Population decline is a harsh reality
“More immigration is necessary. Existing projections already assume substantial immigration, which, however, is insufficient to reverse aggregate aging.” This bold statement was made recently by Rolf Strauch, chief economist of the European Stability Mechanism, in his latest report on demographics and financial stability.
The demographic crisis also featured prominently in a much-discussed report on the future of European competitiveness that followed shortly after. Here, former European Central Bank president Mario Draghi argued that “positive net inward migration does not compensate for the EU’s population decline. Long-term population projections suggest a further continued decline of the EU’s population. This decline stands in contrast to the US, whose population is expected to continue to grow during the next decades, albeit at a slowing pace.”
How is it that the US population continues to grow? The answer lies in the country’s official statistics, which show that more than 9 million people have immigrated to the country since 2020. Within four years, it absorbed an equal number of migrants to the arrivals of the entire previous decade. Migration, therefore, boosted the rise of the US population by 1.2% a year. Without migration, it would have been almost stagnant, with a rise of just 0.2% a year, dipping as 2040 approached, according to the Congressional Budget Office.
Europe has the smallest population growth in the world right now. And the older its population gets – with both births and deaths dropping – the bigger the burden on states to meet the growing needs of future pensioners, as the smaller the contribution of the labor force. Combined with increased needs in defense and crisis management, the demographic crisis will exert strong demand for spending, which will empty state coffers and push up rates in international markets. An aging population will also lead to less demand for loans, meaning banks will take greater risks, and take on new unserviceable debts.
You can’t force Europeans to have more babies, but you can increase participation in employment in order to support growth, relieve the pressure on public finances and avoid future fiscal crises. The choices for accomplishing this are limited: raising the retirement age, increasing the participation of women in the labor force, improving the matching of skills with the labor market, and the integration of immigrants.
The need for immigrants to abide by European laws and norms can and must be stated emphatically, without conflicting with economic reality, at least: Europe urgently needs to increase its workforce if it hopes to be able to compete with the US and China.
