Fewer But Stronger? Workers In An Ageing Europe  

The era of globalisation was built on cheap and abundant labour. That era is now ending. As falling birth rates and longer lives shrink the working-age population, tighter labour markets will become the new normal – but what follows is not predetermined. Through collective bargaining and a renewed focus on care, workers can turn demographic change into an opportunity for redistribution and greater equality. 

“Prediction is difficult – particularly when it involves the future.” This maxim, commonly attributed to Mark Twain, is often used to remind economists of the limits of their models and conjectures. Yet for slow-moving trends like demographic change, society is better positioned to make forecasts, potentially allowing foresight to both shape outcomes and foster resilience. In Europe and globally, a long-running demographic transformation is unfolding, with declining working-age populations and a growing elderly population set to become defining features of the 21st century. The fertility rate – the average number of children born to a woman over her lifespan – has, over the last 40 years, fallen below the replacement level (2.1), stabilising at approximately 1.4 in the EU in the 1990s. At the same time, mortality has decreased due to medical advancements, increased occupational health and safety standards, and healthier lifestyles. Today, life expectancy at birth is over 80 years in Europe – 10 years higher than in the 1970s. The overall result is that fewer children are being born, but people are living longer. Taking into account net migration to the EU, which has averaged around one million per year since the 2000s, Eurostat expects the population to remain stable at 450 million through to 2050 (not accounting for EU enlargement).

One of the biggest shifts underway is in the working-age population (those between 20 and 64). In the baseline scenario, the mean age in Europe is expected to rise from 43.5 to 47 by 2050. This is due to both low fertility rates and lower mortality, with the two factors combining to increase the number of people over 65 from 21 to 29 per cent of the population total (indeed, those aged 85 and over are expected to double in number, from 3 to 6 per cent). The result is that the working-age population will decline from 59 to 53 per cent of the total. To view it another way, by 2050, there will be 26 million fewer people in the working-age demographic. Putting both developments together, the old-age dependency ratio is projected to shift from 3:1 to 2:1. This means that there will soon be just two people of working age for every one person over 65.  

Particularly strong declines in the working age population are expected in Eastern and Southern Europe, where fertility rates have been especially low, and where emigration to other parts of the EU has accelerated demographic trends. (This is seen most clearly in Eastern Europe.) Latvia, Lithuania, Bulgaria, Romania, and Hungary, as well as Greece and Portugal, are all faced with a decline in the working-age population of over 20 per cent, according to these projections. Conversely, immigration is set to boost this age group in Malta, Luxembourg, Sweden, Ireland, and Belgium, some of which have also benefitted from a less severe decline in fertility rates.  

Positive shock

As economists Charles Goodhart and Manoj Pradhan observe in The Great Demographic Reversal (2020), what characterised the era of globalisation starting in the 1970s and 1980s was a positive labour market shock: large cohorts of baby boomers in Europe and North America entered the globalised labour market, followed by Eastern European workers after the fall of the Soviet Union and China’s workforce following the country’s 2001 accession to the World Trade Organization (WTO). The combined effect was to make labour cheap and abundant. These demographic developments have been reversing since the 2010s, and many emerging economies are following trajectories similar to those described for Europe. The global population is expected to peak before the end of the century. Today, population growth is concentrated in a few parts of the world, including India and sub-Saharan Africa. However, workers in these regions remain, for the time being, less integrated into global production. In economic terms, Goodhart and Pradhan argue that smaller workforces will stunt GDP growth.

A recent ILO working paper estimates that the demographic drag in the baseline employment rate scenario will cause European growth to be 0.25 per cent lower annually up to 2050. Furthermore, the smaller workforce will be met with high consumption demand from older households spending their lifetime savings, increasing scarcity, inflationary pressure, and tightening labour markets.

Reversing the reversal?

As with any projection, there is a degree of uncertainty. Barring catastrophic wars or plagues, there are two main factors that could, in theory, halt the demographic reversal or its consequences in Europe: migration and labour market mediation. With regard to the first, immigrants are, on average, considerably younger than the native-born population, and migration could therefore grow the labour force and reduce old-age dependency. However, migration is the most uncertain element in the demographic projection. It is also, quantitatively speaking, the smallest. In 2024, there were 4.8 million deaths and 3.6 million births in the EU; net migration was, on average, around 1 million per year. Even significantly higher migration would not, therefore, stop Europe’s ageing. Even with a 30 per cent increase in net migration above the baseline projection, the working-age population would still decrease from 262 million to 249 million. For reference, the baseline projection for 2050 currently stands at 236 million.  

Net migration would need to be sustained at levels higher than 50 per cent compared to previous years if the working-age population is to stabilise and even higher to stabilise dependency ratios. With countries such as China and Brazil increasingly competing with Europe and elsewhere for immigrants, these levels are implausible. Moreover, even if they could be achieved, such large inflows of migrants into Europe would likely overwhelm administrative capacities and public provisioning – and, most likely, go against public sentiment. These are all decisive factors for the successful integration of migrants into the labour market. Migration and demography scholars come to substantially similar assessments.1

This does not mean that immigration will not be key to mitigating demographic risks. Migrants perform essential work in short-staffed and critical fields such as logistics, food (processing), industry, and healthcare. The shortages of seasonal farm workers during the Covid-19 pandemic, or of truck drivers after Brexit, are a stark reminder of this. Realistic migration scenarios, however, cannot reverse the shrinking workforce, much less stop oldage dependency ratios from skewing further.  

On the second factor, demographic dependency does not directly translate into economic dependency, as this relationship is mediated through the labour market. The labour market determines the proportion of people who receive money from social protection systems (such as elderly people and those who contribute money to them (such as workers). This, in turn, determines economic dependency. Combatting unemployment and promoting labour force participation decreases old-age dependency. For instance, model calculations show that the combined effects of high employment and high migration could reduce the increase in old-age economic dependency by more than 50 per cent in Germany and Austria.2

Structural changes in the corporate landscape will, however, require unions to expand beyond their traditional strongholds

Policies can go a long way towards achieving this outcome. For example, increasing the compatibility of work and family by expanding public infrastructure, offering longer parental and care leave, and combatting gender-based discrimination, such as the gender wage gap, could increase women's participation in the labour force. Adapting workplaces and promoting flexible working hours could meanwhile encourage older workers to remain on the job for longer or transition into retirement more gradually. Lastly, easier skills recognition, equal treatment, and good work standards would boost migrant participation in the labour market.  

However, the bottom line remains that even if migration is well managed and labour force participation rates are boosted, this would only moderate – not reverse – the demographic trend towards increased old-age dependency.  

Employment, investment, and productivity

The demographic projection is that for every person turning 65, the number of people turning 20 will decline from 0.83 to 0.77 by 2050. As the cohorts exiting the labour market are larger than the ones joining, the labour market should tighten. The European Centre for the Development of Vocational Training (Cedefop) forecasts labour shortages across the skills spectrum by 2035.3 Professionals, service workers, elementary occupations, plant and machine operators, and assemblers are all forecast to have a “type 3” shortage on a fourpoint scale. Labour shortages and vacancies going unfilled have been on the rise since the 2008 global financial crisis.

For European workers, labour shortages will have two effects: first, greater inflationary pressure due to production bottlenecks and intensified – and often longer – working hours in the impacted sectors; second, increased bargaining power, especially as the declining working-age populations combine with rising geopolitical tensions to restrict the attractiveness of outsourcing options. 

On investment, the picture is concerning. With demographic shifts implying lower growth, higher labour costs, more transfers to pensioners, and elderly households spending lifetime savings, raising investment will become more challenging. Moreover, higher central bank rates in response to inflation may compound this dynamic, driving up interest rates and thus investment costs. Continued and accelerating productivity growth is the bedrock for rising living standards and decent work and provides scope for wage increases while easing fiscal and welfare funding concerns. This high-road strategy, which does not focus solely on cost-cutting and deskilling, is what creates high-wage jobs, competition based on quality and the value of craftsmanship, and the retention of workers at a company level. Productivity growth, however, is stagnating, and the demographic drag on GDP could lead to a shrinking EU economy, intensifying distributional contestation. In his 2024 report, former European Central Bank president Mario Draghi identified stagnating productivity as the major hurdle to European competitiveness.  

One major impediment to investment is that corporate profits are being increasingly retained instead of reinvested.4 Workers’ voices could play a major role in changing this reality, as greater employee participation in decision-making increases investment and the productivity growth of firms, which is necessary for the green and digital transitions.5 Workers mitigate shareholders’ tendency to focus on short-term returns (which often causes underinvestment).  

Crises and opportunities for workers  

For trade unions, this combination of tighter labour markets and higher inflation could act as a tailwind for renewal. Unions have faced declining membership in most countries due to factors such as a fall in manufacturing employment, outsourcing, the rise of atypical employment practices, and employer strategies. However, trade union density (the percentage of employees who are union members) has recently begun to stabilise in some countries, including Ireland, France, Spain, Lithuania, Romania, and Norway.6 In the past, trade unions have been able to organise more successfully in tighter labour markets, thereby increasing worker leverage, and in contexts of high inflation, by protecting real wages. This might become the case again in the new demographic reality.  

Structural changes in the corporate landscape will, however, require unions to expand beyond their traditional strongholds in large manufacturing firms and the public sector, reaching into commercial services and smaller workplaces, where employment is growing rapidly. In addition, atypical forms of employment, such as subcontracting and platform-mediated gig work, are also becoming more prevalent. Successful expansion campaigns that also reach into these sectors will be necessary for the revitalisation process.  

The care sector will be particularly strategic in this regard. As the proportion of elderly people in society increases, so will the share of goods and services required for their care. Thirty-seven per cent of women and 29 per cent of men above the age of 85 have severe activity limitations and require assistance to perform daily activities. Dementia in particular puts pressure on the sector because it increases care needs without reducing life expectancy. Due to the complex social skills required for taking care of elderly people much of this work is unlikely to be meaningfully automated, necessitating a build-up of the care sector, where labour shortages are already visible.7  

Care work is often performed informally by relatives, predominantly women. However, informal care work reduces women’s employment opportunities, contradicting the goal of expanding labour force participation to mitigate demographic pressures. As for the formal care sector, it is currently characterised by low pay and strong gender segregation. Good working conditions are necessary to attract more care workers and ensure the dignity of the ageing population. This puts society in a dilemma, as at the same time, fiscal constraints exist. Unions could play an important role here by fighting for better working conditions and organising workers. Such care sector campaigns could be an essential element in trade union renewal. They could also integrate the broader perspective of workers gained through social dialogue and consultation, thereby playing an essential role in shaping this key sector in an ageing society.  

The demographic outlook for the 21st century comes with considerable challenges for Europe: low growth, high old-age dependency, labour shortages, inflation pressures, and a gloomy outlook for investments and the care sector. At the same time, this constellation may enhance organised labour’s capability to revitalise and navigate these challenges to the benefit of working people.