9 November 1998 • The Impact of Demographic Changes on Labor Supply. Main Facts and Trends • Gudrun Biffl

Aging of the population of working age set in in the course of the 1990s and will continue well into the next century. The age structure of labor supply differs more between regions of the EU than the structure of the population of working age. Different educational, welfare and tax systems and policies as well as economic developments and cultural factors account for major differences in labor force participation rates by age and gender. Currently the share of older workers in the labor force has a spread from 14 to 26 percent in the EU – a result of the interaction of demographic and socioeconomic as well as institutional factors.

In contrast the size of youth cohorts in the work force varies less between EU member states (11 to 19 percent). Nevertheless, the differences are significant and a result of the different role of the youth labor market in the socioeconomic setting of every country, i.e., the education systems and their link with the labor market.

The share of medium age in the total work force spreads from 62 to 73 percent. Apart from demographic factors, these large variations are due to major differences in the activity rates of women, particularly of married women with children.

Between 1985 and 1995 labor supply in the EU 12 increased by 9.4 million (+7 percent). Since the number of jobs increased over the same time span only by 8.5 million, unemployment rose by 900,000 to reach an average rate of 11 percent. Currently (1997) some 150 million workers are employed in the EU 15 while 18 million are unemployed.

Labor supply projections suggest that the labor force will decline in some areas of the EU towards the end of the next decade. The decline will be fairly small in relation to the unemployed labor resources.

Between 1995 and 2005 labor supply in the EU 15 will increase by some 6.9 million, while in the decade 2005-2015 a drop of 2.1 million is expected. If employment continues to grow on average by 0.7 percent annually, unemployment in the EU should eventually decline. Currently unemployment is a pervasive feature of labor markets in the EU, in which pockets of high unemployment are among youth, the elderly and women. The eventual decline in labor supply may lead to local labor scarcities and occupational and skill mismatch without necessarily bringing about full employment. Special labor market policies, in order to increase the potential of re-integration of the unemployed into the labor market, will have to be put into place.