The greying population: A wasted human capital or just a social liability?

Abstract

O ver the coming decades, the size and age-profile of the population in OE CD countries will undergo substantial changes because of lower fertility rates and longer life expectancy. The proportion of elderly people is forecast to increase dramatically in all industrialized countries, and the size of the population to decrease in many of them. The growing proportion of elderly people raises concerns about the financial sustainability of pension and health-care systems and a possible reduction in economic growth. To counterbalance these effects, some international institutions and national governments have advocated an increase in the length of working life through a postponement of the retirement age. While this policy would reduce the financial pressure on welfare systems, its effects on the labour market are less clear-cut. In many industrialized countries, particularly in Europe, the current level of unemployment is quite high already, so there is concern that an increase in the labour supply of elderly workers could result in even higher unemployment for young workers. Furthermore, increasing the labour force participation of elderly people would not necessarily translate into higher overall employment levels if demand does not adjust to the increase. The aims of this article are, in the first part, to analyse the labour market effects of ageing and, in the second, to discuss the main policy measures needed to cope with this trend. The opening part consists of five sections, the first of which examines projected population and labour force dynamics in the major OE CD countries over the next few decades. The second section discusses the short-run impact of a reduction in the labour force on the unemployment rate, while the third and fourth extend the analysis to the long run by looking at the effects of