by Rainer Münz
Today, demographic change is a global phenomenon resulting from two almost universal trends (1): declining fertility and increasing life expectancy. All countries in the world experience declining fertility or have stagnating fertility below replacement level (2). And the majority of countries report increasing life expectancies (3). As a consequence most parts of the world will witness demographic ageing throughout the 21st century. Large discrepancies, however, will remain.
Europe and Japan have entered the stage of demographic stagnation and will most likely be confronted with some population decline during the first half of the 21st century. As a result most parts of Europe – in particular many EU27 member states and all European CIS countries – are confronted with stagnating or declining working age populations and the prospect of shrinking native labour forces. In China, demographic decrease will start around the year 2025.
In contrast to this stagnation or even decline, populations of Europe’s neighbouring regions – Central Asia, the Middle East and North Africa will continue to grow significantly. In the neighbourhood of the EU, the MENA region, Turkey and Central Asia will experience sustained demographic growth and a growing number of people entering the labour force. These regions still have much higher fertility. And their populations are much younger, with a median age of 20 years or less, compared to 39 in today’s Europe.
A few demographic facts about Europe
In 2009, the European Union had 500 million inhabitants – more than ever before. Almost all societies of Western and Central Europe have fewer than 2 children per family. On average women in Europe give birth to 1.5 children. In a parallel development the proportion of women without children is growing.
In all countries of Western Europe life expectancy has reached its highest historical levels and continues to increase. In contrast, most countries of Central and Eastern Europe have seen periods of increasing life expectancy as well as periods of stagnation and even decline. Today EU citizens on average have a life expectancy at birth of 75 years for men and of 82 years for women. Life expectancy continues to increase in Western and Central Europe at a pace of 2-3 months per year. Since infant and child mortality have already reached very low levels, this essentially translates into a gain in life expectancy above the age of 50. If this trend would continue throughout the 21st century we could expect a further increase of our life span by some 15-20 years.
The recent past was characterized by the following developments: Labour migrants particularly from countries with lower wage levels (Bulgaria, Latvia Lithuania, Poland and Romania) made use of the freedom of establishment and access to Western European labour markets (in particular to Italy, Ireland, Portugal, Spain, and the UK). Other countries of Western Europe experienced continuous family reunion, reduced flows linked to asylum, ethnic migration, and inflows of irregular migrants from Northern and Western Africa, the Middle East and Asia. Ukraine and Moldova emerged as important new European source countries.
Since the year 2000, Italy and Spain recorded by far the largest net inflows; followed by France, Germany, Greece, Ireland, and the UK. Net outflows were largest in Bulgaria, Poland, Romania, and Turkey (2000-2006). Following the general trend, most EU/EEA countries (including several new EU member states) have meanwhile become net immigration countries. It is very likely that, sooner or later, this will be the case in other new EU member states and candidate countries as well.
Main “gates of entry”
EU and EEA citizens are more or less free to move within Western and Central Europe, to take residence and to join the work force in any other EU/EEA member states. In the recent past a growing number of EU citizens made use of this freedom. Some restrictions, however, still apply to citizens of new EU member states seeking employment in another EU country (4). The key gates of entry for people immigrating to the EU are temporary and long-term labour migration, family reunion (5) and family formation, the inflow of asylum seekers (some 240,000 applications in all EU countries in 2008), and the inflow of co-ethnic “return” migrants and their dependent family members. Published data on gates of entry, however, do not account for all relevant migration flows. For example, in several EU countries economic migration takes place to a larger extent in the form of seasonal and temporary labour migration (some 600,000 persons admitted annually in EU27), as well as in the form of irregular labour migration of at least the same magnitude.
Europe’s foreign born population
Today 43 million people residing in the European Union (EU27) and associated countries (other EEA, CH) are regular international migrants. They represent 8.5% of Western and Central Europe’s total population. Some 14 million of these migrants have come from other EU member states (in some cases prior to the EU accession of their home countries). The remaining 29 million have come from other parts of Europe and other world regions. Among them some 19 million residents of Western and Central Europe are immigrants from Asia, the Middle East and North-Africa, sub-Saharan Africa, Latin America and the Caribbean. During the last decade the main European sending countries were Poland, Romania, Turkey and Ukraine.
A comparison of all EU27 (and associated) countries shows: Germany has by far the largest foreign-born population, followed by France, the UK, Spain and Italy. Relative to population size, two of Europe’s smallest countries – Luxembourg and Liechtenstein – have the largest stock of immigrants, followed by Switzerland, two Baltic states – Latvia and Estonia – and Austria. In the majority of West European countries the foreign-born population accounts for 6-15% of total population.
Population forecasts for Europe
In 2009, the European Union had 500 million inhabitants. According to medium-term population projections published by Eurostat, total population in EU27 will continue to increase until 2035 at a reduced pace to 520 million. During the following period Eurostat expects a subsequent decline to 515 million in 2050, with all new and many old EU member states facing a marked decrease of native-born populations. The projection assumes continuing net gains from international migration in the order of 50 million people during the period 2008-2050. In the absence of mass migration EU27’s total population would already start to decline after the year 2010. By 2050 the number of people living in EU27 would have dropped to 444 million.
Projected demographic change has a significant impact on the future age structure. In the European Union the size of the working age population (age group 15-64) was 330 million in 2005. This group will start to shrink after 2020 reaching 328 million in 2025 and 294 million in 2050. Within this group the momentum will also shift from younger to older people at employable age. The number of younger Europeans entering the labour market (age group 15-24) is already shrinking in a number of EU member states and will decline in EU27 as a whole over the next 45 years. In contrast, the age group 30-54 will continue to grow until 2020. The age group 55-65 is likely to grow until the year 2030 when the largest cohorts of the baby boom have reached (today’s) retirement age.
At constant labour force participation rates the number of economically active people would shrink from 236 to 229 million in 2025 and to 207 million in 2050. In the absence of any international migration this decline would be even larger. Under such – rather unrealistic assumptions – Europe’s working age population would fall to 224 million (2050); and the number of economically active people would drop to 171 million by 2050 if labour force participation would remain constant over time.
On the other hand, as a result of an increasing life expectancy and the ageing of the baby boom generation, the age group 65+ will grow from 81 million (2005) to 112 million in 2025; and to 148 million in 2050. This is an increase of some 67 million people. Within this age group the largest increase is to be expected for people over 80 years of age (2005: 19 million, 2050: 54 million). For Western and Central Europe the demographic process analyzed here can be characterized as shift to a society in which the older segment of the work force (45+) and the already retired elderly will form a majority.
Demographic aging is reflected in the so-called “old age dependency ratio”: Today for every 100 Europeans at working age (15 to 65) there are 25 senior citizens in age group 65+. By 2050 this ratio will “deteriorate” to 50 senior citizens per 100 Europeans at working age. In that year Bulgaria, Italy and Spain are expected to have the highest old age dependency ratios. The development is even more dramatic if we look at the “support ratio” between the actual work force and the older population.
Today in EU27 there are 35 senior citizens in the age group 65+ per 100 Europeans actually working and contributing to the public coffer. Until 2050 (at constant labour force participation rates) this ratio would rise to 73 senior citizens per 100 people in the work force. This would constitute a dramatic old age burden for those still economically active and a threat to future pension systems.
Implications for Europe’s work force in the absence of mass migration
Today’s labour force of the EU27 comprises 235 million people. Of them some 21 million (=9%) are foreign-born. At current labour force participation rates, demographic aging translates into a shrinking labour force. Based on the assumptions of the Eurostat’s 2008 convergence scenario Western and Central Europe’s work force would decrease to 229 million (-3%) in 2025 and to 207 million (-10%) in 2050 (at constant labour force participation rates). In the absence of any international migration this decline would be even larger (2025: 214 million; -10%; 2050: 171 million; -20%).
For Europe the most obvious strategies coping with demographic ageing and the eventual decline of native-born work forces are:
- Higher retirement age: In ageing societies a considerable potential to increase domestic labour forces and to reduce the number of retirees rests in the reversal of a very common behavioural pattern: We would have to end early retirement. This strategy particularly applies to countries where actual retirement age is well below legal retirement age. In EU27 the average actual retirement age is 61.9 for male workers and 60.5 for female workers. As a result the employment rate in the age group 55-65 is below 45%. Taking into account the prospect of a continuously increasing life expectancy there is room for the prolongation of our working life and an increase of today’s actual as well as statutory pension ages. This option, however, demands a shift in attitudes both at employees’ and employers’ sides as well as pension systems that do not favour early retirement. In this respect current adult education and training programs, salary schemes, and pension systems must be reformed in order to make employment of older workers more attractive. It should also be publicly questioned whether the general attitude of systematically draining the pension systems at individual level is a responsible behaviour.
- Higher labour force participation rates of women: In most European societies women do not only enter retirement earlier, but their overall employment rates are (in many countries significantly) lower than those of men. In EU27 women (age 15-64) have an average employment rate of 58.3% while men have a rate of 65.4%. Policies supporting higher female employment have to focus on equal opportunities as well as on child care programs and school systems that help mothers to stay in the work force. In many EU countries – particularly in Southern Europe and in the new EU member states of Central and South-Eastern Europe – current labour force participation rates of women leave room for better utilization of an already available domestic potential.
- Higher labour force participation rates of migrants: In many EU member states immigrants have lower employment rates than the native-born population. In North-Western Europe this is particularly true for immigrants from middle and low-income countries – and particularly for migrant women. This also leaves room for considerable improvements.
- Active family policy: In the long run, there may be no better strategy than improving domestic fertility rates and eventually reverse current downward trends. The examples of France and some Scandinavian countries show that this is not impossible. This requires a mix of material incentives provided by the state and institutional arrangement that allow mothers to stay in the work force and to secure their own income and, later on, an independent claim to an old age pension. In the short and medium term, however, shortages in the labour market cannot be met by means of family policy as children born in 2010 will not enter the labour market before 2030-2035. It should also be noted that in many EU countries declining fertility has already led to a smaller number of potential parents – a development which cannot be offset by family policy measures.
- Pro-active economic migration policy: This strategy applies to countries with current and future shortages of labour and skills. Such gaps could obviously be solved with significant inflows of young adults from abroad. At the same time many Europeans have not yet realized that there is a global competition for attractive immigrants. Competitors in this race are not only the EU member states themselves. The main competition is between the EU and traditional countries of immigration such as the US, Canada and Australia, disposing of sound historical experiences in setting up immigration policies. These countries are also characterized by relatively open societies, integrative cultures and – first and foremost – attractive labour markets. As an answer to this, European migration policy must make the EU and its member states a more attractive destination for qualified and highly motivated potential immigrants and their families. In Europe today only a small number of the newly arriving migrants are selected according to their skills and professional experience. And many ambitious immigrants are employed below their skill levels.
The strategies mentioned above are not mutually exclusive.
Higher labour force participation or more migration?
Based on the assumptions of the Eurostat convergence scenario (Europop 2008) Western and Central Europe’s work force would decrease to 229 million (-3%) in 2025 and to 207 million (-12%) in 2050 (at constant labour force participation rates). In the – unlikely – absence of any international migration this decline would be even larger (2025: 214 million; -10%; 2050: 171 million; -28%).
If by 2050 all EU27 countries could match labour force participation rates of the three European countries currently having the highest participation rates, Western and Central Europe’s work force would increase slightly (variant with immigration; Scenario I: 246 million in 2025; +4%) and then remain constant until 2050. In the absence of migration (zero migration variant; Scenario I) total labour force would already decrease to 229 million in 2025 (-3%) and then continue to decline to 203 million in 2050 (-11%).
If, however, by 2050 EU member states would manage to increase their female labour force participation (6), in age groups 15-65 to the (national) level of male labour force participation (7), Europe’s work force would slightly increase (variant with immigration; Scenario II) to 240 million in 2025 (+2%) and only then start to decrease to 231 million in 2050 (-2%). In the absence of migration (zero migration variant; Scenario II) the labour force would slightly decrease to 223 million in 2025 (-5%) and then strongly decline to 191 million in 2050 (-19%).
An increase of actual retirement age by 5 years until 2025 and by 10 years until 2050 would lead to a growing European work force (variant with immigration; Scenario III in 2025: 248 million; +5%; in 2050: 253 million; +7%). In the absence of migration (Scenario III) the labour force would decline to 231 million in 2025 (-2%) and then continue to decline to 211 million in 2050 (-11%). In such a scenario the actual labour force participation in age group 55-74 years would gradually increase from 26% today to 52% in 2050.
Pro-active recruitment of migrants: A solution?
At current labour participation rates and in the absence of migration (zero migration variant) Western and Central Europe’s labour force would decline by 23 million during the period 2005-2025 and by another 43 million during the period 2025-2050. Labour migration might compensate for the whole “gap”. But in this case, between 2005 and 2025, EU27 countries would have to add a net amount of 1.3 million labour migrants annually to their work force. And between 2025 and 2050, this number would have to increase to 1.6 million labour migrants annually. Assuming that at best 65-70 percent of newly arriving immigrants join the work force (8) , the annual net gain from migration would have to be in the order of 1.9 million annually until 2025 and 2.3 million annually between 2025 and 2050. Under these assumptions, between 2005 and 2050 a net migration gain of 102 million people at working age (15-65) would be required to add 72 million economically active migrants to Western and Central Europe’s labour force.
At the same time we have to assume that circular movements between neighbouring regions (Western Balkans, MENA countries, Turkey, Ukraine) and the EU27 will remain an important element of future migration pattern and might even be promoted by EU migration policies. Under this assumption admitting or recruiting a net amount of some 100 million migrants at working age (as discussed above) requires a pool of some 160-200 million potential migrants – depending upon the rate of circularity, return and retention. Such calculations suggest that admitting or recruiting labour migrants can only be part of a policy mix addressing Europe’s medium and long-term labour market problems.
International migration is caused by major economic, demographic, labour market and social security gaps between sending and receiving countries. But managed international migration is also a tool with the potential to reduce such gaps. Therefore, sending and receiving countries should explore win-win solutions that allow the countries and economies involved as well as the migrants to gain from geographic mobility of labour and skills.
In this context immigration should only be seen as a partial answer to aging and eventually shrinking domestic societies in Europe and growth of working age populations in neighbouring regions. Migration can only play such a role under the following conditions: (a) Europe has to be able to attract migrants with needed skill levels. (b) These migrants have to be given access to formal labour markets and the possibility to establish their own businesses. Availability of people, however, is not enough. Availability of qualifications and skills will matter to a great extent.
For EU27 it is also clear that labour market related reforms leading to higher labour force participation rates – in line with the Lisbon targets and beyond – should have high priority. At the same time such reforms will probably not be sufficient to fully counterbalance shrinking native work forces.
Europe will have to develop a comprehensive migration policy that balances economic and humanitarian aspects and incorporates selection and admission procedures for people who qualify for economic reasons as temporary migrants or as permanent immigrants. Experiences of traditional countries of immigration –Australia, Canada, and New Zealand in particular – should be analyzed and adapted. In this context, the EU and its member states also have to review and improve integration policies and arrangements regulating claims of migrants to social security benefits (including the portability of acquired rights and benefits in case of remigration) and services such as education and health care.
A permanent dialogue between the EU and neighbouring countries should explore the possibility of cooperation in various migration-related fields. Among them are visa regimes, residence and work permits, living and working conditions of migrant workers and permanent immigrants, brain drain and domestic skill formation, co-financing of educational systems, transferability and portability of acquired rights/claims toward social security. Such migration-related issues should also become elements of future formal agreements between the EU and its neighbouring regions.
(1) The paper is based on a related data background paper (Münz 2009) as well as on earlier work that the author carried out together with Robert Holzmann (World Bank). Valuable input was given by Zoltan Bakay (Erste Group), Johannes Koettl (World Bank) and Heidi Kaiser-Muehlecker (Erste Group).
(2) On average fewer than 2.1 children per women (Total Fertility Rate = TFR
(3) Main exceptions are countries with a high prevalence of HIV/AIDS and several post- Soviet successor states in Europe and Central Asia experiencing stagnation or decline of male life expectancy since the late 1980’s.
(4) Austria and Germany have not yet given citizens of EU countries of 2004 enlargement free access to their labour markets. Transitional restrictions apply here up until 2011. For Bulgaria and Romania many restrictions apply in EU countries until 2013.
(5) In most EU countries family reunion is restricted to spouses and young children. For third country nationals various age limits apply.
(6) Assuming steady incremental change: 50% between 2005 and 2025, 50% between 2025 and 2050.
(7) Denmark, the Netherlands and Sweden (all above 74% fort he age group 15- 65).
(8) This conclusion can be drawn from an analysis of a European Labour Force Survey showing labour force participation rates above 65% (age 15-659 ONLY FOR West European immigrants living in another EU member state as well as Australian, Canadian, Japanese and US immigrants in the EU (Münz 2007).
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Rainer Münz is Head of Research and Development at Erste Group GmbH in Vienna. He is a Senior Fellow at the Hamburg Institute of International Economics (HWWI) and a member of the EU Reflection Group Horizon 2020-2030.