Over the next 30 years the countries of Central, Eastern and Southeastern Europe (CESEE) could be faced with a strong shrinking of the labour force, International Monetary Fund Deputy Managing Director Zhang Tao said in Dubrovnik on Monday, underlining the need to boost the labour force, raise productivity and utilise new technologies.
He was speaking at the international conference “Demographics, Jobs and Growth: Navigating the Future in Central, Eastern and Southeastern Europe”, co-organised by the Croatian National Bank and the IMF.
Zhang said a new IMF report showed that the population of CESEE countries, excluding Turkey, would drop 12% by 2050 due to ageing and migration.
He said the labour force over that time could drop by as much as 25%, and that this meant the working population could have to support more than twice as many older persons as now.
Such demographic challenges could significantly slow down economic growth, he said. A reduced labour offer and lower productivity of older workers, alongside stronger pressure on public finances, could cost countries 1% of GDP annually, he added.
Those challenges could also slow down convergence. The IMF estimates that, without demographic pressure, GDP per capita in the CESEE could reach 74% of Western Europe’s level by 2050, as against 52% in 2020. In case of demographic challenges, said level could be only 60%.
Zhang said the CESEE countries were faced with demographic challenges at an earlier stage of development than rich Western countries, risking to become older before becoming rich.
One of the solutions for alleviating those pressures is increasing the size and efficiency of the labour force, he said. In the CESEE, demographic trends are deteriorating mainly due to the emigration of young and educated people, he said, adding that between 1995 and 2017, this region, excluding Russia and Turkey, lost 7% of its labour force.
Alongside measures to stop migration and the return of those who left, some countries, in order to cushion the labour shortage, decided to import foreign labour, Zhang said, adding that immigration was a political choice which put a bigger burden on some other policies.
Another way to increase the labour offer is to encourage women and older workers to enter the labour market. Zhang said the average participation of women on the labour market was 10 percentage points lower than in Western Europe. Another measure is to raise the retirement age.
Zhang also highlighted technological progress and the effective use of technology, which he said was a reality in the CESEE region as many companies have introduced automatisation.
The International Federation of Robotics expects a 21% annual increase in the delivery of robots in the region by the end of the decade, which means the region will have twice as many robots as the European economy average, he said.
Due to increasing automatisation, many workers worry that robots will push them out, but in the CESEE the increase in automatisation has coincided with employment growth, he added.
The CESEE is at the forefront of automatisation among medium income countries, but in order to make sure that this potentially destructive force continues to benefit workers, technology must be accompanied by adequate policies, Zhang said, underlining the need for policies which invest in the human capital and increase prosperity.
He underlined the importance of comprehensive education system reforms and significant investments in lifelong learning and retraining programmes. These measures should be combined with policies which prevent the constant brain drain from the region, he said, adding that, in order to make sure that technologies were widely shared, it was necessary to enhance security networks.
Zhang also underlined the need for policies which enhance governance, upgrade infrastructure and streamline regulations so to lure back those who left the country, reinforce the business environment, and to promote innovation and a greater sharing of technological advantages.