EMPL

Boomer Era: European countries are facing the effects of an ageing population on labour and social structures as the number of European citizens aged over 65 is increasing rapidly. What measures can Member States take to accommodate the economy and societal structures of the old-age population?

Committee on Employment and Social Affairs

Chaired by Paul Gerring (DE)

Topic Pitch

The population structure of a geographical area can be represented in detail by the demographic change model. This makes it possible to see how the population is currently composed and how it will develop in the coming decades. In most industrialised countries, especially in the European Union, the phenomenon of inverted age pyramids can be observed. This means that the population is becoming increasingly older, and it is shrinking overall. This puts increasing pressure on the economies and social systems of the Member States. On one hand, fewer younger people are able to provide pensions for more older people. In this context, the European Commission is already seeking a rethink in the areas of health care, welfare, public budgets and public life. In addition, issues such as access to services, community care and even loneliness need to be addressed.

Key Learnings

  1. The European population will grow at a slower rate and, by 2060, one in three Europeans will be aged over 65.
  2. The old-age dependency ratio depicts the number of people at an age when they are economically inactive compared to the number of people of working age. For example, in Italy, 67% of the people will be economically inactive while only 33% will be working in 2075.
  3. Currently, in many Member States there is bad compatibility between family and career and young parents often have to choose between one of them. This leads to an overall decline in the birth rate.
  4. The silver economy, which describes the development of the economy for the share of people aged over 65, is also an opportunity for Europe to create new industries with great economic potential.
  5. Healthy ageing1 can contribute to keeping older people in the economy for longer, and also enable them to participate more fully in society.

The Present

Case Study

The Netherlands is one of the Member States experiencing an age pyramid that is increasing upside down, with a growing proportion of older people and a shrinking proportion of younger people. The following three graphs show the composition of the Dutch population in 1950, 2019, and the forecast for 2100.

Population of the Netherlands in 1950, 2019 and the forecast for 2100

Population of the Netherlands in 1950, 2019 and the forecast for 2100As a result, the proportion of workers is getting older and fewer people are entering the labour market. In the Netherlands, different regions (Groningen/Drenthe, Limburg and Zeeland) are facing a variety of problems related to local population decline, population ageing, migration, labour shortages, and qualification gaps. To combat this phenomenon, one of the measures that are currently being implemented in many European countries is an increase in the retirement age.In the Netherlands, for instance, the retirement age will gradually rise from 66 years and 7 months to 67 years by 2024. From 2028, it will be increased to 67 years and 3 months. This will ensure that people work longer, pay into the pension system for a longer time and that there are more people active in the labour market in general.

Abstract

The topic is based on the question: “What measures can Member States take to accommodate the economy and societal structures of the old-age population?” In the current situation, there are many challenges that play into the difficulty of the ageing population. Not only in the Netherlands, but among most European countries. On one hand, there is a poor compatibility of work and family life, and a certain unattractiveness of having children at all. Furthermore, the pension and social security systems are facing great challenges due to the increase in claims and the decrease in funding. In addition, people, young as well as old, can become victims of age discrimination in the workplace. As of 2021, the share of people aged 65 and over was 20.8% in the European Union, and the EU and its Member States are trying to find solutions such as raising the retirement age, just like the example of the Netherlands, encouraging immigration or adapting social systems.

Stakeholders

Europe

Demographic change can also impact Europe’s position in the world. Especially because, due to the increase in the older age group, the population share and the Gross Domestic Product (GDP) will become comparatively smaller. Therefore, the European Commission has a special interest in Europe being united on every level, from the individuals to its Member States. It focuses on sustaining the economy by getting more people into jobs and increasing the productivity of the workforce. Furthermore, health and care systems have to adapt further, and the European Commission considers how to fund higher age-related public spending.

Member States

generally aim for economic growth and stability. The main objectives of national demographic policies are to maintain and develop prosperity, to maintain and, at the same time, to promote social unity, and to guarantee the financial capability of the respective state and social systems to act in the long term. To achieve this, measures such as adjusting the retirement age will not be sufficient in the long term. Instead, far-reaching structural and social reforms will be necessary for some Member States.

The World health Organisation (WHO)

supports the development of social and physical environments and promotes healthy ageing. The Demographic Change and Healthy Ageing Unit (DHA) provides leadership on these issues, develops norms and standards, builds national capacity to address these issues and promotes global advocacy.

The Organisation for Economic Co-operation and Development (OECD)

is an international organisation that aims to shape policies that foster prosperity, equality, opportunity and well-being for all. In context, it supports governments and organisations in implementing employment and skills development programmes. Furthermore, the OECD aims to outline development scenarios in the context of demographic change to facilitate the adoption of appropriate guidelines.

Measures already in place

Retirement Age2

The common retirement age3 in the EU is 65, but there are differences between Member States. For example, people in France retire at 62, whereas in Italy at 67. A state can use the retirement age as a tool to have a slight impact on the number of working people in the labour market. In most Member States, an increase in the retirement age is projected due to the ageing population, and in some places, retirement ages of 70+ are already being debated. The problem with raising the retirement age is above all that there are professions in which people often cannot work until old age due to both physical and mental exhaustion.

The Skilled Immigration Act

In 2020, the German government passed “The skilled Immigration Act”. This is intended to make it easier for skilled workers from non-EU countries to migrate to Germany and contribute to the national workforce. Skilled workers are those who have completed vocational training in Germany or abroad that is roughly equivalent to German training. This will make it easier for immigrants to enter the German labour market and social systems.

The Future

Key Challenges

Inversed age pyramid

After the Second World War, the European population rose steadily until the 1970s. But due to the empowerment of women, a flourishing economy, an increase in the quality of education, and easier access to reliable contraceptives, the fertility rate has been falling since the seventies. Thus, there will soon be an inverted age pyramid, with fewer young people and more older people. In the long term, this will create a deficit of workers and specialists in European countries.

Population Projections in the EU

Good education in Europe does indeed increase the proportion of people with university degrees and qualified specialists in the labour market. However, it also increases people’s desire to take advantage of the career opportunities it offers. European citizens are therefore increasingly opting for the big career path rather than starting a family and raising children. This means that there is a lack of compatibility between work and family life.

Family or Career. Why not both?4

In the 21st century, young people often have to face the decision between family or career. Because having a child and motherhood inevitably mean a period of absence, short or long-term, from the labour market. If this period of absence is too protracted, the return to work is even more difficult. The fact that people have to face this decision leads to an overall decline in the birth rate in industrialised countries.

Parental leave and paternity leave allow many families to take time off to care for and raise their children. Thereafter, they are guaranteed a return to their old position or a similar one. On the other hand, this time away from work is unpaid. This means that many people cannot afford not to work for three to four months to spend time with their families.Another challenge in child raising is the lack of kindergarten places in European countries. According to the Bertelsmann Foundation, there is a shortage of 384,000 kindergarten places in Germany alone for the year 2023. Since the demand for care cannot be met here, the burden falls back on parents alone.

Deficits of current social systems among European countries[EFN_NOTE]What measures do you think are most crucial for adjusting the social and pension systems?[/EFN_NOTE]

Most pension systems in the EU are pay-as-you-go. This means that the working part of the population pays into the pension insurance and retired people can draw their pensions accordingly. However, as there are increasingly fewer payers and increasingly more recipients of benefits in the future, this system is at risk of collapse, with older people under threat of drifting into poverty. While, for instance, in 2013 in Germany, about three people of working age financed one pensioner, in 2030 there will already only be 2.5 payers per recipient5.

In this context, the ratio that depicts the number of people at an age when they are generally inactive in the labour market compared to the number of people of working age is called the old-age dependency ratio. The OECD predicts for Italy that in 2075 67% of people will be economically inactive while only 33% will be working.Moreover, older people are more likely to suffer from physical and chronic diseases, which increases the demand for healthcare. These chronic diseases include hearing loss, cataracts and refractive errors, back and neck pain and osteoarthritis, chronic obstructive pulmonary disease, diabetes, depression and dementia. Under the influence of the ageing population, the current public health systems must be able to address the experiences and needs of older people, according to the WHO.

Moreover, older people are more likely to suffer from physical and chronic diseases, which increases the demand for healthcare. These chronic diseases include hearing loss, cataracts and refractive errors, back and neck pain and osteoarthritis, chronic obstructive pulmonary disease, diabetes, depression and dementia. Under the influence of the ageing population, the current public health systems must be able to address the experiences and needs of older people, according to the WHO.

Age discrimination6

In the G20 countries, employers’ negative attitudes towards older workers often become an obstacle to a long working life. This form of discrimination limits the pool of experience and talent. Discrimination has a retarding effect and negatively impacts economic growth and the well-being of younger and older workers alike. This can lead to older people already limiting their job search and not considering all options or even giving up completely. On the other hand, younger people may be accused of inexperience or unreliability as an obstacle to recruitment or promotion, regardless of their actual talent.

Measures Ahead

Pension funds

One conceivable measure in the future would be pension funds, meaning investing in shares. This can be done at the level of private households, but also at the state level. The European Central Bank is already collecting statistical data on the balance sheets of pension funds to be able to better analyse the impact on the wealth of private households. 

Encouragement to retain and hire older people

To tackle age discrimination and possible stereotypes against older employees on the part of employers, it is important to encourage them to recruit and retain older workers. This requires taking measures against age discrimination and finding ways to facilitate recruitment by reducing labour costs. In addition, employment protection for workers can be revised, and age management practices promoted to improve the productivity of older employees.

individual learning accounts

The European Council recommends that Member States establish individual learning accounts. These are intended to help people participate in labour market-relevant training to enable them to access or remain in employment. These learning accounts should provide people with a budget to improve their skills and employability throughout their lives. Regardless of whether they are employed or not. The EU’s target is that 60% of all adults participate in training annually by 2030.

Future Stop: Silver Economy7

The Silver Economy refers to the economic share of people aged 65 and older. According to the European Commission, by 2060, one in three Europeans will be over 65. By 2025, the Silver Economy is expected to contribute €5.7 trillion to the European economy.

The Silver Economy will redefine the rules for existing market operators in Europe. At the intersection of demographic and technological change, new industries will emerge that are expected to create huge export potential. According to the Commission, cross-policy measures are needed to facilitate the growth of the Silver Economy and to accelerate the benefits for older people. Active and healthy ageing can ensure that people not only remain more active and better integrated into society. They can also continue to work and learn new things for several more years.A study commissioned by the European Commission proposes five recommendations, each of which has the potential to boost the European silver economy, both consumption and economic output. These recommendations include the technological and digital development of the healthcare sector, supporting healthy ageing, solutions for better mobility of older people, increasing the active participation of older people in the labour market and increasing the innovation of products and services targeted towards independent living.

Useful Links

Footnotes

  1. Healthy ageing means the process of developing and maintaining the functional ability that enables wellbeing in older age, according to WHO.
  2. Is it appropriate to raise the retirement age to over 70 to relieve pension systems? How effective do you think this is? What would be a limit for yourself until when you would be willing to work?
  3. The retirement age is the age that determines when people can retire.
  4. How can Member States ensure a better work-life balance so that prospective parents do not have to choose between the two?
  5. Intergenerational solidarity means the closeness and support between different generations.
  6. Have you ever been disadvantaged because of your age, and what ways can you think of to tackle age discrimination in the labour market in general?
  7. Silver Economy means the market for goods and services for people aged over 65.