The impact of population ageing on potential economic growth in Europe

Nicole Van der Gaag, Netherlands Interdisciplinary Demographic Institute (NIDI)
Joop de Beer, Netherlands Interdisciplinary Demographic Institute (NIDI)

In the coming years, the share of the working-age population in the total population will start to decline in all countries of the European Union. All other things remaining equal, this so-called demographic burden will have a downward effect on economic growth. Labour input to economic growth, however, is not only determined by the size of the working-age population but also depends on labour market participation and the average number of hours worked per employee. To anticipate demographic burden, increasing employment rates is a central theme in many labour market policies in European countries, and is one of the headline targets of the Europe 2020 strategy for smart, sustainable and inclusive growth. In this paper we discuss recent and future developments in the contribution of labour input to potential economic growth in the European Union in the period 2000-2020. Point of departure is the prospect of a declining working-age population. The main objective is to study the impact of population ageing on labour input and to examine to what extent employment rates should raise in order to compensate for demographic burden, and whether the Europe 2020 employment targets are sufficient to reach these levels. The results show that raising employment rates to the Europe 2020 targets can restore positive opportunities for economic growth, but not in all countries and only to a limited extent.