A Global View on Demographic Pressure and Labour Market Participation

Demographic change exerts pressure on labour markets and public finances across the globe. Most studies on ageing focus on the projected development of the old age dependency ratio, the ratio of persons 65 or older relative to the working age population. This ratio gives a very incomplete picture of the (fiscal) pressure from demographic changes. In this study, besides the share of the dependent population composed of the young and old we include the share of the working age population that is not active on the labour market, labelled as the labour market space. By analysing 21 developing and 29 developed economies across the globe, we cover 75% of the 9.3 billion people that the United Nations projects for the whole world in 2050. A new indicator, relating demographic pressure from fiscal spending to the available space at the labour market, enables us to quantify and compare the pressure-to-space across countries over the time span 2010-2050. The indicator points out that Poland, Turkey and Greece are most under pressure, whereas developing countries Uganda, the Democratic Republic of Congo and Tanzania will experience a very low pressure up to 2050. Across countries, the relation between fiscal pressure exerted by the dependent population and the labour market space is positive. There is thus room for using this space by, for instance, working more hours or increasing the retirement age, as this will alleviate the fiscal pressure. This suggests a policy trade-off between maintaining publicly financed services to the dependent population and maintaining labour market space.