Almotamar.net Project Syndicate - As the EU reaches its 50th birthday, many Europeans are entering middle age with it. They are also becoming aware of the potential of demographic change to make Europe’s next half-century very different from the previous one.

The EU’s first 50 years were characterized by a growing population and a high proportion of working-age people relative to children and the elderly. The post-war “baby boom” generation drove a period of sustained economic growth that strengthened Europe’s standing in the world and led to dramatic improvements in its citizens’ quality of life.

The EU’s next five decades, on the other hand, will see the baby boomers moving into retirement, leaving a shrunken labor force with the heavy burden of supporting their elders’ health care and pension needs. Thirty-six per cent of Europeans will be aged 60 or over by 2050, and, despite increasing life expectancy, continued low fertility will mean the continent’s population will begin to dwindle by 2020.

Although Europe is unlikely to become poorer as a consequence of this demographic shift, it may experience a prolonged period of slower growth. All else being equal, per capita incomes and productivity in countries with high proportions of elderly people tend to grow more slowly than in younger countries. Europe’s economic strength relative to the rest of the world may therefore diminish, perhaps sharply.

Just as Europe’s population is aging and will be shrinking, that of much of the developing world is young and growing. By 2050 the population of the 50 least developed countries is projected to double, and while the ratio of working-age to non-working-age people in Europe will fall to around 1.4, in the developing world it will be considerably higher.

Countries in most developing regions, such as Latin America, North Africa, the Middle East, and much of Asia, may be able to absorb their armies of potential workers into productive employment and benefit appreciably from the ensuing economic boost. (Indeed, this “miracle” has already occurred in East Asia.) As a result, these regions’ share of the global economy would increase.

Other regions, however, are likely to be unable to provide productive employment. Swollen cohorts of young, underemployed people may cause an increase in crime and civil unrest. Political instability, war, and terrorism could result, with dire effects both at home and abroad, including in Europe. Sub-Saharan Africa’s demographic prospects look particularly bleak, as mushrooming populations of young people move into labor markets that cannot accommodate them. Migration from Africa and other developing regions to Europe is already increasing; as populations in poor countries grow, the number of would-be migrants will multiply.

These migration pressures present a potential solution to Europe’s labor-market problem. Europe needs working-age people to reduce the burden of a burgeoning elderly population, so relaxing immigration restrictions could help. But this might bring with it social problems, as Europeans resist an influx of foreigners, owing to fears about jobs, security, or cultural differences. Opening the door to migrants would have to be a gradual and controlled process, with determined efforts made to convince Europeans of its benefits. Moreover, given the massive increase in migration that would be needed to offset the impact of population aging in Europe, this would be only a partial solution at best.

But Europe can take other steps to redress or adapt to the looming demographic imbalance. Many countries in the region already have policies aimed at increasing the birth rate. Tax benefits and monthly allowances for couples with children and reduced support for contraception are among the most common means of encouraging increased fertility. In many EU countries, a much higher percentage of men than women are in the labor force. Measures aimed at enabling mothers to work, such as state-funded childcare and more flexible working hours, create incentives for childrearing while expanding the labor force.

However, the effects of such measures are unlikely to be felt soon, so policies will also need to be directed at those already in the labor force, to encourage them to save more for retirement, and at those on the point of leaving it. Existing pension systems often penalize people who wish to work beyond the official retirement age, and age discrimination impedes many who are capable of working into their sixties and seventies. More flexible pension arrangements, legal reforms, and media and education campaigns aimed at shifting employers’ perceptions of older workers will allow individuals to keep working for longer. Encouraging lifelong learning will help people adapt their skills and knowledge to the demands of a changing economy. And with higher life expectancy, raising the retirement age is a further sensible way to address the negative effects of an aging population.

A combination of these and other measures would help Europe to sustain its high living standards in the coming decades. Recognition of the growing power of regions with more favorable demographic structures, for example, will encourage political and economic alliances that help the EU preserve its own global status. Likewise, efforts to help developing countries create jobs and improve quality of life will reduce irregular migration and help avert its social costs.

Population change happens slowly, but its effects can be forecast early. If EU countries are to overcome the demographic challenges of the next half-century, they should not delay in preparing for them.

David E. Bloom is Professor of Economics and Demography at the Harvard School of Public Health. Bo Malmberg is Professor of Geography at Stockholm University and Research Leader at the Institute for Future Studies, Stockholm.

Copyright: Project Syndicate, 2007.
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