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The Ageing of the Labour Force and Regional Development
Ronald W. McQuaid
Employment Research Institute, Napier University, Craiglockhart Campus, Edinburgh, EH14 1DJ, Scotland, UK
r.mcquaid@napier.ac.uk
McQuaid, R.W. The Ageing of the Labour Force and Regions under Globalization, presented at the 46th Congress of the European Regional Science Association, Volos, Greece, 30 August 2 September 2006.
1. Introduction
The rapid ageing of the population structure across most developed countries is one of the main challenges facing their economies and governments (CEC 2004a). These changes will have significant impacts upon pension and healthcare costs, the demand for different products and services, the quantity and composition of labour forces, productivity levels etc. and hence national and regional economic growth and living standards. Indeed, Bloom and Canning (2003) argue that having a younger population structure with an increase in working age per non-working age population may be one of a number of factors in the huge growth of Tiger economies, such as Ireland in the 1990s, and by implication the reverse of having an ageing structure may have a negative impact on growth. Lisiankova and Wright (2005) argue that EU growth rates will fall significantly due to population ageing.
While a rapid and long-term decline in labour forces in the EU is projected to start around 2010 and to continue until around 2050, as discussed below, many other major industrial countries will also face similar labour force pressures in the next few decades (GROS 2002). By 2050 all the EU Member States will be in population decline and all will have been ageing for some time under current trends (CEC 2004b). These changes are not homogenous over space, and at the regional and sub-regional levels within countries the ageing population and workforce structural changes can be greater than those between countries (Hollywood et al. 2003).
Changes to the general size of the labour force will depend upon demographic characteristics and economic activity rates for each age cohort. These in turn will be influenced by factors such as migration and policies or incentives encouraging withdrawal from, continuation in, or entry into the labour force. To determine the effective size of the labour force in a region or country, at a specific time, it is necessary to consider the numbers of people in each age group (cohort), their activity rates, and their average hours worked, together with the productivity of each age cohort per hour worked. The size of each cohort is largely determined by historic demographic factors and migration. Economic activity rates are influenced by factors such as: gender, previous work experience, age, and policies on retirement ages, long-term sickness etc. Generally, in recent decades, activity rates have tended to fall dramatically after the age of 55 years and reduce to very low rates after State Pension Ages (usually around 65 years old, although in some places activity rates among older workers has started to increase).
2. Population change
The size of each population age cohort, have dramatically changed in the last half-century in most developed countries. In OECD countries the baby boom following 1945 led to a large increase in the population and then the labour force, although this is now beginning to come to an end in many places as the baby boomers start to retire. Also, over recent decades the birth rate has decline dramatically due to birth control technologies, socio-cultural changes, and economic factors etc. In many countries the Total Fertility Rate is now below replacement level, such as in Japan, Italy, Spain, UK and Germany, and is declining in most other countries. The result has been a large relative increase in the size of the working age population over the last half-century, but a projected fall starting within the first few decades of this century, depending upon the specific country.
The share of the total population made up by 50-64 year olds is rising across major parts of the globe (OECD data). Of the four largest European Union countries, Italy sees a rise of 50-64 year olds from 16% of the population in 1960 to 20% for 2010, with the share of 65+ year olds rising from 9% to 21%. In Germany the share of 59-64 year olds fell from 20% in 1960 to 15% in 1980, but back to 20% by 2010, with the 65+ population rising from 12% to 16% to 20% in the same periods. France and the UK saw similar U shapes in 50-64 year olds share of population, rising to 20% and 19% respectively by 2010, with continued projected rises after then.
In Europe the number of under 15s falls in absolute terms by 20%, 31%, 7% and 42% in the UK, Germany, France and Italy respectively from 1960 to 2010, compared to a total population increases of 15%, 12%, 34% and 12%, and a rise of 18%, 12%, 40% and 3% respectively of 15-49 year olds.
In addition to the absolute size of each age cohort, their economic activity rate in the labour market (the proportion of the working-age population that is working or looking for work) is important and this has also been changing in recent decades. Among those over 65 years the rates have declined markedly since 1960 and are extremely low in most EU countries, than the European countries (at between 1 and 4%).
3 Regional Issues in Economic Activity
There are major differences in economic activity rates over time and between and within regions in a country. Until the mid-1970s, the activity rate in the UK for men aged 55 and over was one of the highest among OECD members (OECD 1998) with an activity rate for all 50-64 year olds of 68% in 1980. In addition, each cohort of men appears less likely to remain in employment at older ages so these trends are not fully explained as a consequence of the downturn in the economy during the 1980s and 1990s but, rather, are part of an ongoing process. Demographic pressures, as discussed above, are likely to partly reverse this process in the next few decades.
At regional and sub-regional levels differences in activity rates may be linked to former industrial structures (e.g. areas with mining or heavy industry often have high sickness rates among older former workers), previous out-migration etc. (Hollywood et al. 2003). There are wide regional differences in activity rates even within specific age bands. More prosperous UK regions, such as the Eastern and South East have high activity rates, for those aged 50 to State Pension Age (currently 60 years for females and 65 for males, although the age for females will rise to 65 years by 2020), at 76.5% and 76.4% respectively, while former heavy industrial areas, such as Wales (65.7%) or the North East (60.9%) have relatively low activity rates.
When a UK statistical region near the mean, Scotland, is considered then large intra-regional differences in economic activity rates are also clear. The rural areas generally have high activity rates (e.g. Aberdeenshire, 83.3%, Shetland Islands 87.0%) while the older industrial areas have lower rates. For example activity rates for those aged 50 to State Pension Age in industrial Glasgow and North Lanarkshire were 55.5% and 55.4% (Labour Force Survey 2004). These different rates may be due to factors such as greater levels of multi-job, part-time work and out-migration in rural areas, while in former heavy industrial areas there may be a cohort effect of ill health due to industrial disease and illness linked to the former heavy industries, and a discouraged worker effect where people leave the labour market due to lack of perceived opportunities.
4. Conclusions
In the next half-century the effects of demographic changes are like to be great in terms of their impacts upon economic growth of different countries and their regions (affected by labour supply and dependency ratios), demand for goods and services, income distributions etc. There are a number of interconnect policies related to an ageing workforce. Various non-mutually exclusive approaches are possible, including: increasing the size of the domestic working population (for instance through the globalisation of the labour market); increasing the activity rates of the population in the labour force; raising productivity; and trade and production. This paper has briefly considered the first three. Another approach could be to accept a lower population and relative standard of living. If total fertility rates remain low in developed countries, then policies will be required to manage the decline of populations and their increasingly aged structures even if there are relatively high levels of net in-migration.
In addition to seeking to ameliorate any decline in the labour force, the affected regions and countries need to consider issues such as how to increase the productivity of older workers and how the changing income distributions will affect the development of the economy and provision of services for older people (especially where pension and health costs are funded out of current taxes and income rather than savings). There is a need to refine our understanding and modelling of the potential effects of these changes and the policies to deal with them at regional and local levels. This suggests that cross disciplinary regional models and time series studies should seek to more fully incorporate age structures, economic activity rates and related differential productivity rates among regional and sub-regional factors, as well as the inter-relationship between intra- and inter-national migration and demographic change, if we are to more fully understand the implications of ageing upon labour markets across the globe.
References
Bloom, D. and Canning, D. 2003: Contraception and the Celtic Tiger, Economic and Social Review, Vol. 34, 3, 229-247
CEC (Commission of the European Communities) 2004a: Increasing the employment of older workers and delaying the exit from the labour market, Communication COM (2004) 239 Final, CEC, Brussels
CEC 2004b: A New Partnership for Cohesion - Convergence Competitiveness Cooperation, Third Report on Economic and Social Cohesion, Office for Official Publications of the European Communities, Luxemburg
GROSS (General Register Office for Scotland) 2002: Scotlands Population 2002 - The Registrar Generals Annual Review of Demographic Trends, GROS, Edinburgh
Hollywood, E., Brown, R., Danson, M. and McQuaid, R.W. 2003: Older Workers in the Scottish Labour Market: A New Agenda, Scotecon, Stirling and Glasgow
HYPERLINK "http://www.scotecon.net/publications/McQuaid%20older%20workers%20Full%20Report.pdf" www.scotecon.net/publications/McQuaid%20older%20workers%20Full%20Report.pdf
Lisiankova, K. and Wright, R.E. 2005: Demographic Change and the European Labour market, National Institute Economic Review No. 194, 74-81
McQuaid, R.W. 2006: The Aging of the Labor Force and Globalization in: R.J. Cooper, K.P. Donaghy and Hewings, G.J.D. (eds) Globalization and Regional Economic Modeling (Springer-Verlag, Heidelberg) (forthcoming)
OECD 1998: Work-force ageing, OECD Employment Outlook 1998, Paris, OECD, 123-51
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