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Aging, Automation, and Labor Markets

General Report December 10, 2024
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TABLE OF CONTENTS

  1. Summary
  2. Demographic Changes in Europe
  3. Labor Market Shifts Due to Automation and AI
  4. Skills Demand and Workforce Adaptation
  5. Healthcare and Social Welfare Impacts of Aging
  6. Global Population Trends and Environmental Considerations
  7. Conclusion

1. Summary

  • Demographic shifts and technological advancements are dynamically altering labor markets in Europe and the United States. With an aging population, labor markets face challenges like increased healthcare costs and social welfare pressures. The population over 65 in the EU is predicted to reach nearly a third by 2050, significantly impacting workforce demographics. Concurrently, technological change, especially automation and AI, including Generative AI, is transforming occupational landscapes, necessitating sizeable job transitions and emphasizing the demand for high-skill professions. The need for retraining and upskilling in STEM professions is critically highlighted as automation increases demand for these high-skill roles while reducing lower-wage jobs. Key findings indicate a substantial increase in demand for STEM and healthcare roles due to advancing technology. Moreover, there is an impending strain on social structures due to demographic and workforce shifts ushered by these trends. Policy responses and adaptive strategies remain essential to navigate the challenges posed by these twin forces of change.

2. Demographic Changes in Europe

  • 2-1. Projected increase in the aging population by 2050

  • The European Union (EU) is projected to experience a significant demographic shift, with individuals aged 65 years or older expected to account for nearly a third of the population by 2050. Currently, over 20% of the population falls into this age category, with projections indicating an increase to approximately 32%. This steep rise is coupled with a decline in the working-age population, leading to a forecasted ratio of less than two working-age individuals for every older person by 2050. Notably, the number of centenarians in the EU-27 is anticipated to reach close to half a million by that year.

  • 2-2. Impact of declining birth rates on workforce demographics

  • Declining birth rates in Europe pose a formidable challenge to workforce demographics. The average fertility rate in EU countries has fallen critically low, with an average of only 1.53 live births per woman in 2021, well below the replacement level of 2.1 that is necessary for population maintenance. This decrease reflects a long-term trend since the 1970s and exacerbates the aging population issue. The projected demographic changes suggest a shrinkage of the working-age population by 13.5% by 2050, which raises concerns about labor shortages and increased pressure on social welfare systems.

  • 2-3. Gender disparities among the elderly population

  • Gender disparities among the elderly population are particularly pronounced in the EU-27, where women outnumber men at older ages. In 2019, a concerning statistic revealed an average of 1.33 older women for every older man aged 65 and above. This gap is anticipated to decrease moderately, yet the disparity remains significant. For example, the gender ratio of very old persons (aged 85 years or more) showcased a striking ratio of 2.09 women for each man in the same age category. These disparities highlight critical differences in aging experiences and the health needs of older men and women across Europe.

3. Labor Market Shifts Due to Automation and AI

  • 3-1. Predicted occupational transitions by 2030

  • According to the analysis included in the report, Europe could require up to 12 million occupational transitions by 2030, affecting approximately 6.5% of current employment. This represents a considerable increase, doubling the pre-pandemic pace of job shifts. The United States may also face similar demands with required transitions reaching nearly 12 million, affecting about 7.5% of current employment. The model suggests that both regions successfully navigated higher levels of labor market shifts during the COVID-19 pandemic, indicating their capability to manage these transitions moving forward.

  • 3-2. Demand shift towards STEM and healthcare professions

  • The demand for workers in high-skill professions such as STEM and healthcare is projected to rise significantly. Between 2022 and 2030, demand for health professionals and other STEM-related occupations in Europe could grow by 17% to 30%. This shift in demand is influenced by factors such as advancing technology, an aging workforce, and increased efforts towards net-zero emissions. In contrast, traditional low-wage occupations, including production work, customer services, and office support roles, are expected to decline. This decline is attributed to the high share of repetitive tasks in these jobs, which are susceptible to automation.

  • 3-3. Decline in demand for lower-wage occupations

  • The transition in labor demand has led to a predicted decline in the number of lower-wage occupations. For instance, jobs in food services, production combined with customer services, sales, and office support, which experienced a downturn from 2012 to 2022, are expected to continue this downward trend until 2030. These occupations are increasingly vulnerable to automation, as automated systems can efficiently handle tasks such as data collection and elementary data processing, resulting in reduced demand.

4. Skills Demand and Workforce Adaptation

  • 4-1. Emerging skill requirements in the future labor market

  • As labor markets evolve due to technological changes like AI and automation, there is a pronounced increase in demand for skills across various sectors. Specific skill requirements are anticipated to focus on STEM-related fields and healthcare, where demand could grow by 17 to 30 percent between 2022 and 2030. Technological skills are expected to increase by 25 percent in Europe and 29 percent in the United States. Demand for social and emotional skills is projected to rise by 11 percent in Europe and 14 percent in the United States. Conversely, basic cognitive skills, primarily found in roles like office support and customer service, may decline by 14 percent as these functions become increasingly automatable.

  • 4-2. Need for retraining and upskilling initiatives

  • Given the substantial transformation in skill demands, businesses are recognizing the urgent need for retraining and upskilling initiatives. Companies are principally focusing on retraining their existing workforce rather than hiring new workers to meet upcoming skill needs. The survey results indicate that executives expect to retrain about 32 percent of their workforce, with variation across industries; for example, 36 percent in automotive compared to 28 percent in financial services. This proactive approach is seen as essential to bridging the skills gap created by the shifts in labor demands.

  • 4-3. Risks of workforce polarization due to skill mismatches

  • The ongoing changes in employment patterns could result in increased workforce polarization. Workers in low-wage occupations may face higher risks of job displacement due to automation, as they are up to 14 times more likely to change occupations compared to those in the highest wage brackets. This polarization underscores the importance of ensuring that lower-wage workers obtain the necessary skills to transition to higher-paying jobs, thus avoiding a labor market where there are too many workers chasing too few good jobs.

5. Healthcare and Social Welfare Impacts of Aging

  • 5-1. Increased burden of chronic diseases and healthcare costs

  • The aging population in Europe is expected to substantially increase the burden of chronic diseases and age-related conditions. In the European Union (EU), it is projected that by 2050, older individuals will account for nearly a third of the population, requiring substantial financial commitments from healthcare systems. Non-communicable diseases currently account for 74% of all deaths, and as individuals age, they often face multiple health issues, increasing the need for specialized clinics focused on managing these conditions. The cost of healthcare is anticipated to rise significantly as higher demands are placed on medical services to manage the health of the aging demographic.

  • 5-2. Pressure on social welfare systems due to demographic changes

  • The demographic shift towards an aging population poses considerable pressure on social welfare systems throughout Europe. With the ratio of working-age individuals to older persons decreasing from three to one to less than two to one projected by 2050, the financial sustainability of pensions and long-term care services is at risk. As the number of individuals aged 65 years and above is expected to increase from 90.5 million at the start of 2019 to approximately 129.8 million by 2050, policymakers must address the growing demands on social welfare systems comprehensively.

  • 5-3. Strategies to enhance senior-friendly living environments

  • Efforts to improve senior-friendly living environments are critical in addressing the challenges posed by an aging population. Vienna is recognized for its advancements toward creating senior-friendly living conditions, including a robust network of care services, diverse recreational options, affordable housing, and accessible public transport. Such initiatives serve as a model that can inspire other cities to enhance the quality of life for older citizens, fostering a self-determined lifestyle for seniors while integrating them into community activities.

6. Global Population Trends and Environmental Considerations

  • 6-1. The slowing global population growth and its implications

  • Current human population growth is wavering, with projections indicating that the global population could peak much earlier than expected, potentially exceeding 10 billion in the 2060s before beginning to decline. This demographic transition is already observable in wealthier countries, notably Japan, where the population is declining at a rate of 100 people per hour. Fertility rates are also plummeting in Europe, America, and East Asia, with many middle and lower-income countries expected to follow suit. This major shift from earlier forecasts, which suggested a population of as high as 12.3 billion, highlights a significant trend in demographic change that could pose economic challenges due to fewer available workers and an increased number of elderly individuals requiring support.

  • 6-2. Potential environmental impacts of declining populations

  • The slowing and potential decline of the global population raises questions regarding its environmental impact. While some hope that fewer people may relieve pressure on the environment, the relationship between population and resource use is complex. Evidence suggests that older populations may consume more energy due to lifestyle changes, indicating that an increasing number of elderly could offset benefits from population decline. Furthermore, disparities in resource use across different regions, particularly between wealthier nations with high carbon footprints and less developed countries, complicate the narrative that fewer people equates to reduced environmental impact.

  • 6-3. Challenges related to migration and workforce sustainability

  • As populations decline, countries are expected to face increased competition for skilled workers, prompting possible policy adjustments regarding migration. While migration is anticipated to rise significantly to counteract workforce shortages, it also raises concerns about increased per capita emissions linked to higher incomes in developed countries. Additionally, forced migration due to climate change may lead to substantial numbers of displaced individuals, further complicating the landscape of global migration. The net effect of these migrations on population distribution and economic stability remains a critical issue as countries vie for a sufficient working-age demographic.

Conclusion

  • The highlighted demographic trends and technological transformations reveal a future where labor markets will undergo extensive transitions. The rise of a significant older demographic by 2050 presents enormous strains on healthcare and social welfare systems, as observed in Europe's demographic evolution. Simultaneously, technological advancements like Generative AI contribute to shifting job demands, elevating the need for retraining and skill enhancement, particularly in STEM professions. The transformation suggests a heightened risk of workforce polarization, where those lacking in-demand skills may struggle to secure gainful employment. Notably, these shifts highlight limitations such as unequal access to education and training needed for upskilling, which requires immediate attention. Moving forward, ensuring economic stability amidst these shifts requires concerted efforts from governments, industry leaders, and educational institutions to cultivate a skilled workforce that aligns with evolving technological demands. Practical applications from these findings should focus on bolstering systems for workforce retraining, emphasizing the adaptability of older adults in advancing economies and creating policies fostering inclusive growth. Incorporating sustainable migration policies can alleviate workforce shortages, while enhancing senior-friendly environments can address the needs of the aging demographic. Collaborative strategies are imperative to securing a robust and adaptable workforce equipped to meet future labor market demands effectively. Future prospects reveal a complex interplay between dwindling global populations and technological progress, necessitating responsive frameworks to ensure continued prosperity.

Glossary

  • Generative AI [Technology]: Generative AI refers to advanced artificial intelligence systems capable of creating content and automating tasks traditionally performed by humans. Its rise is reshaping labor markets, increasing the demand for higher-skilled jobs while reducing the need for lower-wage positions. The integration of generative AI into the workplace poses both opportunities and challenges for workers, necessitating significant shifts in skill demands and occupational training.
  • STEM Professions [Occupational Sector]: STEM (Science, Technology, Engineering, and Mathematics) professions are increasingly critical as the demand for skilled workers in these fields is projected to rise significantly by 2030. This growing need reflects the broader technological advancements and the economy's shift towards more complex and high-skill jobs. Addressing the skills gap in STEM areas is vital to ensuring economic competitiveness and innovation.

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