Ralf Einert

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Studies of Economic Change

Introduction (Worst Case)

The forecast of the unemployment in the case of political passivity, the basic assumption, can reach up to 7.5 million unemployed before the aging population comes into effect. Therefore the question arises if the social cohesion is in danger: Is it possible to bridge this critical phase by reducing the social welfare or by increasing the psychological pressure on the unemployed? How do the people react who feel that they might lose their life perspectives despite substantial investments in their education? Do the audacity and anger about the situation suffice to destabilise the social structures? Are freedom and democracy in danger?

The analysis of the worst case shows that an extrapolation of the trends of the past into the future might cause problems if the politics continues as before. This chapter contains a model to create scenarios to determine the point of time of a potential social breakdown. As it is only a qualitative model it is not possible to determine an exact date. The shapes of the curves have to be interpreted in this sense.

The model consists of three steps plus the transfer of step 3 to step 1:

Step 1: Forecast of the unemployment rate

The first step is a forecast of the number of unemployed people for some decades to consider the demographic development. Then this forecast is transferred to the unemployment rate in percent.

Step 2: Influence of taxes and duties

The employment rate influences the level of taxes and duties because the non-working population has to be supported as well. The income tends to nothing if the employment rate tends to zero.

Step 3: Social welfare and wages

The decrease of the employment causes wages and income which could reach a level below the poverty line. If the gap between income and social welfare is too small the social cohesion in danger.

Determination of the point of time of the potential social breakdown:

The employment rate which is determined according to step is transferred to the employment rate of step 1. Do both rates reach the same level danger is at hand - the worst case is very likely.