2000/3 HIGHLIGHTS IN THIS ISSUE STARTER Casper van Ewijk: When I get older … 3 ECONOMIC OUTLOOK The world economy 5 The Dutch economy 7 The government budget 12 ARTICLES Ageing 18 Pension market 24 Equilibrium Labour Income Share 28 Consumer magazines 33 Why different pay practices? 38 REPORT NOTES Ageing and vested interests 44 Taxation of large energy users 47 Sickness funds 51 FORUM Tackling the journal crisis 56 ACTIVITIES Seminar series 58 RECENT PUBLICATIONS 61 Ageing ECONOMIC INDICATORS 63 ELIS Consumer magazines CPB NETHERLANDS BUREAU FOR ECONOMIC POLICY ANALYSIS QUARTERLY REVIEW OF CPB NETHERLANDS BUREAU FOR SDU PUBLISHERS THE HAGUE, THE NETHERLANDS ECONOMIC POLICY ANALYSIS CPB REPORT ABOUT CPB Quarterly Review of CPB Netherlands Bureau CPB Netherlands Bureau for Economic Policy Analysis for Economic Policy Analysis was established in 1945 by the Dutch government. The Bureau’s mission is to undertake independent forecasts CPB REPORT and analyses that are up-to-date, scientifically sound reviews each quarter the most recent forecasts of CPB and relevant for policymaking – for the government, Netherlands Bureau for Economic Policy Analysis. In parliament, and other interested parties including addition, the Report highlights completed, current, and political parties and industry. future research at the Bureau, reports on its workshops, and previews upcoming seminars. The sections on recent economic developments are EDITORIAL TEAM prepared by CPB staff. Two referees (one member of the Casper van Ewijk (editor in chief) CPB staff and one non-CPB specialist) evaluate the arti- Peter Broer cles in the recent research section. The editorial team Erik Canton bears responsibility for the decision to publish an arti- Jan Donders cle. CPB welcomes responses to the articles contained Alex Hoen in CPB Report. 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Printed by Sdu Grafisch Bedrijf bv The publisher retains the sole right to collect from third parties fees Design by JB Editing & DTP payable in respect of copying and/or take legal or other action for this purpose. 2000/3 C PPREPORTBB STARTERS FORUM When I get older … 3 Tackling the journal crisis - a commentary 56 Casper van Ewijk John Mackenzie Owen – In reply 56 Maarten Cornet and Ben Vollaard ECONOMIC OUTLOOK The world economy 5 The Dutch economy 7 ACTIVITIES The government budget 12 Seminar series 58 ARTICLES RECENT PUBLICATIONS Ageing in the Netherlands: a manageable Research memoranda 61 problem 18 Working papers 61 Harry ter Rele, Ed Westerhout, Martijn van de Ven, Special publications 62 Barthold Kuipers and Casper van Ewijk Publications about forecasting activities 62 Transparency of the Dutch pension market 24 Eric de Laat ELIS: Equilibrium Labour Income Share 28 ECONOMIC INDICATORS Nick Draper and Frederik Huizinga Basic statistics of the Netherlands 63 Pricing in interrelated markets: the Dutch Appendices 64 market for consumer magazines 33 Jacco Hakfoort and Jürgen Weigand Appendices: Explanation 68 Why different pay practices? 38 Hans Stegeman NOTES Vested interests, ageing and growth 44 Richard Nahuis, Erik Canton and Henri de Groot Regulatory taxation of large energy users reconsidered 47 Hein Mannaerts Reimbursement systems in Dutch sickness funds 51 Rudy Douven and Ed Westerhout C PPREPORTBB STARTERS 00/3 When I get older … My doctor recently expressed some concern about my old age. No, thankfully not on the medical side, as I am in rea- sonably good health. She is worried more about the economic aspects of my old age. She is convinced that there will not be enough people to take care of all the elderly once I join their ranks (many years from now). No money in the coffers to pay for the pensions, and health care – definitely beyond affordable. Instead of enjoying a nice pension, my generation will have to go on working nine to five, even when old and tired (and losing our hair). This is not the average economist’s story on ageing, however. Nor is it the story told in the recent CPB study on ageing in the Netherlands, a summary of which is included in this issue of CPB Report. Yes, we have some problems to 3 face, and yes, ageing will put an extra burden on the government budget, and yes, adequate and timely policy adjust- ments are necessary. But such gloomy scenarios? Unnecessary. I have tried to ease my mind (and my doctor’s) by doing some simple mathematics. First, how strong, really, is the ageing trend? The number of elderly persons will almost double between now and 2040. Whereas there are presently 4.5 young people (aged 20 to 64) for each older person (65 and older), this number will drop to only 2.5 by 2040. For each pensioner there will then be almost half as many people in the labour force than at present. A dramatic change! Will these 2.5 persons be able to take care of all the work and to pay the taxes needed to finance all the pensions and health care demands? These numbers are worrying, indeed – even if one takes into account that a greater percentage of these people will work than ever before. Due to rising labour participation (especially of women) these 2.5 people will be as effective as 2.7 persons in 2000. It helps, but very little. Will there be enough doctors, nurses, and other workers available in the health care sector? Taking account of the rising share of health care, from 7% of the government budget at present, to over 10% after 2040 (when I am expected to need doctors most), a rough calculation shows that about 30% more doctors are needed in 2020, and almost 60% more in 2040. These are substantial increases. I hope policymakers will anticipate to these changes in time. Now the key question: will the government (i.e. the taxpayers) be able to pay these doctors, as Casper van Ewijk is deputy direc- well as the other costs due to ageing? At this point, an economist can make some reassuring calcu- tor of CPB and editor-in-chief of lations. First, extrapolating present productivity growth indicates that the future young generations CPB Report in 2040 may be twice as rich as we are now. This should be good enough, but only if the pensions and the quality of health care remain at their present levels. Unfortunately, that is not what we expect – and would actually like – to happen. The government should therefore do more, and take care that it saves enough to be able to pay for the costs of age- ing in the future. If public debt in the Netherlands would be reduced to about zero in 2040, this would reduce interest payments to such an extent that we could pay for the extra burden of ageing without having to increase the tax burden for future generations at all. This seems like a large reduction, but we still have some time to go. As it’s taken us only ten years to build up debt from 40% to 80% – between 1975 to 1985 –, we should also be able to reduce the present level of 54% to zero in 40 years. It will require strong budgetary discipline, aiming at a prolonged surplus in the government budget. This result seems somehow reassuring. I hope that these calculations take away my doctor’s worries. ......will you still need me, will you still feed me, when I’m sixty-four? Casper van Ewijk The cut-off date used in the compilation of the projec- tions in ECONOMIC OUTLOOK was early September. C PPREPORTBB ECONOMIC OUTLOOK 00/3 The world economy* ... but pulls back in 2001 as the US slows down The forecasted slowdown of world economic growth to 41/2% in 2001 is mainly due to the deceleration of the US Abstract economy.