Demographic Change in Uruguay Demographic DIRECTIONS IN DEVELOPMENT Human Development Rofman, Amarante, and Apella Rofman, Amarante, Demographic Change in Uruguay Economic Opportunities and Challenges Rafael Rofman, Verónica Amarante, and Ignacio Apella, Editors Demographic Change in Uruguay DIRECTIONS IN DEVELOPMENT Human Development Demographic Change in Uruguay Economic Opportunities and Challenges Rafael Rofman, Verónica Amarante, and Ignacio Apella, Editors © 2016 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved 1 2 3 4 19 18 17 16 This work is a product of the staff of The World Bank with external contributions. The findings, interpreta- tions, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. 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Library of Congress Cataloging-in-Publication data Names: Rofman, Rafael, editor. | Amarante, Verónica, editor. | Apella, Ignacio, editor. Title: Demographic change in Uruguay : economic opportunities and challenges / edited by Rafael Rofman, Verónica Amarante, and Ignacio Apella. Description: Washington, DC : World Bank, [2016] Identifiers: LCCN 2016023082| ISBN 9781464808449 (pdf) | ISBN 9781464808456 Subjects: LCSH: Demographic transition—Uruguay. | Uruguay—Population. | Uruguay—Economic conditions. Classification: LCC HB3577 .D464 2016 | DDC 304.6/209895—dc23 LC record available at https://lccn.loc.gov/2016023082 Demographic Change in Uruguay • http://dx.doi.org/10.1596/978-1-4648-0844-9 Contents Foreword xvii Preface xix About the Editors xxi Abbreviations xxiii Chapter 1 Demographic Change and Social Policies in Uruguay 1 Rafael Rofman, Verónica Amarante, and Ignacio Apella Introduction 1 Uruguay’s Demography: 1950–2100 2 Income and Consumption Profiles and Their Impact on Social Spending 5 The Impacts on Macroeconomics: The Challenge of Productivity 20 Conclusions and Policy Challenges 25 Structure of the Book 26 Notes 26 Reference 26 Chapter 2 Current and Future Uruguayan Demographics 27 Juan José Calvo Introduction 27 Demographics: Past and Present 29 Projections under Different Scenarios 33 Dependency Ratios and the Demographic Dividend 36 Conclusions 38 Notes 39 References 39 Chapter 3 National Transfer Accounts 41 Marisa Bucheli and Sara Troiano Introduction 41 The Economic Life Cycle 43 Public Transfers by Age Group 54 Demographic Change in Uruguay • http://dx.doi.org/10.1596/978-1-4648-0844-9 v vi Contents The Effects of Demographic Change on the Support Ratio and the Public Accounts 58 Conclusions 70 Notes 72 References 72 Chapter 4 Social Protection in a Demographic Transition 75 Rafael Rofman and Ignacio Apella Introduction 75 Social Protection in Uruguay 76 Income Transfers and Poverty 81 Profile of Social Protection Beneficiaries in 2013 84 The Future of Social Protection 87 Conclusions 93 Notes 96 References 96 Chapter 5 Population Aging and Challenges for Health Care 99 Carlos Grau Introduction 99 A Brief Description of Uruguay’s Health Care System 99 Health Care Sector Expenditure and Financing 106 Health Care Spending Forecasts, 2013–2100 112 Conclusions 122 Notes 123 References 123 Chapter 6 Demographic Change and the Education System 125 Cecilia Llambí and Maren Vairo Introduction 125 Coverage and Completion 126 Education Spending 133 The Uruguayan Demographic Transition: Implications for Education Policy 145 Final Considerations 169 Notes 171 References 173 Chapter 7 Labor Market and Productivity 175 Verónica Amarante and Maira Colacce Introduction 175 Labor Participation and Productivity: Recent Evolution (1981–2013) 177 Demographic Change in Uruguay • http://dx.doi.org/10.1596/978-1-4648-0844-9 Contents vii What Can We Expect from the Evolution of Labor Force Participation? 191 The Effects of Changes in Worker Productivity 214 Final Comments 218 Annex 7A: Some Key Labor Indicators 220 Notes 221 References 223 Chapter 8 Demographic Transition in the International Context 225 Rafael Rofman and Ignacio Apella Introduction 225 The Demographic Transition and the Demographic Dividend 225 The Life-Cycle Deficit and Sustaining Consumption 229 The Generosity of Public Social Spending 240 Final Reflections 243 Notes 245 References 246 Chapter 9 Macroeconomic Effects of Demographic Change: Contributions from a Long-Term Perspective 249 Fernando Lorenzo and Gonzalo Zunino Introduction 249 Macroeconomic Impacts of Demographic Transition 250 Demographics and the Uruguayan Economy 251 The Demographic Transition and Economic Growth 252 Intergenerational Transfers and Consumption Patterns 267 Demographic Change and Fiscal Policy 268 Conclusions 272 Annex 9A: Marginal Propensity to Save and Income Level per Capita 274 Annex 9B: Forecasts of IRPF + IASS and IVA + IMESI as a Percentage of GDP 275 Notes 275 References 276 Chapter 10 Sources of Growth in a Context of Population Aging 279 Ignacio Apella Introduction 279 Aging and the Growth Dilemma 280 Sources of Productivity Growth 281 Conclusions 292 Notes 294 References 295 Demographic Change in Uruguay • http://dx.doi.org/10.1596/978-1-4648-0844-9 viii Contents Boxes 2.1 Alternative Demographic Forecasts 28 3.1 The National Transfer Accounts System Relevance to Public Policy in Uruguay 42 3.2 Estimating Consumption and Labor Income by Age 44 3.3 Estimating the Public Transfer Accounts 51 7.1 Entry and Retirement Ages in the Labor Market 194 Figures 1.1 Evolution of Fertility and Mortality in Uruguay, 1884–2100 3 1.2 Median Population Age, Uruguay and Selected Countries, 1950–2100 4 1.3 Dependency Ratios in Uruguay, 1950–2100 5 1.4 Per Capita Income, Consumption, and Deficit by Age, 2013 6 1.5 Aggregate Income, Consumption, and Deficit by Age, 2013 7 1.6 Life-Cycle Deficit in Uruguay and Selected Countries by Age as a Proportion of Average Income between Ages 30–49 8 1.7 Economic Support Ratio, 2010–2100 9 1.8 Relationship between Net Public Transfer per Capita to the Elderly and Children, Uruguay and Selected Countries, Various Years 10 1.9 Per Capita Consumption and Transfers in Social Sectors by Age, 2013 11 1.10 Consumption and Transfers in Social Sectors, 2013–2100 12 1.11 Per Capita Public Spending on Social Protection by Age and Program, 2013 14 1.12 Aggregate Public Spending on Social Protection by Age and Program, 2013 14 1.13 Education Enrollment by Simulation Scenario, 2013–2100 17 1.14 Education Expenditure by Simulation Scenario, 2013–2100 17 1.15 Total Projected Labor Market Participation Rates by Simulation Scenario, 2013–2100 20 1.16 Gross Savings