The impact of population ageing on the economic development of Ukraine
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According to United Nations population projections, the share of pensioners in the Ukrainian population will increase from 21% in 2005 to 37% in 2050. At the same time the share of the working age population (aged 20-59) will decline from 57% to 46%. This dissertation examines the impact that the changing age composition of the population of Ukraine will have on its economic development. There are three main contributions. First, an analysis of past demographic trends reveals that the current Ukrainian population structure is already “programmed” for population ageing and decline. Future demographic trends will only determine how quickly this will happen. Second, the changing age structure of the labour force will likely have an impact on the shape of the age-earnings profile. An econometric analysis of the Ukrainian Household Budget Survey reveals that, as in more developed market economies, the size of a cohort has a significant impact on the earnings of cohort members. The potential flattening of the age-earnings profile would disadvantage older workers belonging to larger cohorts. Third, a dynamic forward-looking Computable General Equilibrium (CGE) model is constructed to perform simulations of different demographic and labour market scenarios to investigate the impact of ageing on a wide range of macroeconomic variables. It is shown that, even under the most favourable scenario, changes in age structure will result in a significant negative impact on economy. Special attention is paid to the impact of ageing on the pension system. Three policy changes are modelled: an increase in pension age, an increase in pension contributions and a reduction in the replacement ratio. Individually these policy changes do not achieve sustainability, but combining an increase in pension age with higher effective pension contributions or a lower replacement ratio can bring stability to the system.