The old world is getting older. The populations of European Union (EU) countries are aging and shrinking. Life expectancy at birth in the EU has increased by more than two years per decade since the 1960s to 78 and 84 years in 2016 for men and women respectively. It is projected to further rise by 8 and 7 years for men and women respectively by 2070, pushing the share of the population over 65 to 30 percent by 2070 (up from 20 percent today).
Europeans should be happy about the prospect of living longer lives, if they can spend these additional years active and in good health. But increased longevity in Europe has come with growing anxieties about future living standards. Will aging put a break on economic growth? Can pension systems guarantee an old age free of poverty? And will pension systems remain affordable as the ratio of workers to pensioners shifts? Luckily, there is good news: If all of Europe’s workers are economically active and become more productive during their longer working lives, the aging of the population need not be a drag on growth and public finances.
Aging policy in the EU has been largely focused on raising retirement ages and boosting labor force participation of older workers. But what is often overlooked in Europe’s aging debate is that longer and more productive working lives are rooted in strong foundations of opportunity in childhood and youth. Long and productive working lives start with building sound foundational cognitive and social-emotional skills from early childhood through secondary education. Acquiring job-relevant technical skills in post-secondary education matters, too, as does a smooth school-to-work transition. Finally, long and productive working lives benefit from an efficient labor market that balances flexibility and protection: Social protection and adult training systems and flexibility in labor regulations can facilitate job transitions from less to more productive jobs, especially as technological change accelerates.
The reality faced by Europe’s next generation, however, still falls short of what it takes to age in prosperity.
First, many EU countries suffer from surprisingly large foundational skills gaps. Across half of the EU a fifth or more of 15-year-olds performed below proficiency in reading and mathematics in the 2015 Program for International Student Assessment (PISA). In reading, the share varies from around 1 in 10 students in Estonia to a third and more of 15-year-old students in the Bulgaria, Cyprus, Malta, Romania, and the Slovak Republic (see figure). Graduates who struggle with text and numbers are unprepared for learning technical skills later in life in vocational training, university, or in lifelong learning. This matters a lot as machines take over human tasks: Given the growing prominence of cognitive and non-routine tasks in Europe’s labor markets and declining shares of manual jobs, young people with poor foundation skills look towards a highly uncertain job future.
Figure 1: Many EU youth start their working lives with poor foundational skills and struggle with their school-work transition
Second, too many young people in the EU struggle with the transition from school to work. Students in several EU countries drop out of school early: in Malta, Spain, and Romania, close to 20 percent of 18-24-year-olds who are out of school have achieved no more than lower secondary education qualifications. Youth idleness is also a challenge: On average, 15 percent of Europeans aged 15-34 are neither in employment, education nor training (NEET). In Italy and Greece, the number is as high as a quarter of the age cohort and in Croatia, Romania, Slovak Republic, and Bulgaria close to a fifth. Poor skills and long spells of idleness and joblessness undermine individual’s productivity potential.
Third, EU countries are increasingly seeing signs of a segmentation of labor markets between younger and older workers. Labor market entrants are much more likely to be in temporary employment than older workers. While temporary employment can facilitate entry into the labor market by reducing the risk to employers, the duration of temporary employment of young people has been increasing and the transition to permanent employment remains limited. Continuous and repeated temporary employment carries long-term productivity risks, as employers and employees are less likely to invest in skills upgrading.
Lastly, averages mask substantial variation by region and family background. For example, NEET rates in Italy vary between 13 percent in Bolzano and 41 percent in Sicily, and variations in performance in the PISA reading test mirror these regional disparities. Most importantly, family background is a key driver of opportunity for youth. Relative to averages, more than twice as many 15 year-olds from the poorest 20 percent of Europe’s student population struggle with text and numbers, according to PISA data. Education in the EU is often not an engine of social mobility, as children’s education pathways and outcomes are often highly correlated with the educational attainment of parents. And children in the EU are much more at risk of poverty than citizens above the age of 65.
The aging countries of Europe need to reinforce attention to their children and young people if they want to ensure that demographic change does not compromise future living standards. EU countries should set the goal of equal opportunities in life from an early age, regardless of family circumstances or birthplace. Policymakers need to pay particular attention to reforming education systems to ensure that all children and youth acquire the necessary skills to succeed in labor markets increasingly disrupted by technological change. As populations age, the electoral arithmetic will push governments towards prioritizing policies for the growing share of older citizens. Such policies, however, must not be at the expense of the chances of the next generation. With European populations on the decline, countries cannot afford to leave any child or young person behind.