01/08/2011


Is population aging an opportunity for employment?


How to keep people on the job market and help seniors remain active longer? According to the European Commission, over 30% of the European population will be 65 or older in 2025. Furthermore, the amount of seniors living in the Old Continent should grow from 87 million in 2010 to 124 million in 2030. During the same period, the number of octogenarians is foreseen to nearly double.

In order to better understand the impact of aging on the labor market and pensions in particular, the EU executive body issued a recommendation urging Member States to participate in a Joint Programming Initiative on aging populations in research areas such as how to retain people in the labor market, or how to help older people remain active for as long as possible.

The European approach

Given the shrinking and aging population there are large benefits to society by extending the active and healthy life of older people, by integrating them better in the economy and society and by helping them stay independent for longer,", the Commission explained in a recent press release.

Thirteen countries are currently willing to collaborate to this program called ‘More years, better lives — the potential and challenges of demographic change’. A number of actions has been defined, such as the development of new tools, (contact databases, models for the study of processes related to aging...), or the promotion of a better collaboration between the public and private sectors and between different research activities and the various industries associated with demographic change and an aging population.

The initiative, which should issue its first results by 2012, is led by the German Ministry of Research and Education. It counts twelve other countries (Austria, Denmark, Spain, Finland, France, Italy, the Netherlands, Poland, the United Kingdom, Sweden, Switzerland and Turkey), as well as Belgium, Ireland and Norway taking part to it as observers.

Recommendations are expected on among other things an adaptation of the pension based not only on age but also on the ability to work. The program will be financed by the Commission together with the participating countries.

The Luxembourgisch theory

If Luxembourg does not currently co-operate to this program the European Central Bank is already working on the aging population topic and on its impact on pensions, on the interest rate and on the labor market.

In a working paper issued on Juy 15,the BCL takes a methodological approach, consisting in introducing exogenous demographic (aging population) and institutional shocks (by setting a system of funded pension or retirement savings, elimination of early retirement) into the labor market.

The authors conclude that these frictions affect the interest rate and therefore the unemployment level. Following these changes, savings will accordingly increase and lead to a lower interest rate, which will then stimulate jobs creation and consequently raise negotiated wages as well as encourage older workers to remain on the labor market, implying then a higher optimal average retirement age (i.e. less early-retirement).

"In a two-country model, the interest rate would again be endogenous, and the new transmission mechanisms introduced by labor market frictions would work in much the same way as in the closed economy model, at least qualitatively. Future research should focus on interest rate determination and the impact of asymmetric labor market institutions in a multi-country set-up", the contributors to this working paper's explain.

As a matter of fact preparing one's own retirement inevitably means planning to stay longer active in the labor market; based on the current population projections; may this be with a full-time, a part-time or even an extra job.


Marc Alison




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