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The European Union’s Twin Challenges – Demography and Economic Competitiveness

Speakers
Rainer Münz Head of Research & Development, Erste Group Senior Fellow, Hamburg Institute of International Economics (HWWI)

 Date
18 Apr 2011

 Venue
Seminar Room 3-1, Level 3, Manasseh Meyer Lee Kuan Yew School of Public Policy 469C Bukit Timah Road, Singapore 259772

 Time
5.15pm – 6.30pm

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One of the biggest developments facing advanced economies in recent years is demographic change and the most pressing is the trend of population ageing. A low total fertility rate, combined with increased longevity which has been the trend in advanced economies has created this phenomenon. Global fertility has decreased by about 50% since the 1950s and while there are still huge differences even across the European Union, increased longevity of individuals due to better nutrition, health care and the provision of health services and social assistance is the general trend. Both Singapore and the European Union face the challenges of managing and adapting to an ageing population and are struggling to increase fertility rates and hence, there are many opportunities for the exchange of expertise and mutual learning.

The 21st Century is expected to see a tripling of the elderly (those aged 65 and above) on a global scale, and national governments and societies will be hard pressed to adapt to the scale and pace of change and to make necessary adjustments. According to certain strategic planners, financing the welfare state in the face of a shrinking labour force, means that pension schemes and the provision of medical services, elderly care, etc., will have to be overhauled.

Europe and Japan are soon expected to see a shrinking of their populations. A shrinking population means a smaller labour force, and Prof. Muenz, using the example of the EU, projected that without immigration, other factors being constant, the European economies would face a labour shortfall of close to 70 million. This has serious repercussions for the EU, especially at a time where emerging markets, which do not face these demographic challenges, are becoming more competitive. He questioned how this gap can be filled, especially in view of the competition European economies faced in attracting skilled migrants. A more liberal migration policy, like that observed in Singapore is not politically feasible, as the EU already has an abundance of low-skilled workers, many working in the grey economy. He also argued that while jobs need to be created, innovation is necessary, but entrepreneurship is lacking, and what Europe needs is high skilled migrants. A comparison with the US, which has many provisions in place to attract such migrants (including its world-leading system of higher education), is telling in that the EU might strive more to compete along these lines.

Currently, the retirement age is being raised in many EU member states amidst much protest. While obliging individuals to work longer is a solution to the shrinking labour force, it is also not a sustainable solution as it has the effect of shutting out young jobseekers from the market. High levels of youth unemployment can already be observed in many EU member states, like Portugal, Spain and the UK. New strategies need to be adopted, as other solutions being mooted, like increasing the number of work hours, or putting the elderly to work or hiring more old-age workers, as well as getting more women into the labour force are unpopular in Europe. In view of demographic changes and population ageing, the labour force needs to be more flexible and competitive, but many are not willing to change. There are however, areas where high fertility rates are still observed such as France and Scandinavia, where universal healthcare is provided for, and where flexible working schemes encourage mothers to work. Furthermore, in these countries, there is a more equal gender balance.

During the Q&A session, there was a debate on increasing productivity levels as a possible solution, but Prof. Muenz questioned whether it will work in practice, arguing that increasing productivity means taxing individuals more as well, which the working population will be strongly against. The Lisbon Strategy and its successor, the Europe 2020 strategy aims for a more dynamic and competitive Union, all while providing jobs and social protection for citizens of the Union. If these goals are to be attained, demographic changes need to be taken into account as adapting to them will play an increasing role in the success of these programmes.

Note: The image “Ageing Population” is copyright (c) 2007 neovain (Flickr) and made available under a creative commons Attribution-ShareAlike 2.0 Generic license (CC-BY-SA 2.0)