Older People in the Labour Market

A Forecast until 2040 as a Basis for Economic Policy Measures
The impact of demographic aging on future labour market developments and on the situation of older workers is the subject of a recent WIFO study commissioned by the Advisory Council for Economic and Social Affairs (Beirat für Wirtschafts- und Sozialfragen).

Based on a detailed analysis of the transition patterns between different employment statuses, the impact of various individual characteristics on the employment career is considered (in particular health status, but also education and other factors that may influence employment integration). Using a dynamic microsimulation model, a forecast of the labour market situation of older workers is made until 2040.

The initial situation of the Austrian labour market has advantages and disadvantages in an international comparison. On the one hand, overall labour force participation in Austria is high compared to other European countries, but at the same time, the employment integration of older people is low. The high part-time employment rate (especially among mothers due to care responsibilities) and the comparatively low labour force participation of persons with a low level of formal education and persons with health impairments also point to an employment potential that can be increased more strongly in the future.

In terms of past and expected future demographic trends, Austria has been and remains favoured compared to its immediate neighbours, driven by comparatively high net immigration: while the working-age population has grown significantly over the past two decades, the trend – according to the latest version of the Eurostat population forecast – will be less pronounced in the future than in its immediate neighbouring countries. Nevertheless, against the backdrop of continuing economic growth, a further increase in labour force participation will be necessary to achieve the forecasted economic growth, even if technological progress is accounted for. Steps have already been taken in the past to achieve this, for example, by gradually bringing the statutory retirement age for women into line with that of men.

The baseline scenario

The simulations developed in this study show how the labour force potential in Austria should develop under the current framework conditions until the year 2040. On the one hand, this foresight reproduces the main variant of Statistics Austria's population forecast and, on the other hand, also takes into account the pension reforms already adopted in recent years as well as the empirical correlations of labour force integration with key individual characteristics. First and foremost, the simulation integrates the dependence of labour force participation on age, gender, education, and health status as well as – in the case of mothers – the age of children in need of care. In doing so, the simulations allow for mapping the effects of changes in the composition of the population (by age, education and place of origin) as well as legal changes in access to (early) retirement pensions on the future development of labour supply.

In the baseline scenario, the (individual) factors influencing labour force participation are kept constant over time, while already adopted changes in (cohort-specific) pension access regulations are taken into account. In addition, observable cohort-specific trends in labour force participation are taken into account.

The results of the baseline scenario show that the labour supply in Austria grows by a total of 176,000 persons in the period 2018 to 2040, thus overcompensating for the (theoretical) demographically induced decline in the labour force. In addition to cohort-specific changes in labour force behaviour, a large part (about 30 percent) of this increase can be directly attributed to changes in pension access regulations. Furthermore, the change in the educational composition of the population contributes about one-quarter to the expansion of the labour supply.

The labour force peaks in 2027 at around 4.797 million and then declines again slightly to around 4.751 million by 2035, before slightly rising again to 4.775 million by 2040.

While the total number of people in the labour force continues to rise over the period under consideration, the composition of the labour force changes significantly over time. In the baseline scenario, the number of people in the labour force with an apprenticeship certificate decreases by around 250,000, as does the number of people in the labour force with a secondary vocational school as their highest educational qualification (–130,000). By contrast, the number of academics (+375,000) and persons who completed high school (AHS- or BHS-A-levels) grows significantly (+223,000).

The share of older people (over 55 years) will increase by about four percentage points by 2040, while the share of people of prime working age (25 to 54 years) is expected to decline by about three percentage points. In absolute terms, this means a decline in the number of people in the labour force of just under 33,000 in the age group 25 to 54, with a simultaneous increase of around 221,000 in the over-55 age group. In parallel, the number of people in the labour force with health impairments will also rise from around 584,000 in the initial year 2018 to 644,000 by 2027. Afterwards, it will decrease slightly to around 620,000 by 2040, which is just about 36,000 higher than in 2018.

The changes in the labour force – as identified in the baseline scenario – can serve as a guide for planning the response needs for policy measures, especially in the area of labour market policy. For example, the study provides some quantitative estimates of the consequences of these changes on the need for labour market policy measures. If the intensity of subsidies for all labour force members remains unchanged compared to 2018, an expansion of subsidies would be required in the area of qualification measures, starting from just under 600,000 subsidy cases in the base year 2018 and increasing by about 25,000 subsidies in 2027. In the area of employment subsidies, the necessary expansion would amount to about 16,000 subsidies, starting from just over 355,000 subsidy cases in 2018. Across all subsidy measures, a constant subsidy intensity would imply an increase of over 40,000 subsidies (+7 percent compared to 2018) in 2027. In parallel with the development of the labour force, this theoretically calculated adjustment requirement drops to about 35,000 additional subsidies by 2035, before rising again to about 38,000 by 2040.

In terms of subsidies for older persons (over 50 years), the subsidies needed to maintain the same subsidy intensity as in 2018 also increase by almost 20,000 (+31% compared to 2018) by 2027. Due to the stronger increase in the share of older persons in the labour force, the need also decreases slightly by 2035, but increases to more than 22,000 additional subsidies by 2040, thus exceeding the level of 2027.

For persons with health impairments, the theoretically required increase in subsidies peaks in 2027 (+17,000 subsidies or +19% compared to 2018) and then declines to about +10,000 subsidy cases by 2040.

By taking into account cohort-specific trends, the development depicted in the baseline scenario assumes an improved utilisation of existing labour force potentials, especially of women and older persons. The increase in the labour force integration of specific groups that has already been observed in the past is thus implicitly continued in the baseline scenario. In addition to a general trend toward a higher propensity to work, achieving a higher utilisation of existing labour force potential also requires the continued provision of suitable framework conditions that, for example, support the reconciliation of care obligations and work and promote the labour force potential of older people and persons with health impairments.

The alternative scenarios

In contrast to the baseline scenario, alternative scenarios can be used to simulate the effects of changing framework conditions or specific policy measures. Given the high importance of international migration for Austria's population development, the assumptions of the upper or lower migration variant of Statistics Austria's population forecast (i.e., increased or reduced migration dynamics compared with the baseline scenario) have a striking impact on the development of the population as a whole and the labour force in particular. Thus, under the assumptions of the lower migration variant, the labour force would be more than 320,000 below that of the baseline scenario by 2040, while under the assumptions of the upper migration variant, it would exceed the baseline scenario by more than 340,000. A change in the immigration structure compared to the baseline scenario (with a shift away from intra-EU immigration toward more third-country nationals) would also reduce the labour force compared to the baseline scenario (about 30,000 fewer labour force members by 2040).

While international migration can hardly be directly influenced by political measures, the labour force participation and education structure can be significantly affected. The scenarios developed here show, for example, that an increase in the labour supply by about 20,000 by 2040 could be achieved by a stronger or faster (re-)integration of mothers into the labour market.

In addition, promoting second-chance education for people with low levels of formal education could significantly counteract the decline of labour force members with an apprenticeship certificate and more than halve the decline of around 240,000 labour force members with an apprenticeship certificate calculated in the baseline scenario (+137,000 labour force members with an apprenticeship certificate). As a result of the higher propensity to work, by 2040, the total number of people in the labour force would be about 12,000 higher than in the baseline scenario. This positive effect on the number of employed persons would be reinforced, since an increase in the number of persons with apprenticeship diplomas would also reduce the number of unemployed persons (+33,000 employed persons compared to the baseline scenario in 2040). Such an expansion of qualification measures would roughly require a doubling of the number of successful apprenticeship qualifications achieved under existing measures over the entire period under consideration. If, on the other hand, only a small number of people succeeded in gaining higher qualifications through training programs for skilled workers, the resulting effects on labour supply would be correspondingly smaller.

A significant increase in the number of apprenticeship graduates in the initial training system, which would result in the same number of additional apprenticeship graduates per year (about 10,000 additional graduates per year), would not be achievable by reducing the number of early school dropouts alone, since the number of persons with a compulsory school leaving certificate in the cohorts under consideration is usually below 10,000. Under the assumption that such an expansion of apprenticeship training is realised in roughly half by a reduction in school and training dropouts and in the other half by a reduction in AHS-, BHS- and university degrees, this results in a total increase in the labour force with an apprenticeship certificate of around 200,000 by 2040. The total number of labour force members increases by just under 14,000 by 2040, which is slightly higher than in the previous scenario.

Against the backdrop of the rising number of older people in the workforce and the associated increase in the number of people with health impairments, measures to improve the integration of people with health impairments into the workforce and employment are becoming increasingly important. The two scenarios presented in the study show, on the one hand, the effects of reducing the risk of leaving employment for people with health impairments (by expanding preventive measures) and, on the other hand, of increasing the integration opportunities of unemployed or inactive people with health impairments (by strengthening integrative measures). Both scenarios show that halving the relative differences in the labour market integration of persons with health impairments can lead to a significant increase in the labour force potential (+29,000 and +25,000 in 2040, respectively) and in the number of employed persons (+31,500 and +28,000 in 2040, respectively).


Finalization: November 2022
Contractor project: Vienna Chamber of Labour, Austrian Chamber of Agriculture, Austrian Trade Union Federation, Austrian Economic Chamber