Countries across much of the western world are struggling with an aging population, with largely stagnant retirement ages creating a distorted labor market ratio compared to dependents. New research from the International Institute for Applied Systems Analysis (IIASA) highlights how migration can help redress the balance.
The study highlights how the over 65’s population is due to grow in size, due to a combination of lower fertility and increased life expectancy. Existing economic structures largely rest upon an age structure that is gradually turning in the wrong direction. The study finds, however, that these changes can be mitigated if factors such as education and labor market participation are considered.
The cost of dependency
The study suggests a new means of measuring the possible future costs of a high dependency ratio. They add productivity to the metric to take account of the importance of education and greater workforce participation, especially among women and the elderly, to present a more realistic perspective.
They developed a demographic model to explore various immigration scenarios, with the models taking account of things like the numbers, education levels and integration into the labor market. They also modeled labor participation rates, using Sweden, which has the highest level, as the benchmark.
The scenarios show that when education and labor force participation are taking into account, the actual ratio of non-workers to workers is less than that suggested by traditional indicators, which only take age into account. As such, an increase in labor force participation could offset the expected increases in the dependency ratio caused by the changing demographics.
“Although demographic aging is unavoidable in Europe, the research shows that the fears associated with the coming economic burden have been unduly exaggerated. Conventional projections use the simplistic and inappropriate conventional age-dependency ratio, which assumes that everyone aged over 65 is not working and that everyone aged between 15 and 64 is equally productive,” the researchers say. “With better labor force participation among migrants and the general population, Europe could largely avoid the widely expected negative impacts of aging.”
Immigration can have a range of effects, with the most positive coming when migrants are well educated and integrate effectively into the labor market. If they’re neither of those, the impact on dependency is largely negative.
“Too often, economic and migration policies aimed at reducing the burden of population aging focus on the number of immigrants that a country should welcome. However, this is only one of the factors at play. In the absence of successful integration, increasing immigration can have the opposite effect, highlighting the importance of policies that ensure the best possible integration of migrants.” the authors conclude.
