Gone in their prime:

Many coun­tries suf­fer from shrink­ing work­ing-age pop­u­la­tions. There are things they can do to mit­i­gate the dan­gers

The Ukrainian Week - - CONTENTS -

How coun­tries suf­fer­ing from shrink­ing work­ing-age pop­u­la­tions can mit­i­gate the dan­gers

Many de­vel­oped coun­tries have anti-im­mi­gra­tion po­lit­i­cal par­ties, which ter­rify the in­cum­bents and some­times break into gov­ern­ment. Lithua­nia is un­usual in hav­ing an anti-em­i­gra­tion party. The small Baltic coun­try, with a pop­u­la­tion of 2.8m (and fall­ing), voted heav­ily in 2016 for the Lithua­nian Farmer and Greens’ Union, which pledged to do some­thing to stem the out­ward tide. As with some prom­ises made else­where to cut im­mi­gra­tion, not much has hap­pened as a re­sult.

“Lithua­ni­ans are gyp­sies, like the Dutch,” says An­drius Fran­cas of the Al­liance for Re­cruit­ment, a jobs agency in Vilnius, the cap­i­tal. Work­ers be­gan to drift away al­most as soon as Lithua­nia de­clared in­de­pen­dence from the Soviet Union in 1990. The ex­o­dus picked up in the new cen­tury, when Lithua­ni­ans be­came el­i­gi­ble to work nor­mally in the EU. For many, Bri­tain is the promised land. In the Pe­gasas book­shop just north of the Neris river in Vilnius, four shelves are de­voted to English-lan­guage tu­ition. No other lan­guage—not even Ger­man or Rus­sian—gets more than one.

Mostly be­cause of em­i­gra­tion, the num­ber of Lithua­ni­ans aged be­tween 15 and 64 fell from 2.5m in 1990 to 2m in 2015. The coun­try is now be­ing pinched in an­other way. Be­cause its birth rate crashed in the early 1990s, few are en­ter­ing the work­force. The num­ber of 18-yearolds has dropped by 33% since 2011. In 2030, if United Na­tions pro­jec­tions are cor­rect, Lithua­nia will have just 1.6m peo­ple of work­ing age—back to where it was in 1950.

Lithua­nia was an early mem­ber of a grow­ing club. Forty coun­tries now have shrink­ing work­ing-age pop­u­la­tions, de­fined as 15- to 64-year-olds, up from nine in the late 1980s. China, Rus­sia and Spain joined re­cently; Thai­land and Sri Lanka soon will. You can now drive from Vilnius to Lis­bon (or east­ward to Bei­jing, bor­der guards per­mit­ting) across only coun­tries with fall­ing work­ing-age pop­u­la­tions.

It need not al­ways be dis­as­trous for a coun­try to lose peo­ple in their most pro­duc­tive years. But it is a prob­lem. A place with fewer work­ers must raise pro­duc­tiv­ity even more to keep grow­ing eco­nom­i­cally. It will strug­gle to sus­tain spend­ing on pub­lic goods such as de­fence. The na­tional debt will be borne on fewer shoul­ders. Fewer peo­ple will be around to come up with the sort of bril­liant ideas that can en­rich a na­tion. Busi­nesses might be loth to in­vest. In fast-shrink­ing Ja­pan, even do­mes­tic firms fo­cus on for­eign mar­kets.

The old will weigh more heav­ily on so­ci­ety, too. The bal­ance be­tween peo­ple over 65 and those of work­ing age, known as the old-age de­pen­dency ra­tio, can tip even in coun­tries where the work­ing-age pop­u­la­tion is grow­ing: just look at Aus­tralia or Bri­tain. But it is likely to de­te­ri­o­rate faster if the ranks of the em­ploy­able are

thin­ning. In Ja­pan, where young peo­ple are few and lives are long, de­mog­ra­phers ex­pect there to be 48 peo­ple over the age of 65 for every 100 peo­ple of work­ing age in 2020. In 1990 there were just 17.

Some coun­tries face gen­tle down­ward slopes; oth­ers are on cliff-edges. Both China and France are grad­u­ally los­ing work­ing-age peo­ple. But, whereas numbers in France are ex­pected to fall slowly over the next few decades, China’s will soon plunge — a con­se­quence, in part, of its one-child pol­icy. The num­ber of Chi­nese 15to 64-year-olds, which peaked at just over 1bn in 2014, is ex­pected to fall by 19m be­tween 2015 and 2025, by an­other 68m in the fol­low­ing decade, and by 76m in the one af­ter that (see The Ital­ian jobs).

Jörg Peschner, an econ­o­mist at the Euro­pean Com­mis­sion, says that many coun­tries face de­mo­graphic con­straints that they either can­not or will not see. He hears much de­bate about how to di­vide the eco­nomic cake—should pen­sions be made more or less gen­er­ous?—and lit­tle about how to pre­vent the cake from shrink­ing. Yet coun­tries are hardly pow­er­less. Even ig­nor­ing the mys­te­ri­ous busi­ness of rais­ing ex­ist­ing work­ers’ pro­duc­tiv­ity, three poli­cies can greatly al­le­vi­ate the ef­fects of a shrink­ing work­ing-age pop­u­la­tion.


The first is to en­cour­age more women to do paid work. Univer­sity-ed­u­cated women of work­ing age out­num­ber men in all but three EU coun­tries, as well as Amer­ica and (among the young) South Korea. Yet fe­male par­tic­i­pa­tion in the labour mar­ket lags be­hind men’s in all but three coun­tries world­wide. Among rich coun­tries, the gap is es­pe­cially wide in Greece, Italy, Ja­pan—and South Korea, where 59% of work­ing-age women work com­pared with 79% of men.

Gov­ern­ments can help by man­dat­ing gen­er­ous parental leave—with a por­tion fenced off for fa­thers—to en­sure that women do not drop out af­ter the birth of a child. And state elderly care helps keep women work­ing in their 50s, when par­ents of­ten be­come more needy. But a re­cent IMF re­port ar­gues the great­est boost to re­cruit­ing and keep­ing women in paid jobs comes from pub­lic spend­ing on early-years ed­u­ca­tion and child care.

Em­ploy­ers can do more too, most ob­vi­ously by pro­vid­ing flex­i­ble work­ing con­di­tions, such as the abil­ity to work re­motely or at un­con­ven­tional hours, and to take ca­reer breaks. Fa­thers need to be able to en­joy the same flex­i­ble work­ing op­tions as moth­ers. Some women are kept out of the work­force by dis­crim­i­na­tion. This can be overt. Ac­cord­ing to the World Bank, 104 coun­tries still ban women from some pro­fes­sions. Rus­sian women, for ex­am­ple, can­not be ship’s helms­men (in or­der, ap­par­ently, to pro­tect their re­pro­duc­tive health). More of­ten dis­crim­i­na­tion is covert or the un­in­tended con­se­quence of un­con­scious bi­ases.

Coun­tries can also tap older work­ers. Ben Franklin, of ILC UK, a think-tank, ar­gues that 65, a com­mon re­tire­ment age, is an ar­bi­trary point at which to cut off a work­ing life. And in many coun­tries even get­ting work­ers to stick around un­til then is prov­ing dif­fi­cult. To­day Chi­nese work­ers typ­i­cally re­tire be­tween 50 and 60; but by 2050 about 35% of the pop­u­la­tion are ex­pected to be over 60. Thanks to gen­er­ous early-re­tire­ment poli­cies, only 41% of Euro­peans aged be­tween 60 and 64 are in paid work. Among 65- to 74-year-olds the pro­por­tion is


lower than 10%. In Croa­tia, Hun­gary and Slo­vakia it is be­low one in 20.

The lev­ers for gov­ern­ments to pull are well known: they can re­move fi­nan­cial in­cen­tives (tax or ben­e­fits) to re­tire early and in­crease those to keep work­ing. Rais­ing the state re­tire­ment age is a pre­req­ui­site al­most ev­ery­where; if the av­er­age re­tire­ment age were in­creased by 2-2.5 years per decade be­tween 2010 and 2050, this would be enough to off­set de­mo­graphic changes faced by “old” coun­tries such as Ger­many and Ja­pan, found An­drew Ma­son of the Univer­sity of Hawaii and Ron­ald Lee of the Univer­sity of Cal­i­for­nia, Berke­ley.

Em­ploy­ers, too, will have to change their at­ti­tudes to older work­ers. Es­pe­cially in Ja­pan and Korea, where they are most needed, work­ers are typ­i­cally pushed out when they hit 60 (life ex­pectancy is 84 and 82 re­spec­tively). Ex­tend­ing work­ing lives will re­quire in­vest­ment in con­tin­ued train­ing, flex­i­ble work­ing ar­range­ments, such as phased re­tire­ment, and im­proved work­ing con­di­tions, par­tic­u­larly for phys­i­cally tough jobs. In 2007 BMW, a Ger­man car­maker, fac­ing an im­mi­nent out­flow of ex­pe­ri­enced work­ers, set up an ex­per­i­men­tal older-work­ers’ as­sem­bly line. Er­gonomic tweaks, such as lin­ing floors with wood, bet­ter footwear and ro­tat­ing work­ers be­tween jobs, boosted pro­duc­tiv­ity by 7%, equalling that of younger work­ers. Ab­sen­teeism fell be­low the fac­tory’s av­er­age. Sev­eral of these ad­just­ments turned out to ben­e­fit all em­ploy­ees and are now ap­plied through­out the com­pany.

A fi­nal op­tion is to lure more mi­grants in their prime years. Work­ing-age pop­u­la­tions are ex­pected to keep grow­ing for decades in coun­tries such as Aus­tralia, Canada and New Zealand, which openly court qual­i­fied mi­grants. Oth­ers can try to en­tice for­eign stu­dents and hope they stick around. Ar­turas Zukauskas, the rec­tor of Vilnius Univer­sity, thinks that he could im­prove greatly on the cur­rent tally of for­eign stu­dents—just 700 out of 19,200. In par­tic­u­lar, he looks to Is­rael, which has the high­est birth rate in the rich world. Lithua­nia had a large Jewish pop­u­la­tion be­fore the sec­ond world war, and many prom­i­nent Is­raelis have roots in the coun­try. Partly to sig­nal the academy’s open­ness, Vilnius Univer­sity has started award­ing “mem­ory diplo­mas”, mostly posthu­mously, to some Jewish stu­dents evicted on Nazi or­ders.

The trou­ble is that the coun­tries with the big­gest de­mo­graphic shortfalls are of­ten the most op­posed to im­mi­gra­tion. For ex­am­ple, the in­hab­i­tants of the Czech Repub­lic and Hun­gary view im­mi­grants more neg­a­tively than any other Euro­peans do, ac­cord­ing to the Euro­pean So­cial Sur­vey. Those coun­tries’ work­ing-age pop­u­la­tions are ex­pected to shrink by 4% and 5% re­spec­tively be­tween 2015 and 2020. Coun­tries that lack a re­cent his­tory of mass im­mi­gra­tion may have few sup­port­ers for open­ing the doors wider. Even if they wanted new set­tlers, they might have to look for them far afield. Coun­tries with shrink­ing work­ing-age pop­u­la­tions are of­ten sur­rounded by oth­ers that face the same prob­lem.

“China has never been a coun­try of im­mi­grants,” ex­plains Fei Wang of Ren­min Univer­sity in Bei­jing. It is un­likely to be­come one, but is try­ing to lure back em­i­grants and to at­tract mem­bers of the eth­nic-Chi­nese di­as­pora. In Fe­bru­ary the gov­ern­ment re­laxed visa laws for “for­eign­ers of Chi­nese ori­gin”. In Shang­hai, and per­haps soon in other cities, for­eign-pass­port hold­ers are al­lowed to im­port maids from coun­tries such as the Philip­pines. That is a small step in the right di­rec­tion.

Just as coun­tries’ de­mo­graphic chal­lenges vary in scale, so the reme­dies will help more in some coun­tries than in oth­ers. Take Italy and Ger­many. Both have shrink­ing work­ing-age pop­u­la­tions that are likely to go on shrink­ing roughly in par­al­lel. But Italy could do far more to help it­self. Be­cause the women’s em­ploy­ment rate in Italy lags so far be­hind the men’s rate, its ac­tive pop­u­la­tion would jump if that gap closed quickly—and if ev­ery­body worked longer and be­came more ed­u­cated (see Slop­ing off). Ger­many could do less to help it­self, and Lithua­nia less still.

In the­ory, every rich coun­try can prise open the de­mo­graphic trap. Gov­ern­ments could be­gin by low­er­ing bar­ri­ers to im­mi­grants and rais­ing the re­tire­ment age. They could en­tice more women into the work­force. They could raise the birth rate by pro­vid­ing sub­sidised child care, which would cre­ate a wave of new work­ers in a cou­ple of decades, just when the other re­forms are pe­ter­ing out. But, when a coun­try is shrink­ing, many things come to seem more dif­fi­cult. Ear­lier this year, Poland built up a large back­log of im­mi­gra­tion ap­pli­ca­tions, many of them from Ukraini­ans. It turned out that the em­ploy­ment of­fices were badly un­der­staffed, and could not process the pa­per­work in time. They had tried to take on work­ers, but failed.


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