Economic effects of the population development for the municipality of Oslo

The report investigates what the expected population growth and changes in population composition could mean for Oslo's revenue and expenditure until 2025.

The project addresses two main issues:

1. How can the population of Oslo look like in 2025?

2. How can the economy be affected by predicted demographic changes until the year 2025?

Based on the levels of Statistics Norway’s population projections from June 2016, the report shows projections of the population in Oslo and changes in population composition by gender, age, level of education, country background and duration of residence for immigrants in 2025. We have conducted a separate projection of the number of immigrants in Oslo, and used various models to calculate the econ¬omic effects of three projection options for low, medium and high immigration.

Projected population growth and somewhat altered composition of population up to 2025

Oslo had nearly 648,000 inhabitants by the end of 2014, which is used as the base year for the projections. By the end of 2025 the three projections estimate a population of Oslo at roughly 741,000, 758,000 and 779,000 persons respectively. We expect the highest change among immigrants from country group 3 (immigrants from Europe outside the EEA and Switzerland, Asia, Africa, South and Central America and Oceania except Australia and New Zealand) with an increase of 45,000, 58,000 and 73,000 persons in the three alternatives. The increases of immigrants in other groups are estimated to be more moderate. Non-immigrants, including children born in Norway of immigrant parents, are projected to increase by about 35 000 persons in all projection alternatives.

By the end of 2014, just above 75 percent of Oslo's population were non-immigrants, while immigrants amounted nearly 25 percent of the population. All three alternatives provide an increase in the proportion of immigrants in Oslo in 2025, from 29 percent of the population in the scenario with low immigration, 31 percent in the intermediate alternative and 33 percent when the alternative for high immigration is applied. The duration of residence among immigrants increases.

Higher employment, but also higher labour force

In the projections, the population’s educational level will increase until 2025. Because of Oslo's industrial structure, where in particular market and public services make up a large proportion, we estimate a slightly higher employment growth in Oslo than in the country as a whole. Overall, we estimate the employment growth in the period from 2015 to 2025 to be 11 percent, which corresponds to about 51 000 employees. The projection shows stronger growth in employment in the coming years, before the growth falls at the beginning of the 2020s.

The number of employees who both lives and works in Oslo is expected to increase up to 2025, but so do also the labour force (employed residents of Oslo plus unemployed). The strongest increase is found in the alternative with high immigration and least growth in the scenario with low immigration. This reflects that many non-immigrants now move into age groups where the labour partici¬pation rates are generally lower, that the small birth cohorts in Norway in the 1970s and 1980s now will reach an age with generally high employment, while a higher proportion of immigrants still will be in age groups where the labour participation rate is high. Increased duration of residence partly also increase the employment participation of immigrants. Projected workforce and the number of employed residing in Oslo indicates an increase in unemployment in Oslo from 2014 to 2025 with about 0.4 percentage points in the alternative with low immigration to just above 0.8 percentage points in the high alternative. This reflects the increased number of immigrants in the country group 3.

Employed citizens of Oslo are estimated to increase slightly more than the number of jobs in the city. This is consistent with data showing a gradual, but slight, increase in the relationship between employment by place of residence and number of jobs in Oslo, caused by Oslo's citizens’ ability to becoming increasingly employed in jobs outside of Oslo. With regard to personal taxes, it is not decisive where employed residents in Oslo have their place of work, but that they still remain registered as residents in Oslo.

Small changes in the level of municipal personal taxes per capita

Oslo's share of the country's total personal taxes (sum of income tax and wealth tax) to municipalities is estimated to increases slightly from 2014 to 2025 in all projection alternatives, but moderately lower than the increases in Oslo's share of the population. Oslo's share of personal taxes will decline slightly for non-immigrants, but increase for immigrants in country group 3, which is expected to get a significant increases in population. With the current revenue system for munici¬palities and counties lower taxes per capita would to some extent be compensated by lower tax-leveling feature in the block grant.

According to the population projection, estimates indicate an increase in municipal person taxes from 2014 to 2025 in Oslo at just above 14 percent in the alternative with low immigration, below 17 percent in the intermediate alternative and nearly 20 percent according to the alternative with high immigration measured by fixed 2014-kroner. This is a moderately weaker increase than the growth of the population. The calculations thus give small changes in personal income tax per capita in Oslo until 2025. Measured in fixed 2014 kroner, non-immigrants are estimated to have a slight decline in personal income tax per capita, while immigrants are estimated to have an increase in personal income tax per capita. Important explanatory factors are changes in the population's age composition and increased duration of residence among immigrants in general. Many new immigrants after 2014 will increase their duration of residence from short to medium time of residence during the projection period. This increases their labour force participation.

With the current revenue system for municipalities and counties, any decrease in the average tax per capita will in part be compensated by the Oslo tax-leveling feature is reduced. Reduced tax per capita will therefore not give a full impact on the municipality's financial room for maneuver.

Higher spending on nursing, care and social assistance

By 2025, a larger proportion of the mandatory expenditures in Oslo are calculated to be allocated to nursing and care services and social assistance, while these expenditures will decrease in relative terms within primary schools and kinder¬gartens. The alternatives with middle and high immigration will provide a rela¬tively strong increase in the mandatory expenditures within social assistance. Low alternative for immigration, however, will provide a relatively strong increase in the mandatory expenditures within the care sector. We find that the total mandatory costs per capita are virtually unchanged, under the assumption that the standard of services aimed at different audiences are kept at the same level as in 2013.

The alternative with low immigration provides an increase of just below 20 percent in Oslo's mandatory expenditures from 2013 to 2025 measured by fixed 2013-kroner. Similarly, the intermediate option gives an increase of just below 23 percent, while the high alternative indicates an increase of about 26 percent in the mandatory expenditures.

With the current revenue system increased mandatory expenditures will be compensated for by increased grants from the central government. Thus the financial resources for the municipality will hardly be affected by such trends in the mandatory expenditures.