Ageing working populations will dampen productivity growth in the world’s biggest economies as fertility rates have “plummeted” in recent generations, the Organisation for Economic Co-operation and Development (OECD) has warned.
This will necessitate older workers delaying retirement and increased involvement of women and migrants in the workforce, the orgnaisation said.
Declining fertility rates have led to retiring generations being replaced by “increasingly smaller cohorts”, according to the organisation’s employment outlook. . As the working age population decreases, productivity is expected to fall and could cause labour shortages.
“Profound demographic changes are making a significant slowdown in living standards growth a tangible risk – but not an inevitable one,” the report said.
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Ireland is one of just two countries that will not see its rate of gross domestic product (GDP) per-capita growth decline at projected rates of productivity.
Projections presented in the OECD report suggest that, at current rates of productivity growth, GDP per capita growth is expected to slow by about 40 per cent in the OECD area from what the OECD described as the “already meagre 1 per cent per year”.
The growth metric is forecast to drop to 0.6 per cent per year in 2024-60 on average, with the report noting that all OECD countries except for Ireland and the US “would see their per-capita growth declining if nothing is done”.
Stefano Scarpetta, the director for employment, labour and social affairs at the OECD, said that lower growth rates may be beneficial in “facilitating the fight against climate change” but said it is “not compatible with the rising needs of an ageing population”.
The economic report said the old-age dependency ratio in OECD countries “has increased dramatically” from 19 per cent in 1980, to 31 per cent in 2023. and is projected to rise further to 52 per cent by 2060.
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The adoption of artificial intelligence (AI) in the workforce, he suggested, would not be sufficient to address the falling rates of labour productivity, as the pack crosses a demographic “turning point” at which the working age population has begun to decline.
“Fertility has been on a downward trend over the past decades, and it is now well below replacement levels in almost all OECD countries,” Mr Scarpetta said, noting that the working age population in the OECD was decreasing and expected to continue to fall through to 2060.
Policy approaches to boost fertility rates, however, are expected to have little impact on counteracting the ageing population in the short term.
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To address the impact this downfall will have on economic growth, the organisation called for greater involvement of “untapped labour resources” including women, older people in good health and migrants.
“Closing the gender employment gap could increase annual GDP per capita growth by 0.2 percentage points across the OECD – half of the decline projected in the baseline scenario. Closing the gender gap in hours worked could double that figure,” said Mr Scarpetta.
Greater involvement of older people in the workforce could necessitate changes in employers’ attitudes to hiring older workers and accommodations for those with health challenges.
Furthermore, the report emphasised the importance of reforming pension systems to delay workers’ exit from the labour market, including allowing for people to draw down pensions while still in the workforce.
Improved opportunities for lifelong learning, especially for older workers with burgeoning technologies, would allow for “greater opportunities to remain productive for longer.”
“When faced with a turning point as stark as the current demographic shift, OECD countries have no choice but to act,” Mr Scarpetta said.
