Macroeconomic effects of demographic transition, mobilization of the labor force potential and labor productivity

Autor: Zuzana Molnárová
Report 02/24

The aim of this study is to quantitatively assess the potential medium- and long-term macroeconomic effects of improved mobilization of labor force potential, as outlined in the recommendations of the Productivity report 2023. The study focuses on five areas: (i) productivity, (ii) skills and education, (iii) effective labor supply of women (iv) labor market participation of older persons and (v) migration. Benchmarking approach based on labor market and demographic indicators across EU member states is used to identify the potential impact of reforms in Austria. Simulations with the FISK-OLG model show the potential impact of closing the gaps to the EU countries. The quantitative analysis is complemented by a discussion of the structural determinants and possible policy approaches.

The study yields the following key findings. First, sustaining economic growth in Austria at levels comparable to the past 30 years will be challenging in an aging society. Productivity growth would need to significantly increase to counterbalance the effects of a shrinking labor force (relative to total population). Second, utilizing the labor market potentials could bring significant improvements in long-run economic outcomes. Closing the distance to median EU country in terms of educational attainment, effective labor supply of women, and labor market participation of older workers would elevate GDP per capita by about 7%, closing the gap to top performers by about 14% by 2070. Third, there are substantial differences between the reform areas. In the long run, productivity growth and human capital are the most important drivers of economic performance. Therefore, improvements in educational attainment yield significant improvements, although these improvements manifest with a considerable delay. In contrast, increasing the effective labor input of women and older persons has a more immediate positive impact in the short to medium term, with labor input of women holding particularly high potential based on comparisons with other EU member states. Fourth, there are complementarities between reforms across various reform areas.

Zitiervorschlag: Molnárová Z. (2024). Macroeconomic effects of demographic transition, mobilization of the labor force potential and labor productivity, Report 02/2024, Büro des Produktivitätsrates, https://www.produktivitaetsrat.at/publikationen/reports/2024002.html.

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