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3. SCENARIOS OF DEMOGRAPHIC OPTIONS

This section presents broad estimates of the extent to which the demographic gap in the North can be compensated for by the corrective policy options just outlined. The section relies on special scenario projections produced by the demographic division of the United Nations.

3.1. Instant move to replacement-level fertility rate

The first demographic option investigates the effect of an instant move to a total fertility rate at the replacement level. The possibility of such a move is clearly unrealistic, but it serves as a useful benchmark for less drastic policy options. Table 3 presents the change in total population by main age groups for the two periods under investigation
(2005–25 and 2005–50).

For all regions, the impact on the young age group is proportionate to the distance to replacement level during the prior 20 years. The population surplus is moderate for North America, as actual fertility rate is close to replacement level, but is substantial for all other deficit regions. The population deficit is high for Sub-Saharan Africa, with a total fertility rate well above replacement, but is more moderate for other surplus regions in 2025. The impact on the active population group by 2025 is still small in both deficit and surplus regions.

By 2050 the impact on the young age group is, in aggregate, mitigated by the past total fertility rate in the medium variant. However, for fertility-deficit regions, the accumulated lagged effects of a higher total fertility rate become visible in the active population group: the projected population gain for this age group is more than 230 million. For the world as a whole, the overall population effect is mitigated by the dominant effect of reduced population for Sub- Saharan Africa under a replacement-level total fertility rate.

Table 4 translates changes in the size of population in 2025 and 2050 into changes in total labour force numbers induced by the replacement-level total fertility rate compared to the medium variant. As expected, the impact on both projected initial-surplus and -deficit countries in 2025 is small. By 2050, the accumulated effect over 45 years is already well pronounced. For the initial-deficit regions, this amounts to a gain in total labour force of almost 200 million. For the initial-surplus regions, this amounts to a reduction in labour force of more than 380 million, a potentially welcome development in view of existing pressures on the labour market.

Table 4. Differences in the labour force between instant replacement and medium variant projections, 2025 and 2050, millions.

Sources: United Nations (2005) and author’s calculations

3.2. Alternative and combined policies

The investigated policy options have as a starting point the demographic projections without (net) migration. This baseline is used to obtain an unbiased estimate of the effects of three policy scenarios with regard to labour force participation. The investigated and estimated scenarios are the following:

1. Benchmarking. What would be the labour force effects if the countries and regions in the North would gradually increase their labour force participation rates to match those of countries with the highest rates in 2005? Three European countries (Denmark, Iceland, and Sweden) have rates well above those of other countries, including the United States, which comes close. Most countries are well below, in particular at higher age groups.
   
2. Gender gap. What would be the labour force effects if the labour force participation rate of women would approach that of men by 2050? In some countries, there is hardly any difference between women and men with regard to labour force participation, especially in the younger and middle age groups. In quite a number of other countries, the labour force participation of women remains low, much lower than that of men.
   
3. Retirement age. What would be the labour force effects of a major increase in actual retirement age by 2050? The estimated effects assume an increase of five years by 2025 and of 10 years by 2050. Currently, the difference in actual retirement across countries and regions is substantial, which suggests a highly differentiated impact.
   
4. Combined effects. What would be the effect of all three policy measures combined: that is, gradually but jointly matching the highest labour force participation rates, eliminating gender gaps, and substantially increasing the actual retirement age?

This section summarizes the main results and key observations. Table 5 presents the results by comparing the zero-migration benchmark and the four policy scenarios for the changes in the labour force between 2005–25 and 2005–50. Table 5 suggests the following key observations:

• Overall, there are strong regional differences in the impact of the policy options, the options selected, and the time frame.
  
• A combination of all measures is able to keep the change in labour force positive in all regions by 2025. Continued increasing of the labour force participation is not able to compensate fully for the drop in active population in Europe & Russia and the high-income countries of East Asia & the Pacific through 2050. Other policy measures would have to be added in order to stabilize the labour force. In China and North America, the combined measure would be sufficient to increase the labour force by 2050. But the drastic policies required to achieve this may warrant the partial substitution of an increase in the total fertility rate and migration.
  
• The results signal different starting positions, leading to differentiated impacts on the labour force across the regions. Benchmarking of labour force participation has little effect on China in both periods, indicating a high level of participation for the main age groups. In contrast, this measure is highly effective in reducing the expected fall in the labour force in Europe & Russia. However, eliminating the gender gap has large effects in China and the high-income countries of East Asia & the Pacific, but moderate effects in Europe & Russia and North America, confirming the low rate of female labour force participation in countries like Japan and Korea. Raising the actual retirement age is, in most but not all cases, the most effective policy measure to compensate (partially) for low population growth.
  
• The aggregate effect of the combined measures on the labour force is impressive. In the regions with a potential deficit, it amounts to a projected gain in labour force of 175 million by 2025 and 335 million by 2050. This compares quite favorably with the estimated effects of an instant move to the replacement-level total fertility rate, which is only 17 million by 2025 and 187 million by 2050.

Table 5. Change in the labour force by policy variant, 2005-2025 and 2005-2050, Millions.

Source: United Nations (2005) and author’s calculations

3.3. Migration needs to keep the labour force constant at the 2005 level.

At current labour force participation rates and in the absence of migration (benchmark), the labour force in Europe & Russia will decline by 46 million during the period 2005–25 and by 118 million during the whole period analysed, 2005–50 (tables 5). Labour migration might compensate for the whole “gap.” But, in this case, between 2005 and 2025, Europe & Russia will have to add a net amount of 2.3 million migrants annually to its work force. And between 2025 and 2050, this number will have to increase to 2.9 million migrants annually. Assuming that, at best, 70 percent of newly arriving immigrants join the work force, the annual net gain from migration will have to be on the order of 3.3 million annually until 2025 and 4.1 million annually between 2025 and 2050. Under these assumptions, between 2005 and 2050, a net migration gain of 169 million people aged 15 to 64 will be required to add 118 million economically active migrants to the labour force of Europe & Russia (table 6). This figure is based on the demand for labour under the zero migration benchmark scenario. This does not account for children below the age of 15 and elderly aged 65 or older, which would add another 15 to 35 percent (Migration Policy Institute, 2005). The annual migration needs of EU25 alone are 1.3 million prior to 2025 and 1.6 million up to 2050. This would lead to net migration well above European levels in the recent decades.

Table 6. Required net and gross migration to hold the labour force constant, 2005–25 and 2005–50. millions.

Source: United Nations (2005), author’s calculations

The corresponding magnitude for other regions with a potential deficit is less dramatic but, in aggregate, is still half that of Europe & Russia. While China is projected to have a labour force surplus during the period 2005–25, to compensate the gap of 85 million by 2050 may require a total net migration of 121 million in the period 2025–50, or more than 4.8 million migrants annually. The equivalent values of total net migration remain small for North America, at 13 million.

When taking these dimensions into account, one might conclude that net immigration on the order of some 200 million people (compared to the starting population of 745 million in 2005) is beyond Europe’s & Russia’s integration capacity. The same conclusion may be reached for the high-income countries of East Asia and the Pacific, which may need to absorb a total net immigration of some 60 million (compared to a starting population of 212 million in 2005). But in this context, net migration is not the only factor.

Both for recruitment and for an assessment of integration capacities, we also have to take into account the absolute number of migrants. For this it is important to note that in the past many people migrating to Europe or other parts of the North did not stay for good; instead, they eventually returned to their country of origin. For example, during the 1990s, 88 percent of Polish nationals migrating to Western Europe returned to Poland. During the same period, 63 percent of Turkish nationals migrating to Western Europe returned to Turkey. We have to assume that circular movements and returns to the country of origin will remain an important element of future migration patterns. Under this assumption, admitting or recruiting a net amount of some 200 million migrants (as discussed for Europe & Russia) may require a pool of some 280 million to 570 million of total migrants, depending on the rate of circularity and return.

Such calculations suggest that admitting or recruiting labour migrants (and dependent family members) can only be one part of a policy mix addressing the medium- and long-term labour market problems of countries and regions with fertility deficits.