Rich or poor? Looking into the future
The ready availability of worldwide demographic data on age, sex, and educational attainment is opening up new avenues for research. As part of research work carried out in cooperation with the Intergovernmental Panel on Climate Change, Jesús Crespo Cuaresma, head of WU’s Institute for Macroeconomics, used this data to develop income projections for 144 countries until the year 2100. He also looked at how these projections can help to better understand the challenges posed by climate change. Jesús Crespo Cuaresma’s new model is the first of its kind in the world. It allows for the economic effects of climate change to be included in scientific models for developing future projections.
To help improve our understanding of possible future developments and our ability to cope with them, the Intergovernmental Panel on Climate Change has developed five scenarios that project global ecological developments until the year 2100. On the basis of these scenarios, researchers around the world are investigating the impact each of these scenarios would have on job markets, education, and income. A team of demographers is using these scenarios to develop calculations that project a number of important factors, for instance changes in age structure and education in 144 countries in the period until 2100. Based on these figures, Jesús Crespo Cuaresma looked at how the income of populations changes, both for specific countries and globally. For this purpose, he developed a unique scenario modelling framework capable of modelling a wide range of future global developments. In his latest study, Professor Crespo Cuaresma and his team show how income, within specific countries and around the world, is expected to change depending on the factors of age structure, sex, and level of education.
Two possible scenarios
“Climate research needs modelling frameworks capable of mapping out long-term income development scenarios for all countries in the world,” explains Jesús Crespo Cuaresma. “There are five different scenarios we are working with. Let’s pick two of them as examples: The first predicts a world where average incomes are converging – there is equal access to education and differences in income within and between countries are decreasing. In the second scenario, unequal educational opportunities, for instance, lead to more pronounced global inequalities.” Even though inequality persists in the second scenario, the demographic data still indicate a positive development of educational levels until 2100 for both scenarios. The positive development is more marked in the first scenario, however, especially for low and medium-income countries.
Age, sex, education
Many economic models make income projections based on the assumption that everyone is equally productive. Professor Crespo Cuaresmo took a more nuanced and precise approach: For his model, he selected age and education as the most important factors influencing a person’s productivity. Following this innovative apporach, he based his calculations of income dynamics not simply on representative individuals from the respective populations, but he also factored in the development of age structures and educational levels. “As a first step, we calculated the five income scenarios for each of the 144 countries individually, and then we made worldwide comparisons,” says Professor Crespo Cuaresma. “As far as education is concerned, the results suggest that higher levels of education not only improve people’s productivity but also their creativity. This drives technological innovation, which, in turn, increases the efficiency of individuals and also of the population as a whole.”
Easy to communicate
“One of the biggest advantages of our scenario modelling framework is that the results can be visualized very well and are therefore easy to communicate. In this way, they deliver an important output,” explains Jesús Crespo Cuaresma. “With this new framework, we can also build scenarios in other fields, for instance with regard to questions such as: What does the development of democracy look like globally and in specific countries? Which developments can be expected regarding health and life expectancy in a given population?”
Improved measurability
“Projections of the development of countries’ GDP, both per capita and in total, provide valuable information for models intended to measure the effects of climate change. By combining climate data and structured population forecasts with modelling frameworks that estimate the development of income, WU and at the Wittgenstein Centre for Demography and Global Human Capital are taking a completely new approach,” says Professor Crespo Cuaresma, summing up his research. He and his team are the first researchers in the world to work with this novel approach.
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