Aging workforce poses challenge
Study points to rising pension costs as a result of demographic shifts caused by austerity
The government – the Labor Ministry in particular – will soon need to counter one of the biggest challenges of the 21st century: an aging workforce.
The demographic time bomb is set to go off in the coming years and is expected to have a dramatic impact on the local economy and the social security system. It is estimated that the rise in life expectancy alone will put an additional burden of 37.3 billion euros on the system in current prices. This amounts to an estimated 1.3 billion euros annually between 2017-2057 or a reduction of payments to beneficiaries and pensioners by an equal volume.
A recent study carried out by Panteion University Professor Savas Robolis and PhD candidate Vassilis Betsis exposes the connection between demographic changes in the workforce and changes to the social security system as part of Greece’s bailout and post-bailout commitments.
Among other findings, the report highlights how an aging workforce will hold back growth rates in the coming years. In fact, the aging labor force and the impact on the GDP rate will in turn have an adverse effect on the social security system.
Based on the findings, Greece will in the coming years see a decline of its population, an increase of its workforce and a drop in the growth rate of its working age population (people aged 15-64).
Robolis and Betsis argue that forthcoming changes in the makeup of the population, in the workforce and employment can be explained by the austerity policies of recent years, most importantly the increase of the retirement age.
The average retirement age rose from 59 in 2010 to 63 in 2017. It is expected to reach 65 by 2022. Further increases are in the pipeline as a law ratified in 2016 stipulates that the retirement age should be adjusted every 10 years in line with increases in life expectancy. The next review is scheduled for 2020.
According to a recent European Commission report on the sustainability of Greece’s social security system, the country’s retirement age will rise to 71 by 2060.
This hike in the retirement age will result in an expansion of the labor force, especially of women, and the ageing of the workforce. At the same time, this will lead to a reduction in the number of young workers due to lower birth rate and longer working life. This, in turn, can be expected to affect productivity: an aged workforce is less productive than a young one.
The researchers point out that while Greece aims for annual GDP growth of 2 percent, the impact of demographics will create the need for a growth rate of 4 percent.