As a trending topic, migration in Europe has been the center of attention for the past few years. The recent European elections in June 2024 raised several question marks as Europe has seen the right parties rising again. It is still uncertain which measures will be taken in Europe regarding migration, however, today’s article aims to delve into how migration has affected Europe and how it can solve the ageing population problem.

Although extensive research has been conducted on the labor market effects of immigration, there is still limited understanding of how immigration dynamically affects native employment and the influence of institutional factors or economic performance on these effects. While immigration may negatively affect native employment in the short term, this impact lessens over time. Additionally, the employment effects of immigration differ significantly based on educational level and geographic location.

How does immigration influence employment opportunities for native workers? As immigrants (or foreign-born individuals) make up an increasingly large proportion of the labor force in European countries, the economic impact of immigration continues to be a relevant issue. Over the last decade, the foreign-born share of the labor force in these countries increased by 3.4 percentage points, rising from 12.8% in 2010 to 16.2% in 2019. This increase is twice as large as in the US, where the foreign-born share of the labor force rose by only 1.6 percentage points (from 15.8% in 2010 to 17.4% in 2019).

Initially, immigration has a negative effect on the employment rate of natives in the years immediately following the influx of immigrants. In the short term, a 1% increase in the labor force due to immigration in a given region reduces the employment-to-population rate of natives in that region by 0.81% . The short-term negative impact on native employment is more pronounced when looking at 1-year fluctuations compared to 2-year or 3-year changes. However, this short-term effect fades in the longer term, as seen in 5-year or 10-year variations. This pattern is consistent with standard economic theory, which suggests that the labor market takes time to adjust to immigration-induced changes.

Moreover, the labor market effects of immigration vary by educational attainment. Immigration has no short-term impact on the employment rate of highly educated natives and even has positive effects in the long term. In contrast, low-educated natives experience negative employment effects in the short term, though these effects weaken over time. This adverse impact on low-educated natives is not unexpected, as competition between natives and immigrants tends to be more intense in the low-skill segment of the labor market. Overall, immigration to Europe over the past decade has widened the employment opportunity gap between high- and low-educated natives.

Additionally, coming back to a more specific concern, it might seem that the unstoppable rise of artificial intelligence will lead to widespread job losses, leaving many without work. However, for the emerging markets and developing economies of Europe and Central Asia, a much bigger concern is the sharp decline in the labor force.

What’s happening? Many countries in this region are facing a severe demographic crisis, marked by lower fertility rates, declining mortality rates, significant emigration, and subsequent population decreases. The average fertility rate has dropped from 2.8 children per woman in 1960 to 2 children in 1990, and further down to 1.6 children today—well below the replacement level of 2.1 children.

By 2050, the proportion of people over 65 in many countries could reach or even exceed 25%. By the end of this century, a 65-year-old European will have only half as many living relatives as someone of the same age in the 1950s. These shifts in age distribution have widespread economic implications. Fewer working-age individuals will strain labor markets, slow capital investment, and dampen GDP growth. Lower worker-to-retiree ratios and longer retirements will burden government budgets and threaten the sustainability of pension and healthcare systems. Without significant government interventions, these negative trends will intensify as population aging accelerates. The 2023 UN State of World Population report even warns that if these trends continue, “entire countries or even the human population itself could ‘collapse’”.

Can policy address this issue? Not entirely. The underlying demographic changes are long-term and driven by deep structural shifts in economies and societies. Globally, population growth has slowed from nearly 2% in 1960 to 0.8% today, and the global fertility rate has also halved during this period to 2.3 children per woman.

While large inflows of migrants might seem like a straightforward solution to supplement the labor force and improve worker-to-retiree ratios, extremely high numbers of migrants would be needed to offset population aging. For instance, to maintain its current worker-to-retiree ratio by 2050, the EU would need to attract over 100 million foreign-born migrants. Even raising the fertility rate from 1.46 to the replacement rate of 2.1 would only modestly increase the worker-to-retiree ratio in the EU.

However, bringing in large numbers of migrants whose skills do not match the needs of the destination countries could be financially unsustainable. Additionally, the costs and feasibility of attracting skilled migrants, especially in competition with other countries, could be significant. It’s uncertain whether there is enough global supply of skilled migrants and whether sending countries will take steps to retain their human capital. Fertility rates in sending countries are also beginning to decline, with the global supply of migrants expected to fall 31.5 million short of demand by 2050.

The limits of automation’s impact on productivity in post-industrial economies and the number of older workers who wish to continue working after retirement further constrain the effectiveness of these policies.

Nonetheless, it is suggested that combining pro-immigration policies with measures to improve labor market opportunities for women should be central to how the region addresses its ageing population. These policies should be complemented by efforts to increase labor force participation, particularly among young people who are currently not studying or working.

References

Edo, A., & Ozguzel , C. (2024, April 25). Migration and employment dynamics across European regions. Retrieved from VOX EU: https://cepr.org/voxeu/columns/migration-and-employment-dynamics-across-european-regions

Izvorski , I., & Lokshin, M. (2024, April 23). How can Europe and Central Asia tackle its ageing crisis? Retrieved from World Bank Blogs: https://blogs.worldbank.org/en/europeandcentralasia/how-can-europe-and-central-asia-tackle-its-ageing-crisis- 

Photo: migration2ndrevision1-1200×800.jpg (1200×800) (newscientist.com)