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4 Factors determining real convergence

4.2 Demography and migration

Population in the EU is set to decline…

At the beginning of 2000, the population in the EU stood at 376 million, substantially less than in China (1.2 billion) or India (1 billion), but significantly more than in the US (272 million) or Japan (126 million). Assuming trends in birth and death rates and in migration continue, EU population is projected to grow very slowly between 2000 and 2005 (by only 0.2% a year) and then hardly at all (by under 0.1% a year) from then until 2022, when it is expected to start declining. In 2010, therefore, population is forecast to reach 385 million and in 2025 to be only slightly higher (388 million). From 2008, population is set show a natural decline but this will be offset for a few years by net inward migration.

Trends in population, however, vary markedly between different parts of the Union. While population is still growing in most regions even if slowly, in some, predominantly in Spain, Italy, Germany and the Nordic countries, it is already declining (See Map A.11 on crude rate of total population change, average 1995-97). Between 2000 and 2010, more regions in Germany and Italy are projected to show a decline, in addition to some in France, the UK and Austria. On the other hand, population is expected to continue increasing at a relatively high rate in a number of regions in southern Spain, the south of France and Greece as well as in parts of Germany, the Netherlands and the UK.

By 2025, almost 90 of the 200 or so regions, defined at the NUTS 2 level, accounting for half of all the people living in the EU, are projected to be experiencing population decline, including all those in Italy but also a number in virtually all Member States.

…as it is in the candidate countries

Demographic trends are even more adverse in the candidate countries. While in most of the 12 countries, population grew at a relatively high rate in the 1970s and 1980s, due to high fertility rates and increasing life expectancy, in the 1990s, fertility rates fell dramatically and life expectancy declined. In addition, there was significant outward migration, with only the Czech Republic, Malta and Cyprus experiencing a net inward movement over the period 1990 to 1999 (See Map A.12 on crude rate of net migration).

As a result, population growth has already begun to fall in most of the countries. In 8 of the 12, population declined over the 1990s. Between 1995 and 1997, it fell in 32 out of the 52 regions, defined at the NUTS 2 level and there was net outward migration in 31 of them. In the wider European area, therefore, and including these countries with the existing EU Member States, population decline is likely to occur several years earlier than indicated above. (The projections for the 12 countries are based on UN forecasts.) 1

Regions with declining population

Demographic trends are affected by social and economic developments. Migration flows, in particular, are related to regional differences in labour market conditions, people moving from areas of low job growth to ones with more employment opportunities, and, over the longer-term, such differences can also affect birth and death rates.

Declining regions in the EU are, therefore, characterised by low income levels, high unemployment and a large proportion of the work force employed in agriculture and industry(See Graph A.9 on regions with population decline, in annex). In addition, they tend to have a relatively small number of young people, reflecting their migration to other areas as well as low fertility rates, and a low density of population, reflecting the rural nature of many of them. There are, however, notable exceptions to the latter, since a number of densely-populated regions (eg Brussels and Attiki, where Athens is located) have also experienced a reduction in population in recent years. Indeed, a tendency to 'suburbanisation', the movement out of city centres to the suburbs and neighbouring regions, which is often described as 'urban sprawl', is evident in many major conurbations across Europe.

Population ageing in the EU will accelerate…

Population in the EU is ageing rapidly. With low birth rates, the proportion of young people under 15 has declined for a number of years and is projected to continue to do so in the future, falling from 17% in 1998 to 14.5% in 2025. By contrast, the proportion of those aged 65 and over is rising significantly and is set to increase even faster after 2010 as the baby-boom generation begins to reach this age. Accordingly, the proportion is projected to increase from around 16% of total population in 1998 to 22% by 2025. Moreover, within this, the relative number of people of 80 and older is rising faster still.

These trends will have important consequences for social welfare and taxation systems across the EU. In particular, the prospect is for a growing number of people above retirement age who will need to be supported by those in employment. All Member States will experience an increase in the old-age dependency rate (the number aged 65 and over relative to those of working-age, taken here as 15 to 64), but the extent of this is likely to vary significantly between them. The most marked increases are expected to be in Italy, Sweden, Finland and Germany and the smallest in Ireland, Portugal and Luxembourg.

The trend is likely to be similar, if less pronounced, for the overall dependency rate, the total above and below working-age in relation to those of working-age, despite the projected decline in the number of children2. (See Map 10) At present, there are some 49 potential dependants in the EU for every 100 people of working age, in 2025, there are expected to be 58. The number is projected to be particularly high in most regions in France, Sweden and Finland.

The retirement of 'baby-boomers' together with the declining number of young people is set to reduce working-age population in the EU from around 2010 onwards, which is projected to fall from around 251 million now to some 243 million in 2025. At the same time, the average age of those of 15 to 64 will increase.

…as it will in the candidate countries

The pace of population ageing in the enlarged EU, ie including the candidate countries as well as the existing Member States, might be slower, but only slightly. In most candidate countries, active policies of encouraging population growth during the 1970s and 1980s were reversed in the 1990s. While the average age of their populations is lower than in the EU at present, it is likely to increase rapidly over the next 25 years, as falling fertility rates reduce the relative number of young people under 15 in all countries apart from Malta. By 2025, the proportion of young people in total population is, therefore, projected to be even less than in the present EU.

On the other hand, the proportion of people aged 65 and over in these countries is, on average, less than in the EU at present (see Map 10).

The relative number of elderly people will also increase substantially, though only in the Czech Republic is the number expected to rise above the EU average by 2020. Nevertheless, both the average old-age dependency rate and the average overall dependency rate are expected to be only marginally lower in an enlarged EU than indicated above.

The same is true of the prospective decline in working-age population, which is projected to occur from about the same time in the candidate countries as in the present EU. The number of people aged 15 to 64 is expected to rise slightly from the present 72 million until 2009 and then to fall to 66 million in 2025. Working-age population in an enlarged EU is, therefore, likely to reach a peak of 328 million in 2010 and to decline to 309 million by 2025. As in the EU, the average age of those of 15 to 64 will also increase, though at a slightly slower rate than in existing Member States.

The labour force in the EU is set to decline and to age…

The trends in working-age population described above will inevitably affect the growth and age structure of the labour force in the EU, though this will be influenced as much by changes in participation as by demography. These, in turn, will be determined by a range of economic and social factors, most especially by the availability of jobs, but also by education developments, social attitudes towards women working, the availability of child-care support, the age of retirement, the details of pension schemes, the structure of households and so on.

If current demographic and participation trends persist, the labour force is projected to grow in the EU up to 2010, when it will reach 183 million.3 Thereafter, it will start to decline, falling to some 175 million by 2025. The onset of decline, however, is likely to differ significantly between regions (see Map 11). Nevertheless, in almost all regions in the EU, the number of economically active people is expected to be falling by 2025, though at widely differing rates. The decline is projected to particularly marked in Italy, Germany and Spain, the labour force falling by over 1 million in each case.

Because of demographic trends and possible changes in participation, the relative number of people of 50 and over in the labour force is expected to increase in all Member States, from an average of around 20% of the total now to 30% in the early 2020s. In the Nordic countries, where participation is not expected to change much, the increase in this proportion is likely to be relatively small, while in Italy and Spain, where birth rates are low and participation rates of women could increase markedly, it might be substantial.

…which could have profound economic consequences

As noted above, these trends could have far-reaching economic consequences, especially for the sustainability of social protection and health care systems, which will be put under increasing pressure by the growth in the number of elderly people. Accordingly, attention needs to focus on the possibility of increasing participation among older people as well among women, the prime source of labour force growth in the future.

At the same time, such a possibility brings into focus the problem of maintaining, updating and extending the skills of the people concerned, which is already a concern given the ageing of the work force. In many countries, the pursuit of early retirement policies up until recently have enabled this problem to be ignored. Moreover, the perception that returns to the training of older workers are relatively low, whatever the reality, means that employers are often reluctant to undertake the necessary investment. This reluctance tends to be compounded by the perceived difficulties of the training process and of older workers learning new skills. These difficulties, however, can be greatly reduced if the training of such workers becomes part of a process of lifelong learning, which in turn means that people acquire new skills throughout their working lives and are accustomed to doing so. This kind of development, which requires a change in attitudes as well as in working practices, is essential if the potential of older workers is to be effectively tapped, which could prove vital for EU producers to remain competitive on world markets.

It is equally important to ensure that women - or indeed men - returning to work after a period of absence due to family reasons have access to the training they need to update their skills and learn new methods of working, so that they can both find suitable jobs and contribute effectively to the development of the EU economy.

The prospective decline in the number of young people might have the effect of diminishing youth unemployment, though this in the long-term depends more on their skills and the rate of job growth than on numbers per se. The decline in young people entering the labour market has been accompanied by an increase in the number remaining in education and initial vocational training longer. In a knowledge-based economy, it is essential that this trend continues. At the same time, the growing recognition of the importance of workplace training as well as formal tuition means that in a number of countries the labour force participation of young people is increasing as they combine paid employment with continued education.

Whatever measures are taken to increase participation, the extent to which it increases for women and older workers as well as young people, ultimately depends on the rate of job growth, which in turn is likely to depend on the pace of economic development. (The process, it should be emphasised, is not solely one-way, since more skilled and enterprising people joining the labour market is itself likely to boost competitiveness and economic growth.) This will determine whether unemployment declines and job shortages emerge or whether, despite the falling number of people of working age, unemployment in the Union increases again.

The labour force in many parts of northern Italy is, for example, projected to decline significantly in future years on the basis of past trends and, indeed, labour shortages are already beginning to emerge. In the longer-term, however, if economic growth and net job creation can be sustained at high levels, this might encourage more people - women in particular whose participation is well below the EU average in most areas - to join the labour force and ease shortages. (Participation of women in northern Italy has increased markedly over the past 10-15 years, whereas in southern Italy, where job growth has been depressed, it has hardly changed.)

Inward migration could increase it should not be overemphasised…

Recent studies conclude that large-scale migration flows from the candidate countries are unlikely to occur and should not be overemphasised in the enlargement agenda. Since, however, convergence of income per head in the CECs to EU levels will be a long process, migration is almost certain to increase once free movement is possible. Estimates are that net migration to the EU could amount to some 335,000 a year immediately after entry barriers are removed, but that this would fall to below 150,000 within a decade4. At this time, the number of people living in the EU from the CECs could reach 2.9 million and another 10 years later, 3.7 million, rising to a peak of 3.9 million 30 years after the introduction of free movement of labour. This implies a growth in CEC nationals resident in the existing EU Member States from 0.2% of total population in 1998 to only just over 1% in 30 years time. On these estimates, concern that migrants from the CECs will swamp EU labour markets are, therefore, ill-founded.

People moving from the CECs are likely to go mainly to Germany and Austria, where the numbers are already high. Estimates are that some 65% will go to the former, 12% to the latter, and within these countries, primarily to border regions and centres of economic activity - in Germany, to southern regions bordering the Czech Republic rather than to the new Lšnder, in Austria, to eastern areas. Regions bordering the CECs are also likely to experience increased temporary inward migration and commuting. This concentration could, however, give rise to social tensions in the areas concerned.

…and could ease labour shortages

Perhaps the most interesting and potentially important conclusion from recent studies is that, unlike the EU, many CECs are likely to experience a significant growth in younger people aged 20 to 35 over the next decade or so. This represents an opportunity for the enlarged EU, insofar as it gives employers the possibility of taking on young people with high education attainment levels. Indeed, if economic recovery continues at the pace currently expected, then it will also be a time when skill shortages are likely to become more acute.

In fact, there is also evidence in the EU of labour shortages in less skilled activities in a number of regions, even in some where unemployment is relatively high. Immigrants could potentially help to relieve shortages in these areas as well, though it is important that adequate measures are introduced at the same time to integrate those concerned into the local community and prevent them becoming socially excluded.

In this regard, a recent Commission Communication on a Community Immigration Policy (COM(2000)757) proposed the adoption of a controlled immigration policy as one of the responses to the problems implied by demographic trends and pointed to the potential contribution of immigration to the European Employment Strategy.

Although the outflow of young people might tend to damage the development potential of the regions from which they move in the short to medium-term, especially as those moving are likely to include a disproportionate number of the most highly educated, their subsequent return, with the expertise and know-how they have acquired, could give a major stimulus to development in the CECs.

Nor is enlargement likely to pose serious problems for EU labour markets

It is unlikely that the free labour movement will have a major effect on EU labour markets as a whole, though it could affect Member States differently according to the specific circumstances which exist. CECs at present are small in economic terms, which means that increased imports from them are likely to affect prices in goods markets, and so wages and employment, only to a limited extent. According to a recent study, for example, immigration averaging some 200,000 a year over the next 15 years would reduce earnings by under 1%.5 In border regions, however, the effect on labour markets could be more significant, as it could be in sectors which are most exposed to competition from CEC imports, though equally there are potential gains from the proximity of new markets.

  1. These projections do not take account of future EU membership, which could affect the underlying trends, particularly of migration, though most of this movement is likely to occur between these countries and the existing EU Member States, but also, in the longer-term, birth and death rates.
  2. These ratios, it should be noted, are only demographic indicators. While they reflect the problems implied for social welfare and taxation systems, there are other equally important factors which need to be taken into account, particularly, the number of people of working age who are actually in employment and paying taxes and social contributions.
  3. Based on the latest Eurostat regional labour force scenarios, compiled in 1998, which are combined with the population projections produced in 1997. The scenarios cover 204 regions NUTS 2 level regions in the EU over the period 1995 to 2025. The baseline scenario which is referred to in the text assumes the continuation of most current trends but some reduction in regional imbalances.
  4. European Integration Consortium (DIW/CEPR/FIEF/IAS/IGIER) 2000 : The Impact of Eastern Enlargement on Employment and Labour Markets in the EU Member States, study for DG Employment and Social Affairs of the European Commission; Berlin/Milan.
  5. Bauer, T. and Zimmermann, K.(1999) : Assessment of Possible Migration Pressure and its Labour Market Impact following EU Enlargement to Central and Eastern Europe, Study for the UK Department of Education and Employment, IZA and CEPR, Bonn/London, Germany/UK.

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