It’s a major trend, one that can be observed all over the world: since the early 1970s, the average number of children per woman – the ‘fertility rate’ – has been falling almost continuously.
In Europe, it fell below the natural population replacement level as far back as 1975, dropping to 1.3 in 2024, its lowest level on record.
However, Europe’s economic future does not solely boil down to demographics, as demonstrated by the ‘Draghi’ report on the Old Continent’s competitiveness. It also depends, perhaps even primarily, on the conditions for a recovery in productivity following the disruption caused by the COVID-19 pandemic.
In addition, the effects of an ageing population – which it is hard not to view as a success of our modern societies – can be countered by structural policies.
For a number of years now, these policies have aimed to maximise ‘labour force participation rates’, that is to say, the proportion of individuals within an age group who are participating in the labour market, either by being in employment or by seeking work.
It is this so-called ‘active’ population that we are focusing on in our graph.
Firstly, it should be noted that, despite the decline in the number of 15–64-year-olds, this rate has not fallen so far. In fact, it has even continued to rise.
This is due to various measures implemented in most European countries, which have involved relaxing labour-market regulations, notably to make it easier to recruit young people; raising the retirement age and strengthening vocational training to increase the participation of older workers; and working towards greater inclusion of women.
As a result, in the Eurozone, the labour force participation rate for 15–64-year-olds has risen by nearly ten percentage points since the mid-1990s. It now stands at 76%, a higher level than in the United States.
The range of possibilities for the future is illustrated here by three dotted lines.
The first scenario, which is the most unfavourable but also the least realistic, sets out what would happen if the Eurozone was to halt immigration completely and abandon any further labour-market reforms (with labour force participation rates frozen at current levels).
The number of people in work would then fall considerably, by around 13 million over ten years; under these conditions, even with increased productivity gains, it would be unrealistic to think that growth could be sustained.
However, in Eurostat’s central scenario, taking immigration into account helps to mitigate the decline. All other things being equal, the fall in the labour force would be reduced to just under 5 million, a scenario illustrated here by curve 2.
In addition to adapting migration policies, there is still the option of continuing with reforms. For example, we estimate that if the Eurozone was to succeed in raising the labour force participation rate for those aged 15–64 to around 80% by 2035 (a level already exceeded in Germany), whilst also increasing that of those aged 65 and over (currently below the OECD average), its labour force would continue to grow.
This scenario, the most demanding, would be the most compatible with maintaining potential growth at around current levels, i.e. 1.2% to 1.3%. It is shown here by curve 3.
In conclusion, faced with accelerated and largely unprecedented ageing, Europe is not doomed to decline, provided that it does not close its doors and continues to work towards fully integrating its citizens into the labour market.
Faced with continued strong competition from China and the United States, the drivers of its future growth also lie in its ability to innovate, to streamline its operations and to strengthen its ties, particularly financial ones.
Following the publication of the ‘Letta’ and ‘Draghi’ reports, it has set out ambitious goals in this area, as illustrated by the launch of the ‘One Europe, One Market’ initiative. The challenge now is to turn these ambitions into reality.
