Shaping demographic change

In its Report on the Impact of Demographic Change, the Commission lists some driving forces of this change: higher life expectation, fewer births, an ageing population, smaller households, higher mobility of people in Europe as well as an overall increase of the population. According to the Commission, effects of the demographic change include an increasingly smaller group of people of working age and the subsequent impact on public budgets. The Commission assumes that the proportion of people of working age will fall by 18 % between 2019 and 2070. According to the Report, additional consequences of the demographic change include regional differences between Europe, but also between urban and rural areas, and Europe’s changed role in the world. Two key subjects of the Demography Report shall be enlarged upon by further Commission initiatives in the near future. A Green Paper on Ageing shall follow before the end of the year as well as a Long-Term Vision for Rural Areas 2021.

Inclusive labour market policy as key role

In 2008, the Commission had commented in its then Demography Report that increasing employment figures would be the best strategy for countries to prepare for demographic change. Hence, it has to be seen as positive that the Commission also apportions high significance to a more inclusive labour market in its Demography Report 2020. For example, more women should be in employment – the Commission refers to the EU Equality Strategy, which was published in March. According to the Demography Report 2020, the share of older employees shall also be increased. The planned Green Paper on Ageing will focus on this issue. Furthermore, obstacles shall be removed for migrants and people with disability, and discrimination against them shall be tackled. The Chamber of Labour too regards an inclusive labour market policy as a key role to meet the challenges of demographic change.

AK: No (further) increase of the statutory retirement age

However, the current Demography Report also determines that in the medium-term, the ageing of the population will probably result in the fact that people will have to work longer. However, from the AK’s point of view, increasing the statutory retirement age is the wrong conclusion – at the centre of the strategies on demographic change should be an inclusive labour market and employment policy and thereby the significantly better exploitation of the employment potentials across the entire working age, instead of pushing the goal posts concerning formal age limits further and further. In the final analysis, the central key indicator is the economic dependency ratio, hence the relation between the number of people receiving pensions and unemployment benefits and the number of people in work.

The AK experts Josef Wöss and Erik Türk have developed a dependency ratio calculator to illustrate the main differences between purely demographic and economic dependency ratios. Because the often – also misleading – used demographic dependency ratio only concentrates on age, and on its own says very little about the transfer need in society and the therefore required financial means. A higher employment rate should be linked to high-quality jobs and can significantly contain the increase of the economic dependency ratio. This would be – both from an economic as well as social perspective the by far most sensible strategy to contain rising costs incurred by demographic change.

Good working conditions and welfare state as anchor of stability

It must be seen as positive that the statement in the current Demography Report reads that “all evidence shows the importance of good working conditions, strong public health systems, life-long learning and continued investment in skills and education.”. In view of the Coronavirus crisis, the  statutory pension scheme and the welfare state have once again proven to be an anchor of stability during the crisis. In Austria, the statutory pension scheme covers 90 % of the benefits paid. In view of dramatically fallen stock prices, the public pension scheme also proves to be far more superior and reliable than private systems, and once again emerges as an important stabilising factor. An ILO Study, which was published last year, also urgently advises to refrain from privatising pension schemes.

The present Demography Report makes some important statements. Subsequent initiatives should – instead of demanding to raise the pension age – continue to focus on and even to strengthen an inclusive labour market and employment policy as well as to underline the departure from austerity measures in social security systems.

Further information:

AK EUROPA: Europe needs functioning social insurance systems

A&W Blog: Welfare state – Anchor of stability during the crisis

IMK Report: Dealing with demographic change: the key role of the labour market

Zwiener et al. (2020): Demographic change and pensions: successfully using employment potentials