Ageing: the solution starts with the employment rate
An ageing population does not, in itself, condemn our social model. A persistently low employment rate does.
In the face of ageing, the urgent task is therefore to increase the number of people in work. France’s employment rate, as we know, remains low compared with that of healthier-performing countries, particularly among young people and older workers.
The European Commission’s new demographic report confirms a long-term trend: Europe is entering a period of sustained ageing and population decline. The European Union’s population is expected to peak at around 453 million in 2029 before falling to approximately 399 million by 2100. Driven by declining fertility and rising life expectancy, this shift will profoundly alter the age structure of our societies. The economic consequences are considerable: tensions in the labour market, rising healthcare expenditure, growing pressure on pension systems and increasing strain on public finances.
Three levers can help mitigate these effects: immigration combined with a high employment rate, stronger productivity gains, and an increase in the number of people actually in work. The first cannot be sufficient on its own. The second is essential, but cannot simply be decreed. It depends on innovation, investment, education and the ability to spread the benefits of new technologies rapidly and widely.
One lever, however, can be mobilised immediately: employment. The European Commission points out that bringing the employment rates of EU Member States closer to the highest levels observed in Europe would substantially reduce the economic impact of ageing. The employment rate among 15- to 64-year-olds exceeds 80% in Sweden and the Netherlands, compared with 77.4% in Germany, 76.9% in Denmark, 71.8% on average across the European Union, and just 68.8% in France.
The total number of hours actually worked per capita provides additional insight. It combines demographic trends, the employment rate, the prevalence of part-time work and annual working hours. France is around 14% below the European average. It therefore combines an employment rate that is too low with annual working hours for full-time employees that are approximately 7% below the European average.
This reality is decisive for the future of our social model. A generous welfare state requires a sufficiently broad productive and contributory base. The more hours people work per capita, the more sustainably it is possible to finance high-quality public services and an ambitious social protection system without endlessly increasing taxes or public debt. Potential growth, living standards and the sustainability of public finances depend directly on this. Ultimately, a higher employment rate also contributes to greater social cohesion.
France is particularly affected. Since the beginning of the 2000s, its GDP per capita has fallen behind the European average, and even more so compared with Germany and the Nordic countries, while its fiscal position has steadily deteriorated. Raising the employment rate would therefore have a major macroeconomic impact. By moving closer to Germany’s level, France would significantly improve its public finances; at the level of the Netherlands, simulations show that it could almost eliminate its primary deficit. It would also help restore the financial balance of our pension system.
Pension reform should therefore not be viewed solely as a means of preserving the pay-as-you-go pension system. It is part of a broader economic strategy aimed at increasing the number of people in work, raising potential growth, improving living standards and durably restoring our public finances. For France, the stakes therefore go well beyond pensions: they concern our future prosperity, the sustainability of our social protection system and, ultimately, our financial sovereignty.
Olivier Klein
Professor of Economics at HEC
Author of Debt, Reform and Democracy: Breaking France’s Vicious Circle