Impact of an ageing population on Jersey’s economy

R.182-2021

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Contents

Contents  3 Executive Summary  4 Introduction  7

1. Demographic trends in Jersey 10

1. Historical trends: an ageing society 10
   2. Looking ahead: Population change projections 13

2. Impact of ageing on the labour force 16

1. Labour force participation 16
2. Employment levels 20
3. Future labour force 24

3. Sectoral impacts: supply and demand views 30

1. Sectoral context in Jersey 30
2. Effect of ageing workforces by sector 32
3. Age consumption patterns, sectoral growth and feedback employment effects. 35
4. Skills and automation by sector 41

4. Impact of ageing on the wider economy 45

1. Productivity and economic Growth 45
2. Fiscal impacts 49

5. Policy directions 57

1. Retirement and pensions policy 58
2. Employment policy 61
3. Skills and lifelong learning 64
4. Promoting healthy (and inclusive) ageing 69

6. Conclusions and implications for Jersey's Future Economy Programme 72

1. Links with FEP's cornerstones 72
2. Future areas of work in the area of population 73

Executive Summary  

The Government of Jersey's Future Economy Programme (FEP) seeks to shape the long-term future direction of the economy of Jersey, with a focus on productivity and skills.

In June 2020, the Government of Jersey (GoJ), via the Economy Department, appointed PwC as their strategic partner in delivering the FEP. Several cross-cutting policy development areas have been identified as a priority to shape the long-term economic success of Jersey. One such area is population. The size, age and skills profile of Jersey's population will shape how the economy evolves over the coming decades.

This report was jointly commissioned by the Economy Department and the Department for Strategic Policy, Performance and Planning. The goal is to study the macroeconomic and sectoral effects in Jersey of an ageing population to inform policy. The report focuses largely on the evidence. Although policy recommendations are beyond the scope of this study, broad policy directions are offered. Below are some key findings:

The make-up of the Jersey population has grown significantly older over the past century. The share of islanders aged 65 and above has increased from 8% in 1891, to 12% in 1951 and 17% by 2021. More broadly, all age groups over 40 have seen double digit growth over the past 3 decades - while the number of people aged 20-29 has seen a fall of over a fifth. This has coincided with an increasing number of islanders pursuing higher education overseas. People aged 50-59 now represent the largest age group, whereas it was those between the ages of 20 and 29 in 1991.

The ageing of Jersey's society is expected to accelerate in the future. The fertility rate has moved below the replacement rate of 2.1 children per-woman while life expectancy has increased. The fertility rate is a fifth lower in Jersey than in the UK, having trended downward for the past 3 decades from 12.5 children per 1,000 population in 1993 to 8.8 in 2018. With net-700 migration per-year, the share of people aged 65+ is expected to account for over a quarter of the population by 2050.

As a result of this demographic change, Jersey faces an increasing old-age dependency challenge, be it to a slightly lesser extent than the UK. Between 2010 and 2019 the old-age dependency ratio has increased from 21% to almost 26%. This means that for every 4 people of working age (15-64) there is 1 person over 65. The old-age dependency ratio is expected to reach over 40% by 2050.

Jersey's population ageing tends to reduce the size of its labour force. In line with international evidence, local analysis finds that as islanders grow older, the average number of hours worked, salary earned and labour force participation decline. Therefore, as increasingly more people enter older age groups, overall labour force participation (i.e. the % of people in employment or seeking work) declines in the economy.

Population projections indicate that positive inward migration will be needed to grow Jersey's workforce and to slow the increase in the old-age dependency ratio. Population growth is now largely driven by net-migration, accounting for approximately 80% of population growth between 2001 and 2019. If Jersey adopted a policy of net-nil migration, the workforce would shrink by a fifth and the dependency ratio would increase to 57% by 2070. Alternatively, with +325 migration a year, the workforce would largely be the same size in 2070 as in 2021, but the old-age dependency ratio would still grow from 26% to 51%. With higher net- migration of 1500+ per-year, the workforce would steadily grow and the dependency ratio would reach 38% by 2070.

Population projections by age under different migration scenarios, 2050[1]  

Source: Statistics Jersey - Population Projections report 2016 (here); PwC Analysis

Increasing labour force participation, particularly of older workers, is crucial to maintain a workforce that meets the needs of the economy and to reduce reliance on migrant labour. The scale of inward migration needed to maintain the workforce size will partly depend on changes to the labour force participation rate. Under a net-migration scenario of 700+ per-year, the difference between high and low participation rate scenarios could equate to over 12,500 workers by 2050. In GVA terms, the projected difference by 2050 between low and high participation rates could be worth more than one billion (£) per-year.

An ageing population will impact some sectors' workforces more than others. Currently, both financial services and hospitality have a relatively young workforce with fewer than 13% of employees aged over 55 - however both sectors have a poor record of retaining older workers. Inversely, in the transport, storage and communications sector, over 27% of employees are 55 and above. The demographic imbalances between sector' workforces are likely to cause severe labour shortages as some grapple with issues of employee succession planning, while others with employee retention.

The type of employment activity created in Jersey will play a part in determining the island's capacity to retain and retrain older workers. As a knowledge-based service economy, Jersey is arguably better positioned to retain an older workforce compared to economies concentrated on manual labour.

Technological progress can be the vehicle to mitigate the adverse effects of ageing. Capital-intensive industries can offset a shortage of labour by investing in automating technologies i.e. industries with high levels of capital investment per-worker. Labour shortages are likely to be accentuated in sectors that are more labour-intensive and less susceptible to automation, for example in healthcare and education.

Jersey's sectoral economic activity will be driven by how older people consume and spend. Spending by those aged 55 and above is expected to constitute 50% of total spending by 2050. Input-Output estimates show that by 2050 those aged 65+ will support a net-additional 2,313 jobs and

£156.5 million in GVA compared with 2020. Whereas the net-additional spending by islanders under 65 will support 1,653 new jobs and generate a GVA of £131 million. Hospitality, health care, and retail and wholesale are sectors expected to benefit from increased consumption (including in terms of job creation).

Changing aggregate expenditure across sectors can slow economic growth. Though older consumers will be more numerous and thus take a larger share of aggregate expenditure, the lower per-capita spending of those aged 65+, compounded by a concentration of spending in lower productivity sectors (e.g. health care), means that an ageing population can slow overall productivity in Jersey's economy. Furthermore, these trends can exacerbate existing skills shortages in those sectors.

On the fiscal side, a potential drop in the tax base combined with increasing government expenditure can put pressure on fiscal sustainability.  The current health care expenditure, for instance, is likely unsustainable in the future. Under the net 700+ migration scenario, the number of people aged over 65 is expected to increase by 14,193 by 2050. Assuming a constant per capita health spend over the next 30 years, a further £60.4m in spending will be needed to cover the healthcare needs for those aged 65 and above, creating pressure to increase tax rates to keep the budget balance in order.

Policies are needed to facilitate more participation of society in the workforce. The report identifies four policy areas to achieve this: (i) retirement and pension policy; (ii) employment support policy; (iii) skills and lifelong learning policy; (iv) healthy ageing policy. The first policy area is of lower priority for Jersey since the rules of pension systems do not seem to discourage work by older workers. The other three areas are interrelated and they can jointly promote employability and skills of older workers and help achieve better labour market inclusion not only of older workers but more generally of women, youth and migrants.  

Introduction  

With life expectancy increasing and fertility declining, the number of people aged 55 and above in OECD countries is projected to grow by almost 50% between 2015 and 2050 - to around 538 million.[2] Whereas higher life expectancy is good news, an ageing population can put significant financial pressure on health, social care and pension systems when it is accompanied by a higher old age dependency ratio.

Figure 1: Share of the elderly in global population  

Source: OECD (2019), Fiscal Challenges and Inclusive Growth in Ageing Societies, OECD Economic Policy Paper No. 27, September 2019.  

The impact of an ageing (and sometimes shrinking) population is already visible in many advanced economies[3] - everything from economic and financial performance to the shape of cities and public policy priorities. In Jersey, the combination of an ageing workforce, a tight labour market, restrictive migration policies, and a growing skills gap - all within a small island economy - will likely have a significant impact on output and productivity.

As a population grows older, its tastes and behaviours are reshaped which in turn affects how people spend money, time and resources. These changes in consumption will help to mould how Jersey's economy develops over the coming decades. There is substantial literature on the impacts of demographics and ageing on different countries: it tends to lower labour-force participation and savings rates, and may slow economic growth.[4] Yet, how far such evidence applies to Jersey depends on the island's specific geographical, economic and social contexts.

Objective of study  

This study has been commissioned as part of the Government of Jersey Future Economy Programme (FEP). The FEP has the overall aim of delivering a framework for a sustainable, vibrant and inclusive economy and skilled local workforce for Jersey's future. The FEP has identified several cross-cutting priority policy areas where work to understand the synergies and trade-offs is key to building Jersey's Economic Framework. Jersey's population demographics is one such priority area.

Within that context, the objective of this report is to provide insight into the expected impact of population ageing on Jersey's current and future economic performance, with a particular focus on workforce and employment effects.

The report explores impacts on: (i) Labour force and employment; (ii) Productivity and growth; (iii) Public finances and the long-term solvency of public pension, health care, and long-term care systems.

The overall employment and productivity effects are driven by how different sectors of economic activity are likely to grow into the future as a result of having a larger portion of older consumers, and by how prepared businesses in those sectors are to adapt to an ageing workforce - in terms of having access to the skills and technologies they need. The sectoral distribution of older workers will influence productivity and, in turn, economic growth, which ultimately determines the severity of the fiscal implications of an ageing population.

With an ageing workforce, access to workers can become scarcer. One peculiarity of Jersey is that the growth and evolution of population, and in turn of the labour force, will be shaped significantly by the inward migration of British and other workers.

The following study presents alternative labour force projections and provides policy directions in key areas, taking into account the sectoral trends in Jersey as well as evidence of policies that have worked in other countries. Beyond the relevance of migration (and related policies), the government can utilise a number of policy levers to increase the participation and productivity of older workers. Relevant policy areas include pensions and social security, labour markets, education, lifelong learning and technology utilization.

In the context of increasing old-age dependency ratios, government action normally seeks to increase workforce participation, flexible retirement and skills. However, policy directions should look beyond the traditional "old-age" policies. Although it is true that older people are more likely to be inactive and claim social benefits, technological developments may already be changing the equation. There is emerging international evidence that older people, who are living longer and healthier (thanks to medical innovations) are embracing technology to engage in additional work, thus contributing to the economy even if some receive a pension. Meanwhile, some younger people can be hurt by technological developments (e.g. automation) if they are not properly equipped with the right skills. The future of Jersey's prosperity depends on preparing everyone in society, inclusively, for the demands of the future economy.  

Report structure  

Section 1 gives an overview of historical demographic trends in Jersey, explains the drivers and provides demographic projections under population growth (and migration) scenarios.

Section 2 explores what the changing age structure of the population means for participation in the labour market (today and in the future), for employment and for labour productivity.

Section 3 looks in more detail at employment effects by sectors of economic activity and at potential labour / skills shortages due to retiring workforces. It also looks at the demand side' by analysing sectoral activity growth into the future - and what this means for the structural change of Jersey's economy.

Section 4 steps back and analyses what these transformations mean for the wider economy, in terms of GDP, economic growth and fiscal implications.

Section 5 provides policy directions by leveraging what we know of ageing policy' from other countries and analysing their relevance in Jersey's context and potential outcomes.

Section 6 concludes with a commentary on how the findings of this research inform the development of Jersey's Future Economy Programme.

1. Demographic trends in Jersey  

This section gives a high-level overview of historical population trends in Jersey, and looks at the key variables that have and will have an impact on long-term population growth. Using the evolution of these key variables, population projections by age group are developed. Older groups of people are expected to represent a larger share of Jersey's total population in the future, and migration is the force that will shape the evolution of population pyramids.

1.1 Historical trends: an ageing society  

From an historical perspective, Jersey's population remained relatively constant between 1850 and 1970 (Figure 2). It was during the 1950s that population growth accelerated, and since then has more than doubled in size.

Figure 2: Population change in Jersey between 1821 - 2019. Source: Government of Jersey, Mark Boleat, Total population, annual change, natural growth, net migration per year (1821-2019)

In the last two decades, Jersey's population has been growing consistently year on year, though at a rate that varies considerably. Net inward migration (i.e. the difference between immigration and emigration) has always played an important role in shaping the demographics of the island, and its magnitude determines population growth each year (Figure 3). Natural population growth accounts for a small proportion of total population change and is trending down year on year. Meanwhile net-migration is volatile, but has trended upwards.[5]

Figure 3: Population growth over time, natural growth[6] vs net migration. Source: Government of Jersey [7]

Natural population growth is driven by a birth rate above the death rate, and the difference between these deaths and births has been narrowing since 2010. This is driven by a falling birthrate, which is now significantly below the population replacement rate of 2.1 births per-woman, compared with a stable death rate. Fertility rates have also been declining in the majority of developed countries, but recent data shows that Jersey's fertility is below that of the UK and other comparator' economies such as Iceland - and more recently also Malta (Figure 4, panel a).

Figure 4: Fertility rates (a) [8] vs life expectancy (b): international comparison. Source: World Bank, ONS, Government of Jersey

The combination of declining fertility and increasing life expectancy (Figure 4), a global phenomenon affecting many countries, leads to older populations - i.e. people in older age groups representing a higher share of total population. Figure 5 shows the historical share of total population of different age groups, with a clear relative growth of people over age 65 and a decline of people under the age of 15.

Figure 5: Percentage of population by age group from 1891-2021. Source: Government of Jersey [9]

The age group of over 65 represents the fastest growing share of population growth over the past decades. As older people become more numerous, the size of older age groups (e.g. people over 65) increases with respect to people that are considered of "work age". Global trends show an acceleration in the increase in the old-age ratio (measured in Figure 6 as the number of people aged 65+ divided by those belonging to the age group 15-64).

Figure 6: Old age dependency ratio (65+/15-64) by country. Source: PwC analysis, World Bank , Government of Jersey10  

An increase in the old-age ratio (65+/15-64) normally leads to more dependency - i.e. the number of inactive people (e.g. those retired) that need to be supported in the economy by those active and in employment (see discussion on implications for labour force in Section 2). Based on these measures, Jersey, with a ratio close to 25%, does not seem to be ageing as rapidly as the UK or Malta in recent years

- with the ageing process also accelerating in Iceland. Looking ahead, however, the dependency ratio is

likely to accelerate in the next two decades given the significant inward migration of young people to Jersey in the 1970s and 1980s - who are getting close to pension age.

The evolution of this ratio in Jersey will largely depend on the number of people moving in and out of the Island. Inward migration of working-age people will slow the growth of the old-age ratio (and in turn that of dependency).

A trend hidden in this ratio is the fact that many young people from Jersey move abroad to pursue a university education. A large fraction of young adults continue to leave: 24% of those born in Jersey between 1972 and 1976, who still lived in Jersey in 1981, had stopped living on the Island in 2011.11 With university attendance having increased substantially in the last decades, more granular data by age group show that people aged 20-29 represent a smaller share of total population now in 2021 than they did in 1991 (see Figure 7).

Figure 7: Age distribution in 1991 vs 2021. Source: Government of Jersey 12  

If young people of working age do not return after their studies abroad, a potential brain drain of young people can accentuate the old age ratio over time.

1.2. Looking ahead: Population change projections  

Future demographic trends in Jersey will be shaped by migration. In a scenario with no in or out migration, the population of Jersey would continue ageing rapidly in the long-term. The group of people 75+ is the one that would continue to grow the fastest, whereas the numbers for almost all younger age groups would see a decline (Figure 8).

Figure 8: Population projections by age group (migration scenario: No In/Out migration) Source: Government of Jersey13

11 Mark Boleat (2014), "Jersey's Population – A History", 3rd edition, pp. 67

12 PwC analysis based on population data collected from Open Data.je.Population over time 1821 - 2011 (source - census data) 13 PwC population projections are based on population data collected from Open Data.je.Population over time 1821 - 2011

With no migration, Jersey's population will decline over the next five decades. And as population declines, older age groups will represent a larger share of the total population (Figure 9). By 2050 35% of Jersey's population would be over the age of 65; that figure would increase to 36% in 50 years time by 2070.

Figure 9: Total population projection split by age (migration scenario: No In/Out migration). Source: Government of Jersey 14

It is expected that inward migration will largely boost working age' segments of the population. Historically, 85% of immigrants belong to the 20-59 age group (Figure 10 shows that the age group 20-29 is the most frequent). Current planning assumptions tend to use +700 to +1,000 as central scenarios, which would mostly enlarge the 25-59 age group.

Under the five alternative migration scenarios outlined in Figure 11, there is a clear relationship between higher levels of net inward migration and a lower old age dependency. In the absence of positive net inward migration, the proportion of the population 65 and above would grow to between 32% and 37% by 2050, in turn putting significant social and economic strain on Jersey's public institutions. Though a positive net inward migration of between 700 and 1500 per-annum would lower the share of people aged 65+ (by ten percentage points), high inward migration cannot fully counteract the impact of the ageing of domestic populations.

14 PwC population projections are based on population data collected from Open Data.je.Population over time 1821 - 2011

Figure 10: Estimated distribution of inward migration by age group, 2016 - 2021 average %15. Source: PwC analysis, Government of Jersey  

Note:Due to data limitations, the % for 15-19 year olds includes dependent (i.e. children migrating with parents) and independent (young adult) individuals.

Figure 11: Population projections by age under different migration scenarios, 205016

Source: Statistics Jersey - Population Projections report 2016 (here); PwC Analysis

The next section analyses what these demographic trends mean for the evolution of the workforce in Jersey with further sections exploring the policies that can help avoid a decline of the labour force and higher levels of dependency.

15 Estimates are based on first registration cards issued for Licensed, Entitled to Work, and Registered, non-Jersey born only.

16 These projections are based on current and historic migration rules and data. They do not show likely impacts of any new migration rules.

2. Impact of ageing on the labour force  

The most direct impact of ageing populations is that it reshapes the workforce. This section analyses how the overall makeup of Jersey's labour force is likely to change in forthcoming years under different demographic scenarios. The size of the labour force will be determined by the level of labour market participation rates of different age groups. Whether or not Jersey's economy faces labour shortages will depend on the participation of older people in the workforce. The level of migration will also have a significant impact on the number of workers available to work across different sectors of the economy.

1. Labour force participation  

Labour force participation by wider segments of society is a sign of the vitality of an economy, particularly when a large portion of workers are employed in productive jobs. When compared to other developed economies, though, it is clear that Jersey has significant room for improving participation rates (see Figure 12). At 67%, the participation rate in Jersey is below the average of OECD countries.

Figure 12: Labour force participation rate for age group 15-64, comparison with selected countries (year: 2020). Source: OECD, PwC analysis, Government of Jersey

Note: Due to data limitations, Jersey's labour force participation rate is estimated as the proportion of population that are recorded as either employed or actively seeking employment who are registered with Customer and Local Services17.

This position is in part the result of a general decline in labour force participation (of people aged 15-64) in the last few years - Figure 13 compares the year of the last census (2011) with more recent estimates. Though the percentage of people actively seeking work (ASW) has also decreased, this is also in part because more are now in employment thanks to a strong economic performance.

The restrictions to contain the shock of COVID-19 surely had a temporary effect on participation rates in 2020 of different types of workers (of different ages, educational and socioeconomic backgrounds). More generally, participation rates last decade were likely also affected by the macroeconomic context: Jersey experienced a slower recovery from the 2008 financial crisis (in terms of GVA per FTE) compared to most

17 Students are not included in the Labour Force Participation figure.

G7 countries and productivity (GVA per FTE) has fallen by more than 20% in real terms in the past two decades. As the financial services sector has contracted, many workers may have dropped off the labour force altogether.18

Figure 13: Labour force participation rate over time (2011, 2016 & 2019)19 across all age groups. Source: PwC analysis, Government of Jersey 20

Note: Actively seeking work figures are based on an average amount across all age groups. Due to data availability, further analysis of the labour force participation rate over time would be insights.

Though participation rates declined generally across the board in 2020, data from recent years seems to suggest that while participation was in a slight downward trend for the 15-54 age group, between 2016 - 2019 it was showing an upward trend for workers aged 55-64 (Figure 14) - though still far away from closing the gap with respect to the participation of the 15-54 age group.

Figure 14: Labour force participation rate 2016-2020.

Source: Government of Jersey, Customer and Local Services, Registration and Manpower Returns data, PwC analysis

18 Structural change to the financial services industry may have created opportunities for early retirement through redundancy, specifically as employment in the banking industry declined and activity grew in funds and trust administration.

19 Small time frames are due to data gaps

20 PwC analysis, data captured from social security contributions and manpower returns for 2016/2019 for labour force activity. Population data collected from Open Data.je. 2011 figures derived from 2011 census data.

From a longer-term perspective, a workforce that has more and more people in older age brackets mechanically' reduces the overall labour force participation in the economy. The participation rate of people aged 65 or above is significantly lower than for other age groups in many economies (Figure 15). Due to health issues21 or pension entitlements, normally less than 20% of people in this age group will be active and in employment. And Jersey does not compare favourably against the average of the OECD - Section 5 explores in more detail some explanation as part of the policy directions.  

Figure 15: Labour force participation rate by age, comparison with selected countries (year: 2020 or latest available). Source: OECD, PwC analysis, Government of Jersey

It is a well known fact that participation rates start declining as early as age 55 (well before statutory pension age) in many economies (Figure 16 compares Jersey against the average in OECD countries). Be it the result of social security and pension systems' benefits discouraging people to continue working (e.g. some early retirement entitlements) or older workers facing unattractive alternatives in the labour market (such as pay cuts or new jobs at lower pay), international evidence shows that people in their early 60s (or even in their late 50s) have more propensity to drop from the labour market than those between 25-55.

Figure 16: Labour force participation rate by age group 2020. Source: PwC Analysis, Statistics Jersey, OECD  

Age  15 - 19  20 - 24  25 - 29  30 - 34  35 - 39  40 - 44  45 - 49  50 - 54  55 - 59  60 - 64

Jersey  24%  60%  78%  77%  78%  75%  77%  71%  64%  46% OECD  28%  65%  80%  82%  83%  83%  83%  79%  71%  50% UK  45%  74%  85%  86%  86%  87%  87%  84%  75%  51%

Note: These figures are derived from Manpower Returns data and cross referenced with registration card data on age, gender and employment, compared with total population estimates by age and gender (available here). Activity seeking work figures were taken from GoJ unemployment statistics. The employment figures are based on people, as opposed to labour market jobs to avoid double counting.

21 Involuntary retirement due to ill-health has played a part in early retirement, as is the case in the similarly small economy of Malta. Source: Marvin Formosa (2014), Socio-economic implications of population ageing in Malta: Risks and opportunities

Jersey shares this familiar pattern, and unless those older age groups close that participation gap with respect to other age groups, Jersey's workforce may decline into the future. Recent historical data for men and women suggest that participation has not changed significantly - though participation of older female workers increased slightly, whereas for older male workers decreased (Figure 17).

Figure 17: Jersey labour force participation rate by age for men (a) vs women (b) comparison over time (2011, 2016 & 2019).22 Source: PwC Analysis, Government of Jersey

The participation of older age groups has the potential to increase over time. Given current international trends, the expectation is that a 55-years-old worker in 20 or 30 years time will participate more than a 55-years-old today. History was not suggesting this for some time - for decades, people had left the labour market at an even earlier age - despite those generations benefitting from longer lives than their parents. But the trend has changed in developed countries (see Figure 18). Since the turn of the century, labour market participation at older ages is on the way up again, indicating additional potential for firms to alleviate the labour market pressure in the demographic transition. In nearly all OECD countries, employment rates for older workers across education levels have been rising over the last two decades. Better health of older people reflected in higher life expectancy is a key driver of this development.23

Figure 18: Changes in labour market exit ages (in years) and life expectancy at the age of 65 since 1970, OECD average; Source: OECD (2020).  

The "effective" rate of retirement in Jersey is undoubtedly significantly lower than the statutory pension age (currently at 65, which will go up by 2 months a year, ultimately changing to 67 in 2031). Nevertheless,

22 Small time frames are due to data gaps

23 Geppert, C. et al. (2019), "Labour supply of older people in advanced economies: the impact of changes to statutory retirement ages", OECD Economics Department Working Papers, No. 1554, OECD Publishing, Paris.

[10]people in Jersey feel in good health compared to other countries (as shown in Box 1, showing the percentage of each country's population that consider and report themselves to be in good health').24 This is a positive sign for the future evolution of participation of older workers. Yet, retirement will continue being driven to an extent by economic reasons. For instance, the good position of Jersey's workers to build wealth can encourage early retirement (of those people in their 50s). Evidence from Statistics Jersey finds a direct relationship between salary and contribution to a private pension,25 and due to the relatively high share of employment in well-remunerated salaries, people continue having access to early retirement benefits.  Section 5 looks in more detail at how pensions entitlements drive retirement.

Box 1 - Jersey's perceived health

Jersey ranks higher than the majority of OECD countries by this metric, with 81% of the population reporting good health, compared to the OECD average of 69%, which is the same as the UK's. With a greater number of the population in good health, we might expect higher labour force participation rates, which could be useful in the context of ageing, as over 60s may be more likely to stay in the workforce in some capacity. Similarly, a healthy population has other macroeconomic benefits, such as higher productivity, as we would expect the human capital of a healthier population to be greater. International experience shows increasing life-expectancy gaps between socio-economic groups, which could limit the participation in work of certain segments of older populations if it also occurred in Jersey (this is an area of further research as identified in Section 6). In England, for instance, the life expectancy gap between the most and least deprived decile of areas increased from 9.0 (6.9) years for men (women) in 2011-13 to 9.3 (7.4) years in 2014-16 despite several government initiatives to reduce them.[11]

Figure 19: Self-reported health, comparison with OECD countries. Source: Statistics Jersey & OECD  

2. Employment levels  

More labour force participation directly leads to higher employment rates of older people. The number of older people in employment has increased in recent years in Jersey - which is the result of demographic trends (i.e. more older people27) and stronger participation. Since December 2016, when the data started to be tracked, the number of people aged 50-64 in employment has risen by 1,230 (9% of the total work force in this age group), the largest increase across all age groups (Figure 20). The number of people aged over 65 in employment is the only other age group that sees a positive change in this period (by 2030).

Figure 20: Cumulative change in employment by age band, Dec 2016 - Dec 2020. Source: PwC analysis, Government of Jersey 28

Note: These figures are derived from Manpower Returns data and cross referenced with registration card data on the total residential population by age, gender and employment. The employment figures are based on people, as opposed to labour market jobs to avoid double counting.

The employment rate in Jersey does not compare positively against a sample of comparator countries. Though data from 2011 to 2020 indicate that the rate of employment has increased by 3% among those aged between 50-64, employment rate in the age bracket 55-64 is not as high as in other developed economies (Figure 21). In general, participation and employment of older workers have been increasing internationally (see Box 2), though the gaps with respect to younger age groups still persist.

Figure 21: 2019 employment rates by country in age groups (25-54, 55-64). Source: Government of Jersey, OECD29  

[12]Trends of people actively seeking work suggest that employment of older people is not as affected by economic conditions as the employment of the young (Figure 23).30 As the economic cycle improves (e.g. between 2011-2019), the employment rates of younger workers increase (and thus the ASW numbers decline), while there is a relatively consistent amount of older workers seeking work. This means that a proportion of older workers still struggles to find jobs independently of economic conditions. They are also less likely to find work if they remain inactive.

Box 2 - International evidence of employment by age group

International evidence shows that employment rates of older people have risen significantly over the past two decades, with particularly strong gains for women. In the OECD, the employment rate of people aged 55 to 64 grew from 53% to 62% between 2007 and 2019 (Figure 22) - while remaining close to 78% for 25-54 year-olds.[13]

Figure 22: Change in employment rates, 2000-19. Source: OECD (2020).  

Note: Data refer to the period: 2000-10 (China), 2000-18 (India), 2001-19 (Brazil, Colombia, Singapore, South Africa), 2004-19 (Argentina) and 2009-18 (Saudi-Arabia). OECD is an unweighted average.

Figure 23: Jersey's labour force Actively Seeking Work (ASW) by age group over time 2011-2020. Source: PwC analysis, Statistics Jersey

Even if participation and employment increases for older workers, a fraction of those move to less productive jobs or work fewer hours (Figure 24). Based on time use surveys of those in full and part time employment, hours worked steadily reduces with age, from over 41 hours per-week for those between 25 - 54, to 28 hour per week for those 65 and above.

The mix of higher participation rates and fewer work hours by older workers suggests that they are still likely not contributing as much to the economy and labour markets as they did earlier in their life32 - thus not fully reducing potential labour shortages and dependency on social benefits.

Figure 24: All job average weekly hours worked by age33. Source: Government of Jersey, 2011 Jersey Census.

Note: GVA figures are based on 2019.

International evidence shows that there are also large differences in participation for different types of workers. While indeed in nearly all OECD countries employment rates for older workers across education levels have been rising over the last two decades, people over 55 with fewer years of education have lower employment rates than people with more years of education - which also seems to occur in Jersey.34 In

32Local employment data would suggest that relative to the mean hours worked per-week, those over the age of 55 account for a relatively larger share of the workforce compared with their economic activity.

33 Jersey figures calculated from Census data, weighted against the 2019 Jersey Opinions & Lifestyle survey and UK figures by age.

34 Comparing 2021 figures from educated individuals between 55-64 with people actively seeking work in the age bracket, 36% do not have a formal qualification, and 20% of the same age group is unemployed and actively seeking work. The difference between the two figures can be

interpreted as less educated people between 55 and 64 have lower employment rates than their educated peers.

addition, older women work less than men in most countries, and the gender gap in employment is even more pronounced at lower levels of education attainment.

Figure 25: Level of education of Jersey's population. Source: Census (2001;2011) 35

A positive trend is that older people are more educated than in the past - the share of tertiary-educated older workers has already substantially increased over recent decades (Figure 25). And more educated people normally stay working for longer. Future older workers of all generations will, on average, not only be in better health but will also be better educated than current generations of 50-plus workers, which is likely to continue increasing participation rates of older people.

3. Future labour force  

With current participation rates of older people in employment, the labour force of Jersey is expected to decline in the long-term unless supported by a net influx of migrant workers. Migration will continue to be the main source of growth of workers for Jersey's labour force (see Box 3).

Box 3 - Non Jersey-born workers in Jersey  

The proportion of non Jersey-born workers has increased substantially in Jersey over the last decades (Figure 26)

Figure 26: Population by place of birth, 1891-2021. Source: Government of Jersey - Registration data estimate 2021. 36  

35 Population data collected from Open Data.je, 2001 and 2011 census data. 36 Estimates are based on first registration cards issued.

There are some sectors more affected than others. Financial services (the main sector of Jersey) or sectors like utilities and manufacturing rely more on domestic workers (Figure 27); by contrast, agriculture (seasonal route) and hospitality (low-skill route) have a high reliance on migrant labour.

Figure 27: National origin of workforce by sector (2021). Source: Government of Jersey - Registration data estimate 2021  

.

Note: Estimates are based on Registration card data collected by Customer & Local Services and cross-referenced with Manpower return by sector (Standard Industrial Classifications).

The charts below (Figures 28 to 32) present alternative employment outcomes based on different net-migration figures and  labour force participation rates (% of labour force participants as a % of population aged 15+) compared with the total population.

Under each scenario, the projected size of the workforce is estimated under a high, medium, and low labour force participation rate.37 For example, under a high participation rate, 29% of those between the ages of 65-69 would be in the labour force - compared with 23% under a low participation rate.38

Under each of the population change scenarios modelled, the employment-to-population ratio declines. This means that the share of the working population as a percentage of those aged 15 and above will decline. With net-nil migration, the employment-to-population ratio will decline 46% by 2070. With

37Assumptions are made on the percentage of labour force participants in each age group running in 5-year cohorts from 15+. The model applies the OECD average labour force participation rate by age for medium, and extrapolates a 10% above / below for high / low labour force participation to determine the workforce size overtime.

38These high/low scenarios are based on relevant comparators for Jersey, specifically Iceland with a high labour force participation rate and Malta with a low one.

net-migration of 1500, the employment-to-population ratio would decline to 56%. This assumes a medium participation rate.

Under a net-nil or no migration scenario the total size of the workforce would steadily decline, irrespective of improvements in the workforce participation rate.  

Figure 28: Labour force projections - net nil migration scenario39. Source: PwC analysis, Government of Jersey

Figure 29: Labour force projections - no in / out migration scenario. Source: PwC analysis, Government of Jersey

The total labour force rate changes year on year under each scenario as the demographic profile of the population changes. Specifically, as the island's population continues to grow older, the labour force rate will likely fall as a larger share of the population will be in age groups where labour force participation is

39High, medium and low participation rate deduced from a cross-country analysis of best and worst performing countries.

lower. For this reason, the age profile of the population is a significant contributor to the overall labour force participation rate.  

Figure 30: Labour force projections - net 325+ scenario. Source: PwC analysis, Government of Jersey

A scenario of net positive migration of 325 would barely offset the decline in workforce due to ageing: the labour force stays relatively flat - even if the total population is increasing. Assuming a positive net-migration rate of between 700 and 1500 per annum, the workforce size would steadily grow. Under a net-migration outcome of 700 per annum and a high participation rate (if realised), employment could increase by as much as 17,500 by 2050.  

Figure 31: Labour force projections - net 700+ scenario. Source: PwC analysis, Government of Jersey

Projections indicate that under net-1500 migration per-annum from 2020 to 2070, the total labour force would increase by over 70%. Looking at the age distribution within net-migration (325-1500), ages between 30 and 44 are expected to have the highest participation rate.

Figure 32: Labour force projections - net 1,500+ migration scenario. Source: PwC analysis, Government of Jersey

What is the expectation for the future economy? Though Jersey seems well positioned to enlarge the participation rate of older age groups given its healthy population, labour force projections on their own do not give the full picture of employment. Higher levels of labour force participation by older age groups, be it in full employment or in flexible working arrangements (e.g. people in partial retirement), certainly contribute to the economy. Yet, simply keeping more people in labour markets does not necessarily solve all labour shortages linked to ageing populations - for instance, if skills gaps persist (see Section 3).

The key question is which sectors of the economy are those that are gaining from the demographic transition and those that are losing (aged) workers more rapidly and are facing the most severe labour shortages. Even if labour force participation rates remain high, and thus the decline in labour supply is not significant, 'effective' employment may decline over time if workers in declining industries do not quickly adjust their skills to meet the needs of the growing sectors of the economy40 - with long-term unemployment a potential result from the structural changes in the economy generated by ageing populations.41 These changes are of a long-term nature and transcend the dislocations created by COVID-19.

Box 4 - Implications of COVID-19

The COVID-19 crisis has led to massive turbulence on labour markets across all OECD countries from the second quarter of 2020. Unemployment rates have surged and numbers of workers under short-term

40 International evidence shows that the increasing share of elderly people in society positively affects employment shares in community, social, and personal services as well as in the financial sector. See Thiessen U., K.A. Kholodilin, and B. Siliverstovs. Does aging influence sectoral employment shares? - evidence from panel data. DIW Berlin Discussion Paper, (785), 2008.

41 Aggregate labour supply comprises the number of active people that are available to work, whether they are employed or unemployed.

compensation schemes have skyrocketed in some countries, with disruptive consequences for economies.[14] In Jersey, 31% of workers have seen themselves work reduced hours[15]. In the short to medium term, labour markets will need to recover from this sudden shock, which may temporarily put a halt to labour shortages or change sectors in which they appear (OECD, 2020). There was also a temporary shock in the number of people actively seeking work (ASW), increasing dramatically in 2020 after years of steady decline (Figure 33).

Figure 33: Labour force number of registered ASW, receiving and not receiving Income Support, June 2016 – June 2021. Source: PwC analysis, Statistics Jersey 44

However, the crisis will not change the long-term dynamics induced by demographic change, which primarily work through the supply-side of the labour market. The pressure to react to population ageing and low fertility rates will hence continue to magnify.

Ageing populations become a danger for economic dynamism if the level of dependency (i.e. older people claiming  benefits  and  not  working)  increases  significantly.  Section  1  shows  that  the  old-age  ratio (65+/15-64) will continue increasing in Jersey. Though such a ratio is often referred to as the "dependency ratio"  in  the  literature  or  policy  discussions,  whether  this  translates  into  actually  more  economic dependency or not depends on a series of factors affecting (i) participation in labour markets and (ii) productivity. The problem of old-age dependency is a problem of work and production: as a larger pool of retirees consumes without "producing", the burden on pension and welfare systems rises.

An ageing workforce does not have to be a bad thing for Jersey's workers and the economy even if some labour shortages remain. Increases in productivity of those still in the workforce can restore economic growth (see Section 4), as more companies invest in innovation and new (automating technologies) to offset the effects of labour shortages.45

3. Sectoral impacts: supply and demand views  

This section identifies those sectors most vulnerable to the impacts of population ageing in Jersey's economic context, and those that may benefit from it. As the ageing population trend continues, employers in growing sectors face the challenge of 1) filling the jobs of older workers who reach retirement age, and 2) meeting the increasing demand for their products and services.

Particular consideration is given to sectoral employment impacts as a result of changing consumption priorities among different age groups. Vulnerability of sectors is determined by the labour and skills shortages they may face as current workforces grow older and approach retirement, and by their ability to invest in technology and automation.46 The final impact of automation on the overall economy depends on the ability of people (young and old) to transition from old to new jobs.

1. Sectoral context in Jersey  

The impacts of ageing (and demographics in general) across the economy is taking place in the context of wider transformations occurring in Jersey. Though the financial sector has stagnated in the last few years (and productivity has declined), other high-skill services sectors seem in a good position to continue expanding, particularly in the digital space.  

Expansion of service sectors beyond finance  

Since last century, Jersey has been reliant on its services sector to drive economic output.

Financial services is still the most important sector in Jersey. In 2019, where the latest data was available, the sector accounted for 40% of total GVA, representing the largest single component of GVA, followed by other business activities (predominantly private sector service industries, 12%).

The financial and legal sector has been the largest employer in Jersey in the past 20 years, followed by the private sector education, health and other services - which have surpassed construction (in 2010) and wholesale & retailer (in 2017).

The share of the total economy taken by the financial sector has, however, declined in the last two decades (Figure 34). With that decline, Jersey's total economic output has plateaued since 2000 with GVA per-capita falling by over a fifth (Box 5 explains part of the decrease in productivity).

Box 5 - The stagnation of productivity in Jersey  

Productivity levels are decreasing across all sectors. Since 2007, productivity (as measured by GVA per FTE) has decreased by 22% in real terms, driven by the decline within the finance sector (31%) as banks are required to retain more capital and invest in labour-intensive tasks such as compliance and reporting. The banking industry has experienced a fall in deposit margins, which in part has driven a rebalancing of employment from high-productivity banking into the relatively less productive trust and funds administration.

46 As older cohorts start retiring the supply of labour falls relative to capital, which puts upward pressure on wages relative to interest rates (the return on capital). This, in turn, encourages a substitution away from labour towards automating technologies in the production process.

Figure 34: contribution to GVA by selected industry, 1998 - 2019 (%). Source: PwC analysis, Statistics Jersey 47

Despite the slowing down in the financial services sector, Jersey's strength in services remains true, but with a gradual shift to other types of services. Since 2011, the number of people employed in professional business services has substantially increased - while low-productivity sectors such as hospitality48 have declined (Figure 35).

Figure 35: Growth in employment (2011 vs 2020, %) among key industry groups. Source: PwC analysis, Statistics Jersey 49

Whereas the increase in people working in education and health-related services can decelerate productivity growth,50 the expansion of the ICT sector (e.g. employment in computer-related activities), and the digital economy more generally, can boost productivity and stimulate other sectors of Jersey's economy.

Increasing demand for high-skilled labour in the digital age  

Digitalisation continues gaining ground globally, creating opportunities in new sectors - and even in more traditional ones. For instance, a 2020 UK-wide survey found that almost 90% of manufacturers see digitalisation as a business opportunity - a significant improvement from 70% in 2018. Jersey has identified

47 PwC analysis, data captured from GVA in real terms in constant 2019 values.

48 Output per hour worked, is much higher in financial and legal activities (£86) than for hospitality (£20).

49 PwC analysis, data captured from Open Data.je industry by occupation group of working age adults.

50 In part driven by ageing, increasingly more people in Jersey are employed in education and health services, which show lower productivity per-hour worked (£30). Source of labour productivity figures: Statistics Jersey.

that potential. In 2013, the government established Digital Jersey to promote the island as a leading centre for digital excellence, which involves both developing the digital sector itself and encouraging application of technology across all sectors.

The rise of digitalisation and automation makes some types of work redundant - almost 17,000 jobs could be at risk in Jersey by 2035 as a result of technology advancement (see more discussion in Section 4).51 Nevertheless, new, more productive jobs are being created in certain sectors. This means that the demand for high-skilled workers is likely to continue increasing.

The employment goals for the digital sector have been surpassed so far, and the prospects of the ICT sector continue to be good in Jersey .52 Data from the Supply-Use tables in Jersey shows that, while the financial sector makes the largest contribution to Jersey's GVA, its knock-on impacts on the rest of the economy are relatively small. By contrast, the ICT sector's total contribution to Jersey's economy is still small, but its knock-on impacts are twice as large: for every job created in the ICT sector, there are two additional jobs created indirectly elsewhere - e.g. with large effects in the legal, accounting, and compliance sector.53

Whether the demand for such high-skilled workers is met or not in the context of ageing populations depends on the qualifications that old and young people have, and on which sectors are currently experiencing faster ageing of their workforces and greater labour shortages. Automation can help alleviate labour shortages in those sectors - and, in fact, increase productivity more generally in the overall economy. Yet, not all businesses will be in a good position to invest in such technologies,54 given that some sectors are more labour intensive than others (e.g. long-term care).

The remainder of this section explains how ageing, via changing consumption patterns, leads to different velocities of sectoral growth and how ageing workforces by sector can accelerate (or not) labour shortages.

2. Effect of ageing workforces by sector  

Like technological advancement, an ageing population also has uneven effects across industries in terms of employment and the use of labour. To measure the extent of the challenges faced by each industry, this section looks at the proportion of workers that are aged over 55 as well as the absolute numbers.

Generally accepted economic theory suggests that industries with a high proportion of older workers are associated with a higher risk of having labour shortages due to labour retirement. For example, in 2018 the Chartered Institute of Personnel and Development (CIPD) estimated that if the UK fails to adequately support older workers the UK could face a shortage of up to three million workers in the coming decade .55 This risk of labour shortage will also be exacerbated by early retirement, shrinking labour pool and difficulties in labour upskilling.

Based on our analysis, on average 1 in 50 workers in Jersey are aged over 65, while one in six are aged over 55. Age distribution varies by industries:

51 See PwC (2020)  

52 The organisation had an ambition to create 2,200 new jobs in the digital sector by 2020, four times higher than its 2013 level of 560. This goal has been achieved - around 3,032 people were employed in the digital sector in 2018, which is about two times larger than the level in Guernsey

(1,372 people). See Tech Nation, 2018

53 Similarly, the ICT sector's GVA multiplier is 2.07, meaning that every £1 spent in the sector supports an additional £1.07 in Jersey's economy.

54 Automation and digitisation historically give comparative advantage to large businesses with substantial R&D investment and resources (source: British Automation and Robot Association, 2018)

55 CIPD (2018), UK must improve support for older workers or face talent shortage, says research  

Financial & legal activities industry has the youngest age profiles - only 11.6% are aged over 55 and 1.3% for over 65

Electricity, gas & water supply sits at the other end of the spectrum, with 22.9% aged over 55 - though no worker is aged over 65, suggesting that retirement rules are strict in this sector.

In terms of the absolute numbers, the education, health and other services sector may face the biggest challenge in maintaining its labour force - it has 3,390 workers aged over 55 in 2020, followed by the financial & legal activities sector (1,550 workers) and the business activities sector (1,100 workers). This means that these sectors will need to fill the labour gap of a large number of retiring workers in the near future. If older workers are not retained for longer, organisations need to either retrain young workers or invest in new technologies to increase productivity of the remaining workforce. Depending on the sector, these options can be costly and time consuming.

Figure 36: proportion (%) of workforce aged over 50 in 2020, by industry group. Source: PwC analysis, Statistics Jersey

Note: Data is not available to isolate the impact that Covid 19 may have had on the demographic makeup of sectors in Jersey. In some industries young people may have been impacted by the pandemic more than their older peers, thus exacerbating the ageing of workforces in some sectors

(temporarily).

Theory would suggest that knowledge based industries, such as financial services are best placed to retain an older workforce, while labour intensive sectors, such as construction are less able to. However, in part as a result of differences in salaries and work-based pension plans between sectors, there is a higher dependence on workers above the age of 55 in Construction, Wholesale and Retail, and Agriculture and Fisheries, than the knowledge based sector of Financial and Legal Services.

To gain the full picture of the challenges faced by industries, we also considered each industry's ability to retain its old workers - having a large proportion of old workforce is less problematic for an industry with a low older worker dropout than that with a high dropout rate. Data on industry dropout rate is not readily available, so we applied the CIPD (2015) method which used percentage change in the numbers of workers aged 45–49 and 60–64 (%) as a proxy. Combining each industry's reliance on older workers with their ability to retain old people, the extent of the ageing population challenges they are facing is presented in Table 1. Using this method, industries at the top of the table are estimated to face the biggest challenge as they have a relatively high proportion of older workers and experience difficulties in retaining these old workers at the same time. The top two industries are Education, health & other services and Financial & legal activities.

Table 1: Industries facing ageing population challenges, 2020. Source: PwC analysis, Statistics Jersey

A large proportion of the workers in the education and health-related services already are aged over 55; moreover, there is also a large fall in employment for those aged 60-64 relative to 45-49, meaning that this sector is struggling to maintain its workforce. This result is intuitive given the nature of the industry. The education and health sector is historically characterised by its preference towards highly skilled, professional workers with extensive experience. When a large number of employees retire in a short period of time, the sector could struggle to fill the gap.

Labour shortages could be magnified if technology continues evolving (e.g. with the expansion of e-health) and such older workforces do not adapt. There are arguments (and some evidence) that older workers are less able to adapt to new skills requirements (perhaps due to different motivations at that stage of life57). Therefore, older workers may voluntarily or be forced to exit the labour force before retirement, which might explain the high dropout rate in this sector. Moreover, as a result of population ageing, demand in the healthcare sector is projected to grow, with an addition of 2,398 health workers needed to meet demand by 2050 under the central migration scenario.

The financial & legal activities sector, which ranked the second place, has far fewer workers that need to be replaced (1550 workers compared with 3390 in the education, health & other services sector) but a poorer record in retaining its old workers. There may be several reasons for this, including financial considerations that affect supply and demand. The high financial rewards in the sector has historically made early retirement a favoured choice for many, thus affecting the supply of labour. At the same time, if older

56 Sectors are ranked on the numbers of people aged 55+ and dropout rates, with equal weights assigned to both figures. 57 Employers who are expected to remain for a shorter period of time are likely more reluctant to retrain.

workers are demanding higher salaries due to their experience, companies may opt to hire younger people instead.58

Industries with a high exposure to ageing populations will need new resourcing strategies going forward - for example by finding a replacement for labour or providing more support to older workers to enable longer working lives. However, that does not necessarily mean that the industries at the bottom are free from the ageing population challenge. Their relatively low proportion of older workers and the higher labour retention rates may potentially reflect unfriendly working conditions to older workers or a real financial need for them to keep on working. For example, 23% of the manufacturing industry's workforce are estimated to be aged over 55, but the dropout rate is the lowest among the industries at 46.7%. Given the highly physically demanding feature in this industry, the low dropout rate may reflect insufficient savings for retirement rather than good practice by employers in support of older workers.

3. Age consumption patterns, sectoral growth and feedback employment effects.  

There are three main ways in which an ageing population can affect the economy: (i) slowdown in labour force growth; (ii) changing patterns of savings and consumption; and (iii) pressures on public social expenditures. The first point has been illustrated in the previous section. This section focuses on the sectoral impacts brought about by the change in consumption patterns as a result of the demographic change.

There has been a change in the profile of employment with a significant increase of employment by those aged 55 and above in education and health, compared with a fall in hotels, restaurants and bars.

Figure 37: Absolute change in employment by sector 2011 vs 2020. Source: PwC analysis, Government of Jersey  

Note: These figures show the accumulated change between 2011 vs 2020. It is likely that Covid impacted employment in sectors like hospitality and Retail, which might in part explain the drop in employment in those sectors.

The economic Life-Cycle theory states that individuals tend to smooth their consumptions by consuming more than what they produce through labour activity at the beginning and end of their lives, and produce

58 Empirical studies show that whereas wage and benefit costs increase with age, there is no conclusive evidence that productivity increases as well. Source: https://www.nber.org/papers/w26597

more than they consume in the middle years. In reality, perfect consumption smoothing is normally infeasible. To sustain a certain level of old-age consumption, older persons have in general the following options: 1) gain financial returns from labour activity, selling assets etc; 2) reduce their consumption. The latter seems to be a prevalent choice - the decline in spending appears to be persistent over time and common to most western countries, regardless of people's income.59

Figure 38 investigates whether the consumption dip for old people happens in Jersey. Analysis in this section is based on the last available Jersey Household Spending Survey which presents estimates of average weekly household expenditure in 2014/15. Due to data limitations, two assumptions have been made:

There is no within-age-group-consumption pattern change over time - the shifts in consumption pattern among consumption categories over time are solely because of demographic change60.

Head of household spending is representative of the general consumption pattern in their respective age group.

Figure 38: Aggregate weekly consumption per household by age groups, inflation adjusted to 2020. Source: PwC analysis, Statistics Jersey 61

Figure 38 shows that the consumption expenses follow a hump-shaped curve among different age groups, and indicates that the two oldest age groups have the lowest weekly expenditure. The peak is reached when the household head is aged between 45 and 55. Spending also varies substantially between consumption categories. As illustrated in figure 39, as individuals age, consumption falls for all other categories except health, which increases by 34.7% for 65-74 and 46% for over 75 compared to the spending by people aged 16-64. In terms of expenditure allocations, although people trim their overall spending as age increases, some sectors actually see a growing importance in older people's consumption basket. For example, people aged over 75 spent 14.1% of their total consumption on miscellaneous goods & services (which includes home care, personal care and childcare), a significant rise from people aged 16-64 (9.0%). It can be concluded that people adjust their consumption behaviour as they move into

59 International Labour Organization (2020), World Employment and Social Outlook  

60 Each age group has a spending level per person (in that group), The model assumes that there is no change in this per-person consumption level over time.  

61 PwC analysis, data captured from social security contributions and spending survey (2018).

different age bands of their life. Therefore, changes in the population structure (e.g, ageing population) should influence the development of consumption expenses, which will have further implications on sectoral growth.

Figure 39: Weekly average household spending by consumption category and age of houseowner, inflation adjusted to 2020: Source: PwC analysis, Statistics Jersey

Note: dashed lines show each age group's allocation of expenditures across different consumption categories. Source: PwC analysis, Statistics Jersey

With the assumption that the ways in which older people are spending stay the same over time,62 Figure 40 estimates the growth in spending per sector that is driven by demographic change alone under the central migration scenario. Between 2020 and 2050, it is expected that the share of total consumer spending will shift from over 60% by those between the ages of 16-54, to just under 50% in 2050; while the share of spending by those aged 55 and above will increase from just under 40% in 2020 to closer to 50% in 2050.

Figure 40: Average weekly household spending by consumption category and age (16-55+)63, 2020 vs 2050, net 700+ scenario. Source: PwC analysis, Statistics Jersey 64  

Source: PwC analysis, Statistics Jersey

As the population grows for each of the age bands, overall consumption increases for all categories but at different rates. As expected, the health sector is projected to see a 29% increase in total spending, the largest increase across all categories of expenditure. This is mainly driven by the rise in spending by

62 This probably will not be true with new generations of older people accessing different types of consumption plus the impact of technology and in particular internet shopping.

63 Age of the representative head of household.

64 PwC analysis, data captured from social security contributions and spending survey (2018).

people aged over 55 (a 44% increase compared to the 2020 level). As the older age constitutes a larger and larger part of the total population, demand for healthcare is expected to increase accordingly. This could either strain a stretched healthcare system, or provide new markets for health and care insurance which would reduce the burden on families and provide good quality care.65 At the other end of the age distribution, an ageing population reduces the relative demand for education. Spending in education increases by only 11%, 9% below the sectoral average. Although with a steady birth rate this is not likely to have profound impacts, evidence from Japan has seen schools close and universities suffer as a result of reduced numbers of young people66. A similarly small economy to Jersey, Malta, has seen predictions for large growth in silver economy' sectors (sectors that cater to older individuals)67 so there are undoubtedly sector specific growth opportunities to be capitalised upon with the right policy and strategy direction in place.

Figure 41: Total household spending change between 2020 and 2050 by sector and age band, net 700+ scenario (£m). Source: PwC analysis, Statistics Jersey 68

Figure 41 presents the estimated difference in consumer spending resulting from demographic change between 2020 and 2050 by sectors and age groups. To do this, we manually mapped consumption categories to SIC industries. All sectors except construction (which is not mapped with a consumption category) see an increase in consumption during the 30 years, mostly driven by the increased total spending by people aged 65 and above.

What would the impact of the change in consumption be on sectors? PwC conducted some in depth analysis of the make-up of the Jersey economy and the interdependencies between sectors (please refer to the separate technical overview of PwC's Supply, Use and Input-Output table analysis). Using this analysis, the impact of the increase in consumption across the whole economy can be estimated more accurately, enabling interventions to be fully appraised and justified. The results have been presented in figure 42 and 43. They show both the direct impact of consumption by two different age groups in each sector on GVA and employment, as well as their "knock-on" impacts, which are fed through each sector's interactions with their suppliers and employees' interactions with the wider economy. There are two types of knock-on impacts:69 (i) is the supply chain (or indirect') impact, which is created by the spending of each sector on its

65 Chen Chien-Hsun (2018), How Does Taiwan's Aging Population Affect Its Economy, EAI Background Brief No. 1356

66 European Parliament (2020), Japan's ageing society

67 Marvin Formosa (2014), Socio-economic implications of population ageing in Malta: Risks and opportunities  

68 PwC analysis, data captured from social security contributions and spending survey (2018).

69 Knock-on impacts as referred to here are also known as indirect (supply chain) and induced (employee spending) impacts, derived from Input-Output table analysis. Please see the Appendix 1 for further technical guidance.

suppliers; and (ii) is the employee spending (or induced') impact, which is created by the spending of employees of each sector and its supply chain.

This analysis is helpful to understand the impact of the additional consumption on Jersey's sectors. However, the model only gives a conservative projection and breaking through the following limitations would bring the predictions closer to real life.

The model assumed no change in consumption patterns over the next 40 years.

The model does not take into account technology change / disruption that may affect the sectoral makeup of the economy. This may fill the gap of some jobs created.

The model assumes no change in the setcorial make-up of the economy.  

Figure 42: Net sectoral employment under the net +700 migration scenario between 2020 and 2050, number of new jobs created 70. Source: PwC analysis, Statistics Jersey 71

Note: Direct, supply chain, and employee spending impacts cannot be summed across sectors to reach total employment contribution for Jersey, as one sector's supply chain and employee spending impacts are some other sector's direct impact. Supply chain impacts and employee spending impacts together refer to knock-on impacts.

Note: As a result of the demographic shift, 55.5% of the net-increase in spending on Hotel, Restaurants and Bars between 2020 and 2050 will come from those aged 65 and above. The Hotels, Restaurants and Bars sector has a high employment to output ratio. Specifically, for every £1m of sector output, 12.75 FTEs are employed by Hotels, Restaurants and Bar businesses. By way of comparison, for every £1m output in Construction,

5. jobs are supported - hence the divergence between the net-change in sector spending and the employment impact of this spending.

Figure 43: Net sectoral GVA impact under the net +700 migration scenario between 2020 and 2050, £m. Source: PwC analysis

70 Numbers are rounded to the nearest integer.

71 PwC analysis based on data captured from social security contributions and spending survey (2018).

Note: Original GVA data for Jersey was constructed by PwC for this analysis. While the GVA data is closely based on data from the Government of Jersey, it will not align completely with the data that is currently publicly available. Direct, supply chain, and employee spending impacts cannot be summed across sectors to reach total GVA contribution for Jersey, as one sector's supply chain and employee spending impacts are some other sectors' direct impact. Supply chain impacts and employee spending impacts together refer to knock-on impacts.

The figures only present the net increase in employment and GVA between 2020 and 2050 as a result of the increase in spending in each sector by different age groups.72 Take wholesale & retail trade as an example, figure 42 shows that the increased total consumption between 2020 and 2050 brings 784 new jobs to the wholesale & retail trade sector, 485 of which comes from the increased spending by people aged 65 and above. Further breakdown of the 485 new jobs added by older people shows that 433 jobs are created as a result of their consumption in the wholesale & retail trade sector, while the rest comes from the interaction with the wider economy.

Shifting skills demand and shortages

As the population ages into retirement, industries face a direct challenge to fill the gap of retired workers. However, as briefly mentioned before, some industries will also have to find additional workers to fill new demand arising from the changing consumption pattern between old and young generations. This indirect challenge is investigated in the next section.  

PwC analysis finds that between 2020 and 2050, some sectors will see employment grow more than others as a result of shifting spending behaviours driven by demographic changes. In particular Hotels, Restaurants and Bars; Education, health and other services; and Retail and wholesale are expected to benefit most from increased domestic consumption. However, this demand will likely exacerbate existing skills shortages. This is expected to be most acutely felt in Health, education and other services and Hotels, restaurants and bars which already have the highest sectoral vacancy rates.

Table 2: Growing Skills Shortage 2020 - 2050

72 These estimates are based on current productivity and business organisation. The action of jobs needed might be quite different depending on productivity and technology changes.

Note: Calculations based on net-migration scenario of 700 per-year; include total employment and vacancies across all sectors (also public sector). *Vacancy rate is calculated from the 2019 to 2020 average.

**Includes new jobs created as a result of increased government expenditure in the health sector

Source: PwC analysis, Statistics Jersey

Key highlights from figure 42 and 43 include:

The increased spending makes the largest contribution to Jersey's wholesale & retail trade sector in terms of new jobs created (784 FTEs, a 10.7% increase from its 2020 level), and to the financial & legal activities sector in terms of GVA increased (£131.7m).

Regarding new jobs created in 2050 compared to 2020, spending by older people contributes more than the younger generation for all sectors. In particular,

People aged over 65 will spend £79.5m more in 2050 than 2020 in the wholesale & retail trade sector, as a result 485 (62% of the total jobs created) new jobs will be created, a 6.6% increase from the sector's 2020 employment level.

Similarly, those aged over 65 will spend £24.7m more in the Hotels, restaurants & bars sector, and 388 (66% of the total jobs created) new jobs will be created, a 8.7% increase from the sector's 2020 employment level. And

339 (65% of the total jobs created) new jobs will be created in the education, health and other activities sector, mostly driven by the increased spending in health (£19.2m).

The changing population profile means demand for financial services and hospitality increase, and these are the sectors with a fairly young workforce73, which may mean these sectors are able to adapt under new conditions. Conversely, industries such as health, where over 20% of workers are over 55, may struggle to meet the new demand especially when a significant chunk of their workforce nears retirement. This may require significant training programmes or immigration policies to alleviate these concerns.

In terms of sectoral growth, the finance & legal sector sees the largest increase in GVA, mostly through knock-on impacts. In general, the financial services sectors in Jersey have high GVA per output values - averaging 60% compared to 46% in non-finance sectors - which further indicates that they respond more to extra consumption in the economy than other sectors74.

73 Government of Jersey, Labour market statistics

74 PwC, Towards an Economic Framework for Jersey, 2020

4. Skills and automation by sector  

This section has so far shown that, with demographic change, some sectors of the economy are expected to grow much faster than others (the health and long-term care sector being one of them). Some sectors can even decline as populations grow older.

These sectoral shifts present two main challenges for the economy:

1. The scarcity of labour linked to ageing can become more visible in those sectors that have larger shares of older workers (who are closer to retirement), particularly those that already experience skills gaps and thus face increasing vacancy rates.
2. These challenges are compounded by the need to dedicate more workers to lower productivity industries like care work, which increasingly takes on a larger share of the economy.

Some industries, particularly those that are more capital-intensive, can offset the shortage of labour by investing in automating technologies.75 If inward migration remains at low levels, automation does not seem to have downsides: with a declining labour force, it is useful to have less need for workers. In practice, whether automation is one of the keys to overcoming labour shortages depends on two questions:

Firstly, it depends on how far technology complements the work of Jersey's workforce (mainly by boosting productivity of skilled people) rather than making people redundant - and thus further increasing economic dependency76 by making more people claim social benefits if unemployed or retired early (see Box 6 for the expected impacts of automation on Jersey's Economy).

Box 6 - The impacts of automation on Jersey's economy

In 2020 Digital Jersey published research that identified wide-spread opportunities for task automation in the labour market as well as a digital skills density which lagged its counterparts in the UK. The findings were based on 9,000 local job vacancies and 6,000 CVs collected over the preceding 18 months. This painted a detailed picture of labour market demand, supply and skills utilisation as it was in 2020. Similarly, PwC published analysis in 2020 which estimated that 27% of jobs in Jersey are at risk of automation by 2035, in total 16,900 jobs. Sectors most at risk of automation include financial and professional services where repetitive and routine tasks can be replaced with labour substituting technologies.

COVID-19 has accelerated the digital transformation timetable and thus its impact on the labour market. Businesses here, as elsewhere, have rushed to adopt technology to survive, and many jobs will be impacted sooner than otherwise would be expected. As government employment support schemes wind down, the extent of unemployment in Jersey will emerge.

However, given the right conditions, there could be as many new employment opportunities created in Jersey as there are lost from labour substituting technologies. These are a mix of new, technology-enabled job roles within existing industries, expansion in personal care sectors, and potential growth sectors. For example, within the finance sector, automated core administration tasks in anti-money laundering (AML), client due diligence (CDD) and financial performance evaluation will free up capacity for added-value services. This could include bespoke investment management, data security and environmental, social and governance (ESG).

75 Also sectors that are associated with repetitive or hazardous tasks, such as manufacturing and construction, can expect significant gains from automation despite shortages in the young labour force.

76 Economic dependency in an economy is not to be confused with the usual definition of dependency ratio' which is often used as a synonym of the old-age ration (+65/15-64), which is simply an age-related statistic (not impacted by levels of unemployment).

Secondly, it also depends on how far different sectors can actually use automating technologies to alleviate

labour shortages. The sectors less subject to automation are, of course, more labour-intensive (see Figure 44).

Furthermore, some of these labour-intensive sectors are expected to grow into the future in the context of ageing populations - employing more of 55+ people as shown in Figure 44. The challenge for the economy is that some of these sectors show lower productivity, which can decelerate overall economic growth (see next section)

Figure 44: Sectoral propensity to automation: Potential cumulative rates of job automation by industry across automation waves.

Source: Will robots really steal our jobs? An international analysis of the potential long term impact of automation (2018). PwC

Labour shortages can accentuate in sectors that are more labour-intensive, which are less susceptible to be automated.  

Figure 45: Sectoral use of automation and older workers in Jersey. Source: PwC Digitally Upskilling the Channel Islands Report.

Source: PwC analysis using data from PwC (2018)

Upskilling will play an important role in overcoming the pressures of ageing populations.77 PwC research suggests that the risks of job automation are, on balance, greater for older workers (aged 55+) compared to those aged 25-54 years old.78 The share of potential jobs at high risk of automation by the 2030s amongst older workers is around 34%, compared to 28% for the 25-54 age group. The differences in risk can be explained by variation in skills and education attainment. Analysis of older workforces in OECD countries suggests that they consist of a higher proportion of low education workers, who are at higher risk as their jobs tend to be more easily automated. Older workers also tend to be employed in clerical support roles, which involve routine tasks that are more easily automated.

The allocation of workers across the most productive sectors of the economy, and not the sole fact of increasing labour force participation, is what will drive Jersey's productivity and economic growth, and thus reduce its level of dependency.

77 Look at evidence in: Paccagnella, M. (2016), "Age, Ageing and Skills: Results from the Survey of Adult Skills", OECD Education Working Papers, No. 132, OECD Publishing, Paris, https://doi.org/10.1787/5jm0q1n38lvc-en.

78 PwC (2018), Will robots really steal our jobs?

4. Impact of ageing on the wider economy

The workforce and sectoral impacts of demographic change translate into wider impacts on the economy and economic growth.79 Projections show that over the period 2018-30, declining working-age populations will drag down GDP per capita growth80 in 11, mostly advanced, G20 countries, by up to 0.5 percentage points.81 This means that the economy may become less productive.82

Whether Jersey can sustain its level of GDP per capita and standards of living will depend on how far the reallocation of workers, skills and capital (i.e. investments in new technologies) created by ageing across sectors of the economy can help boost productivity.

This section reviews what ageing means for productivity and growth of the economy, and then its fiscal implications.

1. Productivity and economic Growth  

There is cross-country evidence that productivity is correlated to changes in the age structure of the workforce.83 Data from the US shows a 10% increase in the fraction of the population aged 60+ leads to an over 5% fall in GDP per capita.84 Similar conclusions have been reached in the European economy85, where studies find negative productivity impacts from an older workforce.

Trends in productivity are the result of both supply and demand shocks. The former has to do with how far people maintain/improve (and use) their skills in an ageing workforce. The latter has to do with the sectors of economic activity that are expanding with changing consumption patterns of older populations, as analysed in Section 3. Figure 46 summarises all the channels through which ageing affects productivity, positively or negatively.

79 Demographic change can have an impact on: consumption and labour supply, on productivity and, ultimately, of GDP per capita. See Feyrer J. (2007), Demographics and productivity. Review of Economics and Statistics, 89(1):100–109, 2007. See also: Miles D. (1999), Modelling the impact

of demographic change upon the economy. The Economic Journal, 109(452):1–36, 1999.

80 GDP (per capita) growth is also affected by declining labour participation following factors: Declining employment rate; capital per worker; Total Factor Productivity.

81 OECD (2019), Fiscal challenges and inclusive growth in ageing societies.  

82 The IMF found that a 1 percentage point increase in the 55–64 age cohort of the labor force is associated with a reduction in total factor productivity of about of a percentage point. Extrapolating this result forward, projected ageing could reduce TFP growth by an average of 0.2

percentage points per annum over the next twenty years. link here.

83 See Feyrer J. (2007), Demographics and productivity. Review of Economics and Statistics, 89(1):100–109, 2007

84 Which is partly explained by a 3% drop in the rate of growth in output per worker (OECD 2019).

85 Iñigo Calvo-Sotomayor, Jon Paul Laka and Ricardo Aguado (2019), Workforce Ageing and Labour Productivity in Europe  

[16]Figure 46: Impacts of ageing populations on productivity - direct and indirect channels. Source: PwC Analysis  

Channel  Effect Description  Evidence86  

Age-related  Individual  With different age-specific productivity, overall productivity in the economy changes as Productivity  productivity varies  the age composition of the workforce gets older.

(age effect)  at different ages of

workers.  Age-specific productivity tends to increase up to a certain age and levels out thereafter.

[17] Whether productivity starts declining after a certain age depends on the type of tasks carried out by workers (and thus on the levels of skills and education).88

>> Negative effect: the greater presence of older workers may hamper firms' productivity and future growth if older workers are less innovative or less willing to take risks.89 Accelerated rates of population ageing can reduce adaptability in some sectors >> Positive effect: Older workers have substantial job experience, and an increasing number of studies suggests that departures of senior colleagues may be detrimental to co-worker's productivity.90

Spillover effect  Changes in work  Ageing can have a negative impact on productivity growth of all workers across the

in wider  practices and  economy:

economy consumption habits >> Negative effect: if less productive sectors of the economy expand with ageing.91

(market effect) by an older >> Negative effect: Ageing and population decline can lead to lower entrepreneurship

population (and  (e.g. start-up creation) and lower competition, which overall results in less productive workforce) impacts  economies.92

whole teams, firms  >> Positive effects: countries, where ageing has been faster, are also characterised by and industries.  a higher rate of technology adoption (as response to increasing labour shortages),

which boost productivity of workers.93

Capital  Differences in the  With ageing populations, there is a large accumulation of savings when there is a higher accumulation  rate of capital  concentration of people in the age groups close to retirement (e.g. 50-64) and then a (indirect) effect  accumulation  decline in aggregate savings in the economy as median age increases and more and

impact investment  more people retire and start using their savings.94

levels and, in turn,

economic growth.  This phenomenon has aggregated macroeconomic impacts on interest rates, the

accumulation of capital and levels of investment and, ultimately, economic growth.95

Thinking about people and productivity (the supply side), older workers have skills and other attributes coveted by firms that may be difficult to replace in the labour market.96 In less advanced economies, economic activity tends to be more concentrated on manual labour and thus suffer from the effects of ageing (and related physical skills depreciation). In an economy like Jersey's, more and more built upon services, knowledge and technology adoption, economies can benefit from the ability of older workers to plan and interpret.

The size of the estimated economic contribution made by each age group will depend on the labour force participation rates. Under a low participation rate, the expected economic output of Jersey's workforce above the age of 55 is approximately £1.1 billion compared with £1.4 billion under a high participation rate (Figure 47)97. For this reason, proactive policy interventions will likely be needed to steer the participation rate upwards across all age groups.

Figure 47: Expected economic output by age group by 2050 under different participation rates (migration scenario: 700+). Source: PwC Analysis, Government of Jersey.  

A greater challenge for Jersey has to do with how ageing reshapes sectoral growth and the structure of the economy.98 In general, global evidence shows that consumption can drop up to 20% at retirement,99 with lower-income households particularly affected, which means that economic dynamism can be affected as more people reach that stage. More importantly, trends in sectoral growth linked to ageing can decelerate economic growth if less productive sectors (e.g. health and social care) expand faster than others - and thus employ an increasing share of the workforce. This could magnify the productivity challenges that Jersey has faced in the last two decades.100 It can also magnify the pressures of larger fiscal expenditures. The use of more labour-intensive services (e.g. health or social care), less subject themselves to [18]productivity growth, leads to higher allocation of resources (private or public) to these sectors101 - with a potential effect of a larger share of GDP being channelled by the Government via the welfare state.102

There certainly are new opportunities in the "Silver economy" to continue innovating. These likely require active industrial policy (see Box 7).

There are also forces favourable for productivity that can be leveraged:

The ageing of the labour force has been associated with increases of productivity-enhancing ("labour saving") automation at the industry level 106, as firms respond to an increasing scarcity of labour in an ageing society.107 In general, if the ageing process leads to technological innovation, labour productivity can increase.108

The shift toward knowledge-based economies can keep older workers for longer in employment - and remain more productive - if people continue acquiring the right skills.

A positive correlation between older population structures and the levels of labour productivity, if it is achieved, would be in principle expected to expand society's consumption possibilities into the future and create more leeway in public finances.109

2. Fiscal impacts  

An ageing population inevitably has consequences for Jersey's public finances, as work, spending and saving behaviours change as individuals and households age. Older (normally retired) individuals spend (and typically earn) less, whilst often using public services more, notably healthcare services.

The fiscal impact expected in Jersey depends on how public expenditure and social security benefits are expected to evolve, particularly health expenditure per head, with estimates from other locations suggesting that someone aged 65 already consumes 2.5 times more health care than an average 30-year-old.110

This section analyses both fiscal expenditures and revenues in Jersey in the context of ageing populations. It looks in particular at the net fiscal contributions of different types of Jersey-born and migrant workers.

International experience shows that ageing populations can increase the public debt burden;111 and if public expenditure is not contained, tax revenue would need to increase to stabilise public debt-to-GDP ratios at their current levels.112Jersey typically runs a balanced budget and does not hold ongoing public debt, but it may still need to increase taxes as it would not want any public debt.113

Expenditure

Government expenditure on health, social care and related benefits accounted for about £330 million of public spending in 2020114, or approximately £3,000 per capita.

Average costs per person do however vary quite substantially by age group, with older members of the population typically requiring more care than the younger groups (Figure 48).

Figure 48: Government expenditure on health per capita by age (£, inflation adjusted to 2020). Source: Statistics Jersey.  

Source: Government of Jersey

Illness  and  disease  tend  to  become  more  common  as  age  increases.  As  a  consequence,  public expenditure  on  health  increases  through  the  age  groups.  The  per  capita  public health spending is significantly lower when people are in their childhood or at working age, before it doubles for those aged 65 and above. Unsurprisingly, the oldest, aged 85 years and over, costs the government the highest amount of per capita spending on health, 3 times larger than the spending on those between 18 and 65 years old.

Table 3: Government spending on health and old age, 2018.

Health  Old age

Percentage of gross  Percentage of general  Percentage of gross  Percentage of general domestic product (GDP) (%)   government spending (%)   domestic product (GDP) (%)   government spending (%)  

Denmark  8.3  16.8  8.2  16.2 Netherlands  7.6  18.3  6.4  15.3 UK  7.5  17.5  8.3  20.2 EU27  7.0  14.1  10.4  22.3 Finland  7.0  14.0  13.6  25.6 Slovenia  6.6  14.3  9.9  22.8

Malta  5.3  13.1  6.7  18.3 Estonia  5.1  10.6  6.7  17 Ireland  5.0  11.6  3.2  12.5

Source: PwC Analysis, Statistics Jersey, OECD. Eurostat – General government expenditure by function (COFOG) [gov_10a_exp]; Government of Jersey Annual Report and Accounts 2018

In 2018, Jersey spent £284m on healthcare, equating to about £2600 per person. As a percentage, Jersey healthcare spending equated to 6.1% of GDP, which is in the middle range when compared to a few comparator countries (Table 3). However, of the selected countries, Jersey's healthcare spending as a percentage of total government spending was the highest. Jersey's spending on old-age pensions is also low as a percentage of GDP, but it is high when expressed as a percentage of public expenditure.

It looks unlikely that health care expenditure will be contained in the future. There is certainly evidence of a certain degree of compression of morbidity in some countries (notably Germany),115 but other countries (including the UK) have observed a deterioration of health outcomes of older people. If there are more and more older people that prolong life expectancy but not years of good health accordingly, then health expenditures are to continue increasing. Moreover, people are likely to expect better health care services than in the past. New medical technology and drug therapies, for instance, increase the demand for health care for all age groups, because these make new treatments, that were previously unattainable, possible.116

Demographic change, technological advancement, and epidemiological characteristics all will continue having an influence on the pattern of health expenditure.117 The challenge of the demographic transition is the ability to provide (and finance) welfare services that meet the needs and requirements of most people. It is not sufficient merely to ensure the provision of the same services as we have today. To maintain the welfare state, public services will need to meet future standards. The standards people expect of health care, for example, are very different from what was considered acceptable some decades ago.118

As the budget for health (and social) care increases, there will be a pressure to increase taxes to keep the budget balance in order. International evidence shows that the magnitude can be substantial: in the UK, research by King's Fund finds that a 3 percent real yearly increase in the budget for health care to cover the rise in demand for a decade, would require a permanent increase in tax or reduction in spending on social security benefits and tax credits.119 In Jersey, such trends can lead to considering wider tax reform.

Table 4: Employment and GVA impact in Jersey, 2020 vs 2050, net 700+ migration scenario.  Source: PwC Analysis, Statistics Jersey.  

0-16   17-64   65+   85+   Total  Change in population compared to 2020  2,923  10,095  14,193  5,744  32,955 Increase in public spending on health  4.6  17.9  60.4  27.9  105.0

(£m)

Employment effect (FTEs)*  82 (62)  319 (257)  974 (783)  498 (400)  1873 (1505)

GVA effect (£m)  3.9  15.1  46  23.5  88.5 *Direct effect in brackets.

115 Source: https://www.thelancet.com/journals/lanepe/article/PIIS2666-7762(21)00055-7/fulltext

116 see, for instance, Okunade A. and V. Murthy. Technology as a major driver of health care costs: a cointegration analysis of the newhouse conjecture. Journal of Health Economics, 21:147–159, 2002. See also: Lichtenberg F.R. The impact of new drugs on us longevity and medical

expenditure. American Economic Review, 97(2):438–443, 2007.

117 This implies that besides the quantitative dimension of ageing (fewer individuals of working age, an increased number of elderly people), there is a qualitative dimension to the welfare states that will be affected by new technologies.

118 See discussion in Andersen T.M. and L. Haagen Pedersen. Financial restraints in a mature welfare state. Oxford Review of Economic Policy,

22(3):313–329, 2006.

119 Projections of Appleby et al [2009]. How cold will it be? Prospects for NHS funding: The King's Fund and Institute for Fiscal Studies, 2009.

Amid this challenge, there is the opportunity to innovate and expand employment in new sectors of the silver economy. Under the net 700+ migration scenario, the number of people aged over 65 is expected to increase by 14,193 by 2050, 43% of the total population increase (Table 4). Assuming a constant per capita health spend over the next 30 years, a further £60.4m in spending will be needed to cover the healthcare needs for those aged 65 and above, creating an extra burden on the government. On the other hand, this additional expenditure on health creates demand for extra labour. According to the Supply and Use Table, this spending will generate 1,873 new jobs by 2050, of which 1505 will be added directly to the health sector.

Tax revenues and net fiscal contributions  

The net fiscal contribution of people throughout their life-cycle follows a well-known pattern:120 Benefits received (which is expenditure by government) are larger than taxes paid for young people still in education and for older people in retirement121 - with people between the ages 25-65 becoming the net tax payers.122