Eastern Europe: The Future of Aging Populations and Economic Growth
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- Authors: MARIA PETRAKIS
- Published: March 1, 2020
Demographic trends and economic implications
- Nine of the ten fastest-shrinking countries in the world are in eastern Europe, according to United Nations projections.
- Life expectancy has risen to 74 years from 67 in 1995.
- GDP per capita has more than doubled since 1995.
- Between 1995 and 2017, central, eastern, and southeastern European (CESEE) countries lost about 7 percent of their workforce, mostly young and educated workers.
- The United Nations expects that the population of the region will decline by 12 percent by 2050 as a result of aging and migration.
- The workforce will fall by a quarter in the same period.
- IMF research indicates demographic pressures could cost these countries about 1 percent of GDP per year for the next 30 years.
- Per capita GDP for these countries will still be only 60 percent of western European levels in 2050, up from 52 percent now; without the demographic challenge, it could have been 74 percent.
Drivers of the demographic challenge
- Longer lives, smaller families, and the ease of emigration have combined to exert growing demographic pressure.
- Emigration of young, skilled professionals has accelerated since the fall of communism in 1989 and has been amplified by EU membership, which eased labor mobility.
- Mortality and emigration rates in the region are much higher than those in western Europe, exacerbating population decline.
- Fertility policies face long lags: even if fertility increased immediately, it would be two decades before the working-age population showed a difference.
Policy responses and country examples
- Family/fertility incentives:
- Hungary: women with more than four children have been exempted from income tax; couples requiring fertility treatment will receive it free.
- Labor force participation and retention:
- Increase participation of women in the workforce.
- Convince older workers to keep working and provide training so they can remain productive.
- Improve retention of skilled workers:
- Strengthen institutions and improve the overall economic environment and investment climate to deter emigration.
- Countries must “offer things in return” to keep young, skilled people, including career opportunities and research funding.
- Inward migration and firm-level responses:
- Firms have used inward migration to fill vacancies: McDonald’s imported 30 workers from Sri Lanka to fill the labor shortage in three of its Bucharest stores as part of a two-year pilot project.
- McDonald’s serves about 230,000 customers per day in its 84 restaurants in Romania; it opened four new outlets in 2019 and plans to open another eight in the year following the report.
- Private-sector retention strategies: examples include employee amenities and telework options cited by Dacia’s Bucharest operations.
- Skills and lifelong education:
- Emphasize education throughout working lives to adapt to automation and changing skill demands.
- Example: Rails Girls Sofia in Bulgaria has trained about 1,000 women in web programming since 2013.
Risks, trade-offs, and priorities
- Automation could free workers for higher-value activities but also push out workers with lower skill levels.
- Financial incentives to raise birth rates have shown limited effects elsewhere; demographic effects on the workforce are slow to materialize.
- IMF and regional economists stress that population aging affects health care, social services, and long-term growth prospects—not just public pensions.
Key statistics and quotes
- “Population aging concerns more than just public pensions,” — Alasdair Scott, IMF economist.
- “The world is a highly competitive place,” — Maria Topalova; countries must offer meaningful opportunities to retain talent.
- Global labor market signal: 54 percent of companies say they struggle to find qualified people for vacancies, the highest rate in a decade (Manpower Group Talent Shortage survey for 2019).
Content from "Eastern Europe: The Future of Aging Populations and Economic Growth – IMF F&D," Maria Petrakis, March 2020.
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