Executive Summary

Until 2050, the working age population in the EU-27 will shrink by 20%. Italy, Spain and Germany will be hit even harder by demographic change. Against this background we took a closer look at what it could take to cushion the effect of demographic change on the labor markets in the four largest economies Germany, France, Italy and Spain, running scenarios with different combinations of labor force participation, productivity and migration.

Banking on migration only would require inflows of between 100 000 and 500 000 migrants per year in the four largest economies alone. How can labor input be maintained at today‘s level, despite shrinking workforces? Even if Germany increases its retirement age to 68 and makes efforts to increase the labor force participation rates of women, older workers and foreigners to the levels seen in Sweden, it will still need 200,000 migrants per year on average. But if it relied on immigration alone to mitigate the impacts of demographic change on the labor market, it would need 482,000 migrants per year. In such a scenario, the demand for labor migrants would be at similarly high levels in Italy and Spain, with a needed inflow of 414,000 and 338,000 migrants per year on average, respectively. However, Italy and Spain benefit from relatively higher internal reserves, given their lower labor force participation and employment rates compared to Germany. The same holds true for France, which additionally profits from a more favorable demographic development. With labor reforms to boost participation, Italy would need only 89,000 migrants per year, while in Spain this number would fall to 131,000. In France, increasing labor force participation rates would even be enough to keep the total number of hours worked stable in the long run, and an increase in productivity of +10% would have the same effect. Without these changes, relying on immigration alone would require 115,000 migrants per year.

…But the global competition for skilled migrants is set to intensify. The working-age population is declining in the most important Eastern European sender countries as well. Until 2050, the population aged between 20 and 64 is expected to shrink by a third in Bulgaria, by -26% in Poland and by -22% in Romania. Major Asian and Latin American economies will also have to cope with demographic change. With the pool of 20- to 39-year-olds set to decline in all world regions except for Africa, European economies will have to ramp up efforts to attract skilled migrants. 

Integration should start before immigration. In Germany, but also in France, Italy and Spain, labor force participation rates of foreigners are still below the levels observed in Sweden or Switzerland. This holds especially true with respect to female migrants. Furthermore, there are marked differences with respect to educational levels. Hence, cooperation with potential sender countries in vocational training, measures at the company level as well as the introduction of language classes in schools could help to attract more skilled workers and improve their employability.

Arne Holzhausen

Allianz SE

Michaela Grimm

Allianz SE