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Friday, 29th April 2011

Europe: Working away at the cost of ageing: the labour market adjusted dependency ratio

Source: European Policy Centre

From Executive Summary:

In 2050, nearly one in three European citizens will be 65 or older. Demographic change and population ageing is one of the greatest challenges that will affect the structure of the EU economy over the next couple of decades, through its impacts on labour markets, pensions systems and public finances.

The policy implications of this demographic evolution are profound: the proportion of people of working age in the EU will shrink at the same time as the number of those who potentially need support mechanisms, such as retirement benefits and public healthcare, expands. European societies will need to respond and adapt to this change.

The challenge varies considerably across Europe, since EU member states are at different starting points, both concerning their demographic outlook and also their labour market performance.

Assessing the relative position of EU countries according to the old-age dependency ratio - a demographic indicator that measures the proportion of people over 65 over the working-age population - shows that the best performing countries are Ireland, Slovakia, Cyprus and Poland. Old-age dependency ratio is often used to estimate the impact of demographic trends on welfare systems and, according to Eurostat projections, the average ratio in the EU is forecast to grow from 25.9% in 2010 up to 50.4% in 2050.

However, old-age dependency does not capture the fact that many people of working age are actually not working. This paper proposes a different ratio: the Labour Market Adjusted Dependency Ratio (LMADR). It calculates the proportion of people who are not in work as a proportion of the total population.

The new measure gives a different picture of EU performance: in 2010, the EU countries had a LMADR of 47.7% on average, meaning that, currently, in the EU, slightly less than half of the population is unemployed, retired or inactive for other reasons. The average LMADR in the EU would grow from to 47.7% in 2010 up to 56.3% in 2050. In 2010, the Netherlands (36.2%) and Denmark (38.5%) topped the ranking of EU countries, due to their labour market structure rather than their demographic outlook. Countries such as Sweden and Germany also presented a significant improvement of their relative position, as compared to using the old-age dependency ratio. Italy (55.4%), Hungary (55.2%) and Malta (53.8%) were the EU countries with the weakest position.

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Having begun his career in academic libraries, Adrian Janes has subsequently worked extensively in public libraries, chiefly in enquiry work as an Information Services librarian. In this role he has had particular responsibility for information from both the UK Government and the European Union. He wrote a detailed report on sources for the latter which was published by FreePint in 2007, and has contributed articles to FreePint and ResourceShelf. He is involved in training in information literacy and the use of online reference resources.

A Contributing Editor to DocuTicker, he also write reviews for Pennyblackmusic.

More articles by Adrian Janes »



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