With aging populations, Europe’s workforce is shrinking. Can forcing people to work longer be the solution to overcome labor shortages or are there alternatives?
 | Employees of German car manufacturer Opel protest in January 2007against plans of Germany's government to increase the retirement age from 65 to 67 (Photo: Reuters) |
A steadily increasing lifespan does not seem like something to worry about. But when it’s coupled with low birth rates, it means that a dwindling workforce has to support growing numbers of elderly citizen. Unless governments radically increase taxes, or reduce pensions and healthcare benefits, this results in budget deficits and debt.
The most obvious solution, however, is to put older people back in work. In industrialized countries, despite increased life expectancy, people today retire at around the same age as they did in 1970, according to the International Labour Organisation.
The proportion of men who are officially out of the labor force between ages 55 and 64 has even increased in since 1960. It now ranges from 70 percent in Belgium to about 20 percent in Japan, finds the U.S. based National Center for Policy Analysis (NCPA). Europe’s employment rates in the age group 56-65 are among the lowest in the world.
Lifelong working?
Governments across the continent are now trying to counteract this by phasing in later retirement ages, and reforming pension systems to make early retirement less attractive. According to the NCPA, raising retirement ages by three years would generate savings of over 40 percent in the United Kingdom, about 30 percent in the United States and slightly over 15 percent in Italy.
Governments are also encouraging employers to overhaul traditional seniority-based salary and benefits arrangements that make older employees too expensive to keep.
 | Infographic (clikc on the image to enlarge)See where populations are growing and where they are shrinking (Graphic: Allianz) |
Employers can also improve the retention of older employees by retraining them and by adapting workplace schedules and environments. German multinational SICK AG, has focused on creating more ergonomic work stations, and allowing flexible scheduling including reduced work hours, job sharing, and home working.
The situation, however, varies significantly from one sector to another. Researchers from Italy and Finland found that in industries not undergoing major technological shocks like the forestry industry, productivity and wages keep rising almost indefinitely with seniority or experience. In electronics, instead, productivity decreases with higher average seniority.
Stand by your women
Retaining women in employment, especially once they have had children, is also critical. Women require labor markets that enforce equal pay legislation, grant maternity/paternity leave, and provide flexible working hours and affordable childcare. Perhaps most importantly, women require equal access to senior positions, from where they can directly influence the workplace culture. By January 1, 2008, Norwegian publicly listed companies had to have a minimum of 40 per cent of women on the board.
Countries also have to tap into the immigrant labor market. "The comparative success of the UK economy [recently] has been largely due to the influx of willing workers from Eastern Europe," argues David Frost, of the British Chambers of Commerce.
These workers have partly made up for the demographic shortfall in labor-intensive, low-paid industries such as construction, agriculture, hospitality, catering and healthcare that largely require young, healthy workers. Employers also argue that they do the jobs local people will not do.
New immigrants also tend to maintain the higher fertility rates of their native countries, a key reason why the U.S. workforce is aging more slowly than that of Japan or Continental Europe.
Unchecked large-scale immigration can, however, create social and political tensions. Countries like Australia and the U.K. have introduced points-based systems to restrict non-EU immigration to highly-educated and skilled workers.
While the need for highly skilled workers keeps rising throughout the EU and other regions, university-educated knowledge workers are not going to do the plumbing, pick fruit and vegetables, or wait on tables: areas where labor shortages are most acute in many aging societies and where immigrant labor has proved very valuable.
The United Kingdom, that has relied massively on immigrants from Eastern Europe, might even face what some expert have called a “drain drain”, the return of immigrant workers to their native Poland where salaries have risen dramatically. The impact on the service sector would be tremendous and has led one concerned UK newspaper to ask recently: “What if all the Poles went home?”
editor: James Tulloch
publishing date: August 11, 2008
