October 19, 2016

Europe’s workforce is getting older but is it getting less productive?

Across Europe workforces are getting older in parallel to the aging of the general population. This could cause productivity to decline in the years ahead and provides challenges for policymakers already dealing with high unemployment and debt.

Over twenty years, the number of retirees is set to grow compared to the people of working age (15–64). At the same time, the average age of people in the labor force will rise: the share of workers aged 55–64 is forecast to increase by a third, from 15% to 20%.

There are several different theories regarding age-related effects on productivity. Accumulated years of experience could make older workers more productive than their younger cohorts. However frailer health and obsolete skills could reduce their productivity, at least beyond a certain threshold.

The IMF Direct research used a sample of European countries from 1950 to 2014 to examine the relationship between workforce aging and labor productivity. They found that workforce aging significantly reduces output per worker. A five percentage point increase in the share of workers aged 55–64 is associated with a decrease in labor productivity of about 3%.

The burden of workforce aging will fall unequally across EU member states, which raises concerns as some of the largest adverse effects will fall on countries that can least afford it such as Spain, Greece, Portugal, and Italy.

Matteo Picchio in his article Is training effective for older workers suggests that policies aimed at retaining older workers need to define training programs to meet the specific learning needs of workers. Self-paced, job-related, and work-integrated learning activities are shown to be the most effective.

Read more articles about the aging workforce and pension reform.

Related articles
Is training effective for older workers? by Matteo Picchio
Job search requirements for older unemployed workers, by Hans Bloemen