteracting.

To put the numbers in perspective, with the exception of Luxemburg and Switzerland, at present no European country comes close to an immigrant share of over 25 % of the total population. Other OECD countries with large immigration in the past have shares of around 10%-12 % (OECD Trends in International Migration 2004). Many of the countries with an immigrant share of around 10%-12 % (the Netherlands, Austria and France) have had a fair degree of social conflict as a result of what public opinion considers their excessively immigration in the past. The question is: is Spain different and can it absorb immigration more effectively than its European colleagues? If the answer is no, the result would be a lower net migration than that assumed by the INE and, as a result, slower population growth.

Which of the two scenarios is most likely will depend on how this government and others in the future approach and solve Spain’s immigration needs. However, neither EUROSTAT nor the INE have provided credible predictions for the future. In the absence of a political agreement on the future size of immigration, reality has outstripped both EUROSTAT and the INE, with their population predictions for 2004 falling short by 1.5 million and 1 million respectively. Considering that 2004 is the base year in EUROSTAT’s prediction and only the third year in the INE’s 65-year forecast we should not jump to conclusions about how large Spain’s population is likely to be until we know more about where the country would like to be as regards immigration in 2050.