Gerontocracy in Motion? – European Cross-Country Evidence on the Labor Market Consequences of Population Ageing



Gerontocracy in Motion?

ment are fixed, population ageing might affect the level and composition of
the labor force in a much more intricate way than is often recognized. In con-
trast to the US, in Europe these issues have to be discussed within the frame-
work of imperfectly competitive labor markets, shifting the attention from
wages to employment and unemployment rates. In essence, the relative shift in
labor supply associated with an ageing work force might impinge upon a vari-
ety of different aspects pertaining to individual and societal welfare, among
which particularly the labor market outcomes are of interest.

Taking a cross-country perspective, this paper addresses the most important
issues in the nexus of European population ageing and Europe’s labor mar-
kets. To this end, in the second section we provide some key characteristics of
the demographic change which currently affects virtually all European coun-
tries. The subsequent section intensively discusses the potential consequences
of these demographic processes for and their interdependencies with the labor
market situation in Europe. We place particular emphasis on the issue of
non-competitive wage setting. Furthermore, to investigate the issue more
deeply, in section 4 we provide some own empirical evidence on the relation-
ship between changes in the population age structure and individual employ-
ment probabilities. Finally, in the concluding section we review possible policy
options for coping with the consequences of population ageing.

2. Demographic Processes and Population Ageing

This section documents how similar demographic trends shape the population
age structure of all European countries. Table 1 clearly demonstrates that
most of the EU-15 countries experienced a remarkable decline in birth rates
during the 1970s. The Mediterranean countries Greece and Spain and also Ire-
land were affected by declining birth rates somewhat later, in the 1980s,
whereas the birth rates of Portugal decreased considerably during both the
1970s and the 1980s. The Nordic countries Finland and Sweden (also Norway
which is not included in this analysis) experienced this decline rather late in
the 1990s.

The most pronounced decline in birth rates happened in Ireland and Spain
during the 1980s where the number of live births per 1,000 people fell by be-
tween about one third and even one half, albeit from relatively high levels. A
similar observation holds for Italy and Portugal, yet over a larger time span al-
ready starting in the 1970s. A complete exception to this process, but arguably
quantitatively negligible, is Luxembourg where birth rates declined during the
1970s but recovered again in the 1980s and remained stable afterwards. Cer-
tainly, it is intellectually quite challenging to study the reasons for these devel-
opments. While this cannot be the topic of this paper, the heterogeneity in the



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