Trend: Changing Labour Force

A trend indicates a direction of change in values and needs which is driven by forces and manifests itself already in various ways within certain groups in society.

The size and composition of the labour force is changing. Different challenges to local labour markets are emerging, as some regions are experiencing rapid ageing and others have growing youth cohorts. The EU-27 recorded the highest number of economically active people ever in 2019. However, labour force participation among adults is decreasing globally. The gender-gap in labour market participation is closing in some countries, but widening in others.

By 2050, there could be less than two people of working age for every person aged 65 years or more. But, by that time, the notion of working age and its boundaries might have been radically rethought. In the shorter term, the issue of sustainability of the pension systems will need to be addressed. 

This Trend is part of the  Megatrend  Increasing demographic imbalances

Manifestations

Developments happening in certain groups in society that indicate examples of change related to the trend.

Declining labour force participation and the potential of a 'demographic dividend'.

The working age population has been increasing in number since the 1990s. However, at the same time, the labour force participation rates among adults have been declining globally, a trend which the International Labour Organisation (ILO) expects to continue. Rising school enrolment rates, increasing opportunities to retire and higher life expectancy are some of the factors that can explain this decline.

Countries with growing youth populations, most of which are in Sub-Saharan Africa, could face major challenges related to insufficient human capital investment, unemployment and even political destabilization. Youth unemployment today will affect social and economic development in the future because young people who have a delayed entry in the labour market tend to lag behind in earnings and income growth once they are eventually employed.

However, if falling fertility coincides with increased investment in the human capital, education and health of children and youth, and if the labour market manages to absorb new entrants, it can lead to a ‘demographic dividend’ that some countries could reap before demographic ageing sets in. When the working-age population is much larger than the share of dependants, it creates a window of opportunity that can, for example, lead to rapid economic growth, higher productivity and increased savings.

Signals of change: ILO, UN DESA

Labour force participation of women

Although the gender gap in labour force participation has been narrowing over the past 25 years (1993-2018), women's global labour force participation rate is still about 27 % below that of men (49 % for women, compared to 76 % for men) according to the ILO.

With more women joining the labour force and staying economically active throughout their lives, the gender gap is closing more rapidly in high-income countries. But it continues to widen in emerging economies. Part of this has to do with discrimination, Part of this has to do with discrimination and unequal distributions of domestic duties, part of it has to do with statistical definitions. In low- and lower-middle income countries, women are more likely to engage in subsistence farming than men. As this form of non-market-oriented food production is often not accounted for, activity rates of women appear to be lower than they actually are.

Signals of change: ILO, IZA, Eurostat

EU labour force

The relation between those of working age (20-64) and those above 65 in the EU (defined as ‘old-age dependency ratio’) is projected to nearly double from 33.6 % in 2020 to 56.7 % by 2050. By then, all but four EU Member States are projected to have an old-age dependency ratio above 50.0 %. This means that in the majority of the EU, there will be less than two people of working age for every person aged 65 years or more. Does this mean that European workers will have to support more elderly dependants in the future? Defining the working age as a static range between 20 and 64 may not be adequate in the future. With rising retirement age, a redefinition of working age could change the picture.

In 2019, 190 million people were economically active in the EU-27. This is the highest number recorded so far. The COVID-19 recession has already led to a decline of gainful employment. It will significantly affect European labour markets in the coming years. In the medium to long run, however, demographic ageing might reduce the size of the work force. Increasing labour force participation is seen as the most effective way to tackle the adverse effects of ageing on labour markets. This can be done, for example, by increasing participation rates of women and people with migrant backgrounds and by introducing higher retirement ages. From the point of intergenerational fairness, an optimal solution could be to link pension levels and retirement age to life expectancy. But these solutions could be difficult from a political point of view. When asked in 2016 whether or not the retirement age should be increased to ensure the sustainability of pension systems, only 26 % of adults in the euro area agreed.

Signals of change: JRC, Eurostat, Statista

Interesting questions

What might this trend imply, what should we be aware of, what could we study in more depth? Some ideas:

• How can automation compensate for a shrinking workforce and not go against the ecological transition? 

• How will the shrinking labour force in high-income countries and a growing labour force in low-income countries impact labour migration in the future? 

• Could increases in retirement age become more acceptable for EU citizens?

• How can labour markets become more inclusive to accommodate a multigenerational workforce?