The EU 11 in an Aging Europe
January 17, 2013
Over the last several decades advancements in science and technology, coupled with other social and economic improvements, have brought about unprecedented increases in life expectancy for populations around the globe. The aging phenomenon has not been confined to developed countries with high national incomes: both developing and middle-income countries are experiencing similar rises in life expectancies. On average, life expectancy between the periods of 1950-55 and 2005-10 rose by 26 years in developing countries and 19 years in the least developed countries. While this demographic change is expected to increase the overall economic burden in every country with an aging society, this impact is expected to be more severe in less-developed countries – which often lack the economic means to adequately address these challenges.
Among those countries expected to face increasing economic pressure as a result of their aging societies are those in the European Union 11 (EU11), according to the latest EU 11 Regular Economic Report (RER). The World Bank is currently working with partners in the EU11 to further analyze the economic consequences of aging as well as identify policies and interventions that can help sustain robust economic growth despite an aging population. As part of this effort, the latest EU11 RER report includes the special topic section The Economic Growth Implications of an Aging European Union, which highlights the fact that aging societies throughout Europe face decreases in the share of working-age population in total population and increases in the costs for providing and caring for a growing elderly population – a particularly challenging situation for Bulgaria, Croatia, the Czech Republic, Estonia, Latvia, Lithuania, Hungary, Poland, Romania, Slovenia, and the Slovak Republic (EU11).
Paramount among those challenges addressed in this report is a decline in the size of the labor force which is expected to occur in the region over the next four decades. In less than forty years, more than one-third of Europe’s population will be above the age of 60 – and one-fourth will be older than 65. This ongoing shift in demographics will have widespread repercussions across the whole of Europe, but will be particularly difficult for EU11 countries. Aggregate labor force participation rates in those countries already lag behind Europe as a whole and drastic declines in the size of the labor force are expected to occur over the next forty years, further hampering economies in this region. This decline – projected to be more than 35 percent by 2050 if current levels of participation prevail – means that fewer workers in the region will be responsible for supporting an increasing demand for long-term care services, including an increase in the required number of caregivers. According to the report, these burdens could produce potentially insurmountable difficulties unless the region experiences very sizable increases in participation rates and/or aggregate productivity.
The main driver for the declining labor participation rates across the region remains the lack of participation of women without tertiary education – a problem which has plagued the region for decades. The participation rate of women without tertiary education fell by almost 5.3 percentage points from 2000-11 in EU11, compared with 2.6 percentage points among men. Further, the participation rates of women in the labor force dropped in every country in the European Union between 1990-2004 – with decline rates as high as 10.3 percent in the Czech Republic and 12.7 in Latvia.
Addressing the gap in labor participation – for women and men alike – is fundamental in helping EU 11 countries sustain high rates of economic growth in the coming decades. But solely improving labor force participation will not be sufficient to counteract the negative effects of aging on economic growth and income convergence in the EU. The new EU11 Regular Economic Report argues that more is needed.
Population aging in Europe is expected to create obstacles in EU 11 countries for income convergence in the EU, but economic policies can help counteract these negative effects.
Policies aimed at improving the growth prospects of the EU 11, according to the report, need to recognize the complex nature of the aging phenomenon. Increases in labor participation should be coupled with advances in educational attainment. The retirement age in the region should also be raised. Finally, in order to create long term policies to offset the negative effects of aging on economic growth in the region, improvements in incentives for increasing the relative size of the highly skilled labor force should be implemented.
As advancements in society continue to result in increasing lifespans, governments in both Europe and elsewhere need to develop multifaceted approaches to the problems being created by their aging populations. By prioritizing effective social and economic policies which can mitigate the problems of shifting demographics, policy makers can ultimately create robust economic environments in which people can prosper as they grow older.
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