Aging Labor Force – The case of Germany

“Here is the biggest problem we face,” the senior official from Chancellor Angela Merkel’s government told me as he pulled out a pen and drew a pie-graph circle on his napkin.

“This is the working-age population of Germany – 45 million people.” Then he drew a thick slice, almost a sixth of the circle: “This is 6.7 million people, the number of working-age people we expect to lose over the next 10 years.” That’s the very large number of people who will reach retirement age or move away, minus the much smaller number who will reach working age or migrate to Germany.

Losing almost seven million income-earning, tax-contributing workers is expensive, especially since most will become pension-earning, increasingly public-health-care-requiring people, in a country where those services are generous.

The gap between the tax-contributing and government-dependent population is known as the dependency ratio. Germany is one of many Western countries that are about to see it more than double. In 2000, it had four working-age people for every senior; by 2035, it will be nearly seven seniors for every 10 working-age people. When you subtract that many taxpayers, the numbers just don’t add up, and government is crippled.

The German official’s words were similar to those I’ve heard recently in France, Sweden, Italy and in many Canadian provinces. Dependency ratios have received little attention over the past six or seven years because the economic crisis obscured the problem: Economies needed fewer workers. And in Europe, the devastated countries of the south sent millions of migrants north, easing the work force pressure. Now there’s a search for solutions.

“Here,” the official said, sketching two much smaller pie slices within the larger one, “are the two things we hope to do to make it smaller.”

Chosen excerpts by Job Market Monitor. Read the whole story at What happens when you run out of taxpayers? – The Globe and Mail.