Ethos Issue 1, October 2006
Ageing Population: What to Expect
and What to Do
Norbert Walter
What will the global ageing trend mean
for finance, investment and production? Professor Norbert
Walter highlights the economic implications of ageing in the
coming decades.
What are the ramifications of a demographic
shift towards an ageing population? When post–World
War II baby boomers enter their retirement phase, the supply
of labour will fall. In Germany, as in many other European
countries, the population in the working age of 15 to 64 years
is likely to shrink by around 20% between 2005 and 2050. This
will put Germany’s growth potential under pressure.
If no action is taken, Germany’s trend growth rate is
set to be cut in half in the longer term from its current
level of 1.5%. The working age population in Singapore is
likely to decline by 16% by 2050, reducing the share of 15-
to 64-year-olds from 72% to 56%. All other things being equal,
this would lower Singapore’s growth potential by half
a percentage point.
In addition, the quality of the labour supply
could decline. Technical expertise is largely generated by
young workers; productivity and innovation potential is likely
to fall in ageing societies. Older workers are also usually
less flexible and mobile than their younger counterparts.
This restricted mobility of the labour force will in future
slow down the formation of clusters of specialisation and
structural change, since it is mainly younger workers who
smooth the implementation of new product, process and management
ideas. We must also expect less willingness to assume risk
and a decline in the number of start-ups. In many countries,
25- to 45-year-olds are among the most active in setting up
their own businesses.
How can we tackle the challenges of this
demographic shift? In principle, lift the participation rate
first; second, increase work life and third, raise net immigration.
However, each of these measures can at best only dampen the
negative demographic effects.
Stretching The Workforce And Working
Hours
Policy makers have to focus on raising the participation rates
of women and older people. In Germany, only 24.3% of 60- to
64-year-olds are still gainfully employed. The Organisation
of Economic Co-operation and Development (OECD) average is
38.5%, while the figure in the US is 49%. If Germany’s
participation rate of the 55- to 64-year-olds matched the
OECD average of 51.8%, the size of the workforce could increase
by 2.25% or 800,000. The instruments to achieve a higher participation
rate of the “young” seniors are manifold. Among
them, the most important are to correct the inducement of
early retirement, reduce the period of entitlement to unemployment
benefits, and eliminate high severance payments, extensive
job dismissal protection as well as seniority principles.
Europeans should start working at an earlier
age and retire later. In the public sector in particular,
early retirement is granted much too often and at subsidised
conditions, especially in Italy, France and Germany. Singapore
has extended its prescribed minimum retirement age from 60
to 62 years; efforts to recognise the contribution and significance
of older workers are steps in the right direction.
In addition, the participation rate for
women must be raised by implementing new child-minding arrangements
and more creative working time models and speeding up organisational
reforms. This is an area in which both Germany and Singapore
can further improve.
Average weekly and/or annual working times
could also be increased. Fewer workers have to work more hours
in order to compensate for the negative demographic effect
on potential growth. This implies, among other things, a higher
share of women in the workforce or greater numbers in part-time
jobs switching over to full-time positions. This also requires
an increase in collectively agreed weekly working times.
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