EUROPEAN PAPERS ON THE NEW WELFARE

Abstracts from The Employment Dilemma and the Future of Work

5. Working population and employment in the Industrial Revolution system

According to the Human Development Report 1995 of the United Nations, world population amounted to 5.4 billion in 1992 and was growing at an estimated rate of 1.5% per year. According to this estimate, there will be 6.1 billion people in the year 2000 and about 7 billion another ten years later.
Population growth, however, is far from being homogeneous throughout the world. While the industrialised countries experience a very moderate growth rate of less than 1/2% per year, developing countries expand at 1.8% p.a. It is hardly perceivable, that developing countries will continue to grow at such accelerated rate in the future as well since this would imply doubling every 39 years. And indeed, if we examine the dynamics of population growth, comparing the average growth rate from 1960 to 1992 with the estimated growth rate for 1992 to 2000, there is a significant decline from 2.3% to 1.8%. It seems that the industrialisation process is provoking the same reaction, first accelerated growth and then stability or even slight decline, in the now developing countries as it did in the industrialised ones during the last two centuries.
As a consequence of improved living standards, sanitation, health services and a decline in new-born and maternal mortality rates, life expectancy is growing everywhere and has added another 17 years since 1960 to the average life-span. It is now 65.7 years at birth, meaning that a new-born child would live for nearly 66 years if prevailing patterns of mortality at the time of birth were to stay the same throughout the child’s life. But it is rather unlikely that it should stay the same over the coming years. In the past, life expectancy displayed a growing trend, especially for those over 60 years of age who can today expect another 20 years of life in industrialised countries. While in developing countries there is no gender related difference in life expectancy, in industrialised countries women can enjoy life for an additional five years in comparison to men.
If we take these developments into account, we seem to face a future where the population of the developing countries will have doubled by the year 2025 while that of industrialised countries will grow much slower. It will also be a future of a more mature society since both average age and life expectancy will continue to increase. The ratio of the population defined as dependent, those under 15 and those over 64, to the working age population aged 15 to 64, will fall. In industrialised countries it has already reached 50% while the developing countries exhibit higher rates due to their very ‘young’ demographic structure.
As a consequence of these developments, the composition of labour supply by age, gender and qualification is undergoing a substantial transformation in time due to the changing socio-demographic factors. In turn, these changes in the labour force will also affect future labour demand because of varying economic preferences of an otherwise structured society. This in turn will have an impact on labour supply as new opportunities will arise and some established jobs will experience a fall in demand, thus causing the system to shift its priorities and incentives.
In a purely accounting sense, the majority of employment growth in the past can be attributed to population growth. The OECD estimates that about 85% of the employment growth in its member countries in the 1980s were caused by a growing population. We should therefore expect the regions with the highest growth rates to display the highest rates in employment growth. However, national differences in the evolution of participation rates, especially the generally increasing but regionally varying participation of women and older people in the labour market, and dissimilar capacities to absorb an increased labour force without causing unemployment can account for substantial differences in this development.
Since the old-age dependency ratio is expected to rise in most countries, necessitating changes in the financing of old-age pension schemes and variations in the retirement age, this will affect the composition of the labour force as well. Since demographics have to be, at least over the period of one generation, accepted as an exogenous factor, the increase in old-age dependency ration from about 19% today to over 22% in 2005 in industrialised countries, according to the OECD, has to be fought on other grounds.
Immigration from countries with considerably ‘younger’ demographics in developing regions of the world can only be partly a solution. To keep the old-age dependency in industrialised countries on today’s level, a net influx of almost 200 million working-age immigrants, about one fifth of the actual OECD population, over the next ten years would be necessary. The ensuing social problems can hardly be imagined. For comparison, the European Community experienced a net migration inflow during the last decade of about 1.4% of the total population and even traditional immigration countries like the USA and Canada displayed proportions of just 2.8%.
The most logical solution to the problem of increasing old-age dependency would be to lift the age limit. The extension of the working age population definition from now 15 to 64 by another five years to then 15 to 69, would immediately add 3.9% of the US, 4.7% of the French and 4.9% of the German population to the independent age group4. This technical change would reduce the dependency rate drastically, overcompensating the demographic effects of the next years. An extension of just one or two years should more than suffice to counterbalance the immediate demographic changes. With augmenting life-expectancies, however, a continuous elevation of the age limit will be necessary.
An altogether different effect is the likely decline in the relative numbers of young people entering the labour force. This implies that the effect of usually more qualified labour market entrants leading to an upskill of the workforce will diminish. Stimulated immigration will have a similar effect on the mean qualification of the workers since immigrants to industrialised countries are on average less highly skilled than the national workforce. As a consequence, more future resources will have to be allocated or greater incentives will have to be provided to retrain workers throughout their active lives.
We have to bear the intricacies of these demographic developments and their impact on the structure and composition of the labour market in mind when thinking about the future of work.

4 Ratios estimated according to ILO (1995): Yearbook of Labour Statistics. Table 1.


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