Global Economics

ECB Counsels Later Retirement


Later retirement and longer working hours rather than a boost in economic immigration, could prove essential for the eurozone to avert a plunge in economic growth due to ageing - a new research paper published by the European Central Bank suggests.

Under current trends, the 12-country euro area is projected to see a shrink in its population in absolute terms after 2020, with every third person expected to be older than 64 by 2050.

According to UN estimates, in some European countries - like Germany, Greece and Italy - the total population is likely to already decline within the next 5 to 10 years, while in others - Belgium, France, the Netherlands, Austria, Portugal and Finland - in about 20 years - or not at all over the period considered, like in Ireland and Luxembourg.

But as a result of ageing, eurozone as a whole could see its economic growth fall to around only one percent of GDP per year between 2020 and 2050, the ECB report says.

Among the key suggestions to avert the negative economic implications, the paper argues that governments should focus on boosting the participation of women and so to close the apparent gender gap in the working force aged 25-54.

"Moreover, a number of euro area countries have a large potential to increase labour supply by raising average hours worked and the effective retirement age," the authors write.

This could lead to an end to early retirement schemes which "often discourage labour market entry, particularly of women and older workers."

The paper says economic migration could be less effective as another way for EU member states to tackle their ageing population problems.

It notes that "a number of recent studies conclude that the stabilisation of old age dependency ratios through migration alone is unlikely, due to the huge number of migrants that would be required."

"Indeed, the role of migration in addressing the European demographic challenge is likely to be only complementary to other policies, given natural limits to the feasible number of migrants and political constraints."

MIGRATION DIFFICULT EVEN WITHIN EU. While several EU institutions have contemplated how to boost incentives for qualified people from third countries to come and work in the EU, migration proves a sensitive subject even within the bloc itself.

Britain has seen a lively debate over the summer over whether it should open up its labour market to Romanian and Bulgarian citizens straight after the two countries join the EU, probably in January 2007.

Opponents of such a move suggest another wave of immigrants - following up to around 600,000 from the new EU member states from central and eastern Europe - would cause difficulties for the country's public services and take away jobs from some of its own nationals.

But the leaders of UK's biggest businesses have joined forces to claim the opposite and are calling on the government to avoid any work restrictions for the newcomers.

"A so-called pause in migration from these countries would be tantamount to a reversal of policy and could work against Britain's interests," argue the signatories to the initiative conducted by the Business for New Europe Group (BNEG), a pressure group calling for further integration, according to the UK daily Independent.

The list of supporters includes the UK heads of Sainsbury, the supermarket giant, Centrica, which owns British Gas, Merrill Lynch, the Wall Street investment bank, and other companies that employ millions of people.

"The simple fact is that workers from other European countries come to the UK because there are jobs," the business leaders said, adding "It is a cause for support, not retrenchment."

"We believe that in reaching its decision the UK Government should be guided both by economic reason and by recent historical experience," the statement concluded.


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