NCPA - National Center for Policy Analysis


August 12, 2008

With aging populations, Europe's workforce is shrinking.  Can forcing people to work longer be the solution to overcoming labor shortages?  According to the National Center for Policy Analysis, raising retirement ages by three years would generate savings of over 40 percent in the United Kingdom, about 30 percent in the United States and slightly over 15 percent in Italy.

A steadily increasing lifespan does not seem like something to worry about, but coupled with low birth rates, it means that a dwindling workforce has to support growing numbers of elderly citizens, resulting in budget deficits and debt.  Governments across Europe are trying to counteract this by phasing in later retirement ages, and reforming pension systems to make early retirement less attractive:

  • They are encouraging employers to overhaul traditional seniority-based salary and benefits arrangements that make older employees too expensive to keep.
  • Employers can also improve the retention of older employees by retraining them and by adapting workplace schedules and environments.
  • They are also utilizing women; by January 2008, Norwegian publicly listed companies had to have a minimum of 40 percent of women on the board.

Additionally, countries are tapping into the immigrant labor market:

  • These workers make up the demographic shortfall in labor-intensive, low-paid industries such as construction, agriculture, hospitality, catering and health care that largely require young, healthy workers.
  • Employers also argue that they do the jobs local people will not do.
  • New immigrants also tend to maintain the higher fertility rates of their native countries, a key reason why the U.S. workforce is aging more slowly than that of Japan or Continental Europe.

However, unchecked large-scale immigration can create social and political tensions.  Countries like Australia and the United Kingdom have introduced points-based systems to restrict non-EU immigration to highly-educated and skilled workers.  

Source: James Tulloch, "Labor Markets: Workforce or Forced Work?" Allianz Knowledge, August 11, 2008; based upon: Stephen Moore and Tyler Grimm, "The Bush Capital Gains Tax Cut after Four Years: More Growth, More Investment, More Revenues," National Center for Policy Analysis, Policy Report, No. 307, January 2008.

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