Population ageing and its effect on GDP. Can incerased labor productivity and/or employment compensate for the shrinking working age population?

Ronald Schoenmaeckers, Studiedienst van de Vlaamse Regering (SVR)
Thierry Vergeynst, SVR - Research Centre Flemish Government
Edwin Pelfrene, SVR - Research Centre Flemish Government

The central issue for the attention given to the socio-economic aspects of ‘population ageing’ is the increasing dependency ratio as the result of the changing age composition. The paper intends to examine the possible ‘compensating’ effects of increased labor force participation and productivity for the shrinking working-age population. The methodology are simulation exercises with varying levels for activity rates and productivity based on the latest international (UN, EUROSTAT) and national (Federal Planning Bureau of Belgium) population forecasts. Preliminary results indicate that higher levels for activity rates cannot completely offset the increases in the dependency ratio. This leads to the discussion for the need to increase retirement age. In general, European citizens are rather hostile to this policy measure. Bearing the words in mind of Frank Notestein, namely that ‘population ageing is “a great triumph of mankind”, the discussion also leads to the question whether ‘working longer’ can be considered ‘progress’.