ECB Studies Labor Supply as Aging Workforce Weighs on Economy

Employment growth in the euro area has received a significant boost from women, older people and migrants in recent years. The European Central Bank says those forces can’t be reckoned with as much in the future.

Structural changes such as pension reforms helped bring older people back into the labor market in the aftermath of the financial crisis, compounded by continuously higher labor participation rates among women and an influx of foreign workers, helping to meet the needs of rising labor demand. That’s according to research in the ECB’s latest monthly bulletin.

As the population ages, however, labor supply is expected to decline in the medium term.

A likely side effect of labor shortages is going to be a moderation in the growth of part-time work, the ECB says. Although further increases in the labor-market participation of older workers as well as continued gains in service-sector jobs are likely to support part-time positions, average hours worked could still go up as companies require a declining workforce to put in more time.

“Policy measures will be needed to boost labor supply and employment of all age groups, to foster productivity growth despite the aging workforce, and to further enhance flexible forms of employment that give access to the labor markets to groups with still low participation rates,” the ECB said.

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