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FT 27 SEP 94 / Survey of Business Locations in Europe (3): Later retirement
with smaller pensions - Eva Kaluzynska examines the implications of an
ageing population
By EVA KALUZYNSKA
Europe's workforce is ageing - 15 per cent of the population is already aged
65 or over, compared with an average of 6 per cent in the rest of the world.
'We're moving towards the low 20s (%) at the turn of the century,' said Dr
David Coleman, a demographer at Oxford University, specialising in trends
affecting Europe.
There are relatively minor variations in birth and death rates among the 17
countries in the European Economic Area (EEA), but the picture is very
clear. Any company considering relocation will obviously factor in current
levels of social costs, lowest in Portugal, Greece, Spain and the UK;
highest in Germany, Denmark and Belgium. But employers must tune into
demographic trends now if they want to get a sustainable, long-term
personnel policy off the ground.
'Companies may be thinking of moving now to a country where costs are low,
but they must plan now to keep them low,' said employee-benefits specialist
David Formosa, of Sedgwick Noble Lowndes.
The baby boom after the war was followed by what demographers at Eurostat,
in Luxembourg, call a 'baby bust' in the 1970s. A marked decline in natural
population growth throughout the EEA is continuing, while the death rate
remains stable. In 1993, the birth rate was 11.2 per thousand, down from
11.5 per thousand in 1992; while the death rate stayed at 10.1 per thousand.
Women, currently 51.2 per cent of the population in the European Union (EU),
are having fewer children, and they are having them later if at all. Only in
Ireland (and Poland, in central Europe) are women still having two or more
children each. In 1993, there were 4.19m births in the 17 countries of the
EEA - 110,000 fewer than the previous year.
Demographers are ringing alarm bells about the need to adjust policies now,
both at company and government level. 'Germany is the forerunner,' said
Harri Cruijsen, team leader at Eurostat's project on demography. 'In the
next five to 10 years it is going to have the most acute problems in
adjusting to an ageing workforce.'
Italy and Spain lag by about five to 10 years. The situation is less serious
in France, which has had a policy of financial incentives for would-be
mothers. The UK could also buck the trend up to a point, due to what
Cruijsen calls an abnormally high rate of teenage pregnancies not seen
elsewhere in Europe.
The overall implications are stark. Employers who stay on the continent,
rather than move nearer to markets in Asia, must make the most of the
existing pool of potential labour, given the lack of youngsters. Experts
agree on the need for two significant shifts in policy and attitude:
postponing the age of retirement, and recruiting more women into the labour
force. 'Seniors will stay on, females will come on,' as Cruijsen puts it.
Many employees able to do so have retired early over the past decade, and
many still expect to do so. 'This will stop,' said Cruijsen bluntly. Italy
and Japan are already planning to raise the statutory age of retirement, and
other countries will follow suit, experts say.
'The notion of early retirement has overshot its usefulness,' said Coleman.
'Active, employable life is getting longer. The notion that a person is old
and past it at 65 is increasingly obsolete.'
The idea of older people giving up their places in the workforce to
youngsters gathered favour during the recession, though without any
significant effect in reducing unemployment. Employers encouraged the trend,
rejuvenating their workforces in the belief that younger people adapted
better to new technologies.
But Formosa urges managers to be innovative in adapting to new realities:
'Employers will have to start thinking differently.' Replacing key staff who
have specialised knowledge and experience will become far more difficult,
and flexible solutions, such as part-time schemes for key older employees
could be part of the answer. He would recommend phased retirement: 'Maybe
people will still be doing one or two days a week when they're aged 70.'
Employers casting round for reserves in the labour force will have to make
better use of women, experts say. Women currently make up about 40 per cent
of the labour force in the EU. Denmark has the highest rate of female
participation, at 46.6 per cent, followed by France (44.3), Portugal (43.2)
and the UK(43.2). Ireland has the lowest rate, at 34.1 per cent. 'All
projections for modest growth in the labour force at the turn of the century
come from increased levels of female participation,' says Coleman.
Formosa thinks employers will come round to offering women with caring
responsibilities for children or older people more flexible working
arrangements, as they realise the value of doing so. 'I believe employers
will make more of an effort to keep women, as there is more difficulty in
finding replacements.'
Coleman estimates that, if all EU countries matched Denmark's rate of female
participation in the labour force, the recruits would more than make up for
any shortfall. 'There is a hidden labour force of at least 30m, which will
be mobilised as married women increasingly take up work or return to work.'
Europe's ageing workforce can expect lower statutory pensions, with higher
retirement ages as the ratio of taxpayers to recipients descends from the
current 2.4:1 to under two. Incentives to retire early will go, and the
prospect of lower incomes will oblige seniors to work on.
Employers are likely to become involved in improving pension provisions,
partly through helping employees to set up appropriate schemes to which they
are the main contributors, partly through incentives for later retirement.
Formosa says there is still time to avoid scenarios in which pensions
systems collapse under the burden of payments due. Later retirement will cut
the cost of pensions by reducing the duration of payments.
Some experts have suggested migration as a potential solution to the
imbalance in western Europe's age structure. Coleman is adamant that this is
no quick fix. The EEA countries cannot absorb significant numbers of legal
migrants, other than those with specific skills for specific periods, he
says: 'It seems eccentric to propose immigration for low-grade labour,
especially since future demand emphasises high skills.'
Importing cheap young labour would exacerbate one of Europe's biggest
problems, its low productivity. Coleman argues that western Europe must deal
with the impending crisis through making the best use of its own resources.
It should, he says, retrain to reduce unemployment and invest in more
capital-intensive processes to improve productivity. And it should mobilise
more of its potential working population by making it easier for women to
work, as well as by recruiting those beyond current retirement age. Canny
employers can start planning now.
Countries:-
XGZ Europe.
Industries:-
P9441 Administration of Social and Manpower Programs.
Types:-
CMMT Comment & Analysis.
The Financial Times
London Page II