Mortality effects of economic fluctuations in selected eurozone countries

• Date: 01 January 2019
• DOI: http://doi.org/10.1002/for.2550
• Author: Colin O'Hare,Athanasios A. Pantelous,Malgorzata Seklecka,Norazliani Md. Lazam
• Published date: 01 January 2019

Received: 27 August 2017 Revised: 5 August 2018 Accepted: 11 August 2018

DOI: 10.1002/for.2550

RESEARCH ARTICLE

Mortality effects of economic fluctuations in selected

eurozone countries

Malgorzata Seklecka1Norazliani Md. Lazam2Athanasios A. Pantelous3Colin O'Hare3

1Group Accumulation Management,

Zurich Insurance Group Ltd, Fareham,UK

2Faculty of Computer and Mathematical

Sciences, Universiti Teknologi MARA,

Shah Alam, Malaysia

3Department of Econometrics and

Business Statistics, Monash University,

Clayton, Australia

Correspondence

Athanasios A. Pantelous, Department of

Econometrics and Business Statistics,

Monash Business School, Monash

University, 20 Chancellors Walk,

Wellington Road, Clayton,Victoria 3800,

Australia.

Email:

Athanasios.Pantelous@monash.edu

Abstract

Socioeconomic status is commonly conceptualized as the social standing or

well-being of an individual or society. Higher socioeconomic status has long

been identified as a contributing factor for mortality improvement. This paper

studies the impact of macroeconomic fluctuations (having gross domestic prod-

uct (GDP) as a proxy) on mortality for the nine most populous eurozone coun-

tries. Based on the statistical analysis between the time-dependent indicator of

the Lee and Carter (Journal of the American StatisticalAssociation , 1992, 87(419),

659–671) model and GDP, and adaptation of the good features of the O'Hare

and Li (Insurance: Mathematics and Economics, 2012, 50, 12–25) model, a new

mortality model including this additional economic-related factor is proposed.

Results for male and female from ages between 0 and 89, and similar for uni-

sex data, are provided. This new model shows a better fitting and more plausible

forecast among a significant number of eurozone countries. An in-depth analy-

sis of our findings is provided to give a better understanding of the relationship

between mortality and GDP fluctuations.

KEYWORDS

eurozone countries, economic growth (GDP), forecasting, longevity, Lee–Carter (LC) model,

O'Hare–Li (OL) model

1INTRODUCTION

Since the beginning of the 20th century, human longevity

has been increasing tremendously. Growth of the aging

population is evidence for a positive milestone of society's

well-being. Each country experiences a different trend of

longevity improvement (Pampel, 2005; Yang & Wang,

2013). For instance, life expectancy for Europeancountries

has risen significantly over the past few decades. Life

expectancy rose by 14 years from 1950 to 2015 (see

Figure1).1

This paper is dedicated to the memory of our wonderful friend, colleague

and collaborator, Prof. Colin O'Hare, who passed away suddenly as the

result of an accident on 1 August, 2018.

1Source: United Nations Department of Economic and Social

Affairs/Population Division—World Population Prospects: 2015

Revision, VolumeII: Demographic Profiles.

Many academics (e.g., D'Amato, Haberman, Piscopo,

& Russolillo, 2014; Deng, Brockett, & MacMinn, 2012;

Yang, Yue, & Huang, 2010) have discussed improvements

in life expectancy. This reflects that people are living

much healthier and better now as compared to previous

generations. According to Gaille and Sherris (2010), Roy

(2012), French and O'Hare (2014), some potential rea-

sons for these improvements may be socioeconomic status

(education, occupation, and income level), marital sta-

tus, technological advances in medicine, nutrition, and

diet (obesity), lifestyle (smoking and alcohol consump-

tion), and living environment (climate, pollution, public

health, sanitation, and population density). The increases

in life expectancy are mainly due to improvement in the

food supply, sanitation, technology, basic healthcare, and

education (Roy, 2012). It is believed that the evolution of

Journal of Forecasting. 2019;38:39–62. wileyonlinelibrary.com/journal/for © 2018 John Wiley & Sons, Ltd. 39

40 SEKLECKA ET AL.

FIGURE 1 Europe: life expectancy at birth for male, female and overall [Colour figure can be viewed at wileyonlinelibrary.com]

the trend in longevity has produced a new curve to stan-

dard life expectancy, causing current life tables to under-

estimate future life expectancy (Barrieu et al., 2012). This

phenomenon has become more crucial since it has drawn

the attention of many organizations such as pension funds

and life and health insurers, and also individuals. Hold-

ers of longevity risk, particularly now, need to be more

mindful of their funding and price methods to ensure their

products are priced and reserved sufficiently (Richards &

Currie, 2009; Seklecka, Pantelous, & O'Hare, 2018). The

government faces challenges in financing an aging pop-

ulation with longer lifespans while insurers are liable for

providing conducive and appropriate healthcare solutions,

and need to understand expected lifetimes sufficiently.The

threats of longevity risk also extend to individuals who

have not purchased products that insure their retirement

income, or are unable to do so. Eventually, the longevity

phenomenon will affect annuity values, pensions, insur-

ance and individual savings. Thus the need to model

mortality more accurately becomes critical in planning

for one's sustainability. It helps the government in fund-

ing pension policies sufficiently, actuaries and insurers

in pricing age-related financial instruments appropriately

and individuals in planning their post-retirement favor-

ably (Godinez-Olivares, Boado-Penas, & Pantelous, 2016;

Richards & Currie, 2009; Seklecka et al., 2018).

The challenge of modifying mortality projections is

made more interesting since mortality improvements are

not comparable across all countries. Roy (2012), in his

study, found that different countries experience differ-

ent stages of demographic transition due to different

patterns of population growth. He further commented

that this scenario can be clearly observed when compar-

ing developed and emerging countries. Thus an accurate

identification of factors affecting the mortality experience

in a particular country is crucial. On the other hand,

evidence of a relationship between economic changes and

mortality in many developed and developing countries has

been presented by many researchers (Boonen & Li, 2017;

Hanewald, 2011; Hanewald, Post, & Grundl, 2011; Niu &

Melenberg, 2014; Preston, 2007; Rolden, van Bodegom,

van den Hout, & Westendorp,2014; Tapia Granados, 2008,

2011).

In the present paper, we focus on the nine most

populated eurozone countries and analyze the effect of

socioeconomic factors on mortality trends.2Namely, we

consider Austria, Belgium, Germany,Greece, France, Italy,

Netherlands, Portugal, and Spain.3Despite having an

overall competitive economic growth performance, dif-

ferent countries in the eurozone experience a different

pace of economic growth. Countries that have significant

economic growth are mainly those located in northern

and central Europe, such as Austria, Belgium, Germany,

France, and Netherlands, whereas gradual growth has

been experienced in peripheral countries such as Spain,

Greece, Italy, and Portugal. We grouped these countries

into two categories: strong economic countries such as

2The eurozone was established on January 1, 1999 with its first members

of 11 countries. It was then enlarged to 19 countries: Austria, Belgium,

Cyprus, Estonia, Finland, France,Germany, Greece, Ireland, Italy,Latvia,

Lithuania, Luxembourg,Malta, Netherlands, Portugal, Slovakia, Slovenia

and Spain. These 19 countries are from 28 European Union (EU) mem-

ber states that are grouped together within the same monetary union,

using the euro (€) as their common currency and sole legal tender. The

monetary authority of the eurozone is called the Eurosystem.

3We include those eurozone countries in our analysis not only because

they are members of the same monetary union, but also because their

population exceeds 10 million citizens (2011 census). Additionally, the

majority of those countries have shared common monetary and fiscal

policies for the last 40 years (even before becoming members of the euro-

zone system), and codependent and heterogeneous growth cycles have

been reported (Chen & Mills, 2009).