Demographic change and the European Union labour market

The twenty-five countries that are currently member states of the European Union (EU) have a combined population of about 460 million inhabitants, which makes it the third most populous "political entity" in the world after China and India.

Since its inception as the European Economic Community in 1958, its population has grown at a steady pace through a combination of positive natural increase (births exceeding deaths), positive net migration (immigration exceeding emigration) and by leaps caused by "enlargement"-the political process by which countries become member states.

The future will be very different, with the EU expected to decline in absolute number in the coming decades as the population ageing process accelerates. As the population of the EU ages and declines in size, the same will happen to the population of traditional labour force age (16-64). The potential supply of labour will shrink, which will be a factor working against economic growth.

In this paper, data from the most recently available United Nations population projection is used to try to quantify these effects. The analysis suggests that the addition of the ten mainly Eastern European countries to the EU in May 2004 will accelerate both population ageing and decline within the EU. These countries, because of their own demographic circumstances, will not be a key source of labour for other higher income member states in the longer run.

However, the demography of the candidate country of Turkey is very different. Its population is growing at a relatively rapid rate and its age structure is much younger. If Turkey is allowed to join the EU, and if the UN projections prove to be correct, it will have the largest population of the any of the current 25 member states (Germany will be second largest). In the same period, the number of people age 20-64 will increase by about 14 million.

In this sense, Turkey has the potential to supply the rest of the EU with a substantial share of workers that are going to be needed in the future.