Demographic transition describes the universal process of declining mortality and fertility, which results in age structure shifts towards an increasing share of working-age population (ages 15–64). The potential economic benefits deriving from a large share of economically active individuals are referred to as the demographic dividend (Bloom et al. 2003). This concept is now widely used in development cooperation. Based on the experience of Asian countries, such as the so-called tiger states Hong Kong, Singapore, South Korea and Taiwan, changes in age structure – in combination with investments in education and health, infrastructure, good governance, and productive employment opportunities – are expected to be important drivers of economic growth and development in countries where the demographic transition is still less advanced (e.g., in countries in sub-Saharan Africa). 

Given this expectation, in a recent article (Dörflinger and Loichinger 2024) we investigated past, present, and future global patterns of change in working-age populations. How uniform are these changes across countries? Which demographic factors are associated with them and what does this imply for the prospect of reaping demographic dividends in the future?

Similarities and differences in age structure changes

Changes in age structure are not as uniform across countries as sometimes expected. Rather, distinct patterns of changes in the share of working-age population can be found. A large proportion of countries where the share of working-age population has already peaked are now showing patterns that deviate substantially from the prototypical one, which draws upon the experience of selected Asian countries (Figure 1 and Table 1, Cluster 3). In many countries, the share of the working-age population increased more slowly and for longer, eventually reaching lower relative maxima (Clusters 1 and 2), while in a set of Asian countries (e.g., countries of the Gulf Cooperation Council, Iran, and Singapore) even faster increases and/or higher maximum shares of working-age population have been observed (Clusters 4 to 6). 

In contrast to the countries analyzed above (referred to as observed countries), where the proportion of the working-age population is already declining, in over 100 countries worldwide, the proportion is still projected to increase (further) (prospective countries). Hence, these countries still have the potential to reap the benefits of a demographic dividend. However, in most of them, the share of their working-age populations is likely to increase more slowly and for longer, and to reach a lower maximum (Figure 2). This is particularly the case in countries of sub-Saharan Africa and Oceania. As the potential for a demographic dividend also depends on these factors, the potential economic benefits due to age structure changes may be smaller in these countries (Eastwood and Lipton 2011; Kotschy et al. 2020; Mason et al. 2017). 

Associated demographic factors

Changes in the share of working-age population in the course of the demographic transition are mainly attributed to three factors. First, fertility level and the speed of fertility decline play a key role. For instance, fast fertility declines have contributed to rapid and high-peaking increases in the share of working-age population in Eastern and Southeastern Asian countries. In many sub-Saharan African countries, instead, fertility rates are projected to decline much more slowly, also decelerating subsequent age structure changes.

Second, migration can have an impact on the age structure. For instance, some of the countries that experienced exceptional peaks in the working-age population in the past, such as the United Arab Emirates and Qatar, are high-immigration countries. Conversely, emigration can reduce the proportion of working-age individuals. 

Third, population momentum seems to slow down increases in the share of working-age population. Population momentum describes the effect of cohort sizes on population growth and age structure changes. For example, if the number of births per woman decreases but population momentum is high and the number of women of childbearing age increases, the total number of births does not necessarily decrease. Hence, shifts towards a large working-age population are slowed down. Population momentum is particularly pronounced in countries where fertility is still relatively high.

Implications for policy makers

Given these remarkable differences in the patterns of age structure change, it is essential to pay attention to the specific demographic situation of each country to properly assess the circumstances that will optimize the potential benefits of the demographic dividend. The positive experiences of selected countries in the past may not be replicable elsewhere in the future. Moreover, it is crucial for development planners of national and international organizations and local decision makers to understand the associations between age structure and fertility decline as well as the role of migration and population momentum in this context. These associations should be kept in mind when discussing the role of demographic developments for economic growth through the demographic dividend. Otherwise, the importance of fast fertility declines for age structure changes may be misjudged and the potential for development and economic growth may be overestimated.

References

Bloom, D.E., Canning, D., and Sevilla, J. (2003). The Demographic Dividend: A New Perspective on the Economic Consequences of Population Change. Santa Monica: RAND Corporation.

Dörflinger, M., and Loichinger, E. (2024). Fertility decline, changes in age structure and the potential for demographic dividends: A global analysis. Demographic Research 50(9), 221-290.

Eastwood, R., and Lipton, M. (2012). The Demographic Dividend: Retrospect and Prospect. Economic Affairs 32(1): 26-30.

Kotschy, R., Suarez Urtaza, P., and Sunde, U. (2020). The demographic dividend is more than an education dividend. Proceedings of the National Academy of Sciences 117(42): 25982-25984.

Mason, A., Lee, R., Abrigo, M., and Lee, S.-H. (2017). Support Ratios and Demographic Dividends: Estimates for the World. New York: United Nations (Technical Paper No. 2017/1).

UN DESA (2022): World Population Prospects 2022, Online Edition. New York: United Nations.

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Germany is aging

The German population is among the oldest in the world and is aging rapidly. Projections of the German Federal Statistical Office (Statistisches Bundesamt, 2022) indicate that in 2050 around 26% of the population will be over age 67, which will be the statutory retirement age by 2031. As the number of retirees increases and the workforce shrinks (Fuchs et al. 2018), this rapid population aging will be a challenge for the German social security system, and for the German pension system in particular. 

Extending the length of working life has been proposed as a remedy, as it increases the size of the workforce while reducing the number of retirees. Several institutions, such as the European Commission and the OECD, have been advocating for this shift (e.g., European Commission, 2010; OECD 2015). Meanwhile, many countries, including Germany, have implemented reforms with the major goal of prolonging working life. For instance, the statutory retirement age in Germany is currently being increased from 65 to 67.

Inequalities in the length of working life

Policies aimed at extending working life often follow a one-size-fits-all approach. As these policies are frequently applied with few or no exceptions, or are aimed at workers in stable employment (e.g., Phillipson 2019), they might have negative effects on more economically insecure and vulnerable groups. For instance, increasing the retirement age for almost everyone, as is currently the case in Germany, may increase the duration of working life for highly educated men with high employment rates, while low educated individuals face a high risk of unemployment during the additional years they are forced to stay in the labor market.

A series of studies in several countries have revealed substantial socioeconomic inequalities in the length of working life (e.g., Dudel & Myrskylä 2017). In a recent paper (Dudel et al. 2023), we provide new evidence of such inequalities for older workers in Germany, and focus on several dimensions of inequality: gender, occupation, education, and region (distinguishing between the former socialist eastern Germany and western Germany). Below we provide an overview of some of the key findings, focusing on general trends and inequalities by education.

General trends in Germany 

Our key indicator is working life expectancy (WLE₅₅), defined as the average remaining lifetime spent in work. It is measured in years and, for our study, we computed it between ages 55 and 64, adjusting it for working hours. This means that our results are based not only on whether individuals are or are not gainfully employed, but also on whether they are working full- or part-time. We used data from the German Microcensus for the years 1996 to 2019, and calculated WLE₅₅ for the cohorts born between 1941 and 1955 (Fig. 1). 

For instance, the number of additional years western German men could expect to remain employed at age 55 rose from 5.5 years for those born in 1941 to 7.4 years for those born in 1955. For all groups, WLE₅₅ increased by around 2.0 to 2.5 years over the observed birth cohorts. This shift is likely attributable to several factors, including pension reforms aimed at extending working life and better health among younger cohorts. 

In both western and eastern Germany, men worked for longer than women. However, the gender gap was always smaller in the east than in the west, and it decreased somewhat in eastern Germany, while remaining roughly constant in western Germany. Similarly, eastern German women worked longer than their western German counterparts. Among men, by contrast, the opposite pattern is observed, with western German men working longer. These regional and gender differences are legacies of eastern Germany’s socialist past and the unification process. When the east was socialist, policies aimed at integrating women into the labor market led to higher female employment rates in eastern Germany than in the west. This pattern continued after German unification, even during periods when unemployment rates in eastern Germany were high.

Educational inequalities in Germany

Employment in late adult life depends also on education, for which, in our paper, we considered three levels:
• low (equivalent to ISCED levels 0 to 2), 
• medium (ISCED levels 3 to 4), and 
• high (ISCED levels 5 to 6). 

Results are displayed in Figure 2. When interpreting them, it is important to keep in mind that the lowest educational group is smaller and more selective in eastern than in western Germany, as less than 10% of the population aged 55 to 64 in eastern Germany have low educational attainment.

On average, WLE₅₅ increased for all educational groups, but with considerable heterogeneity in both level and pace. For instance, beyond age 55, low-educated eastern German women worked, on average, only three additional years, while highly educated western German men worked almost nine. Moreover, in eastern Germany, the increase in WLE₅₅ was notably smaller for low-educated individuals than for the other educational groups. For example, the gap between highly educated and low-educated eastern German men increased from roughly three to four years.

Conclusions

In summary, the length of late working life has been steadily increasing in Germany for all the socioeconomic groups we considered. This trend is in line with the aim of many recent policy reforms to increase retirement age. However, our findings show that there are substantial and increasing socioeconomic inequalities in the length of working life after age 55 among older workers. Researchers and policymakers should focus more on these inequalities, as they might be outcomes of systematic social disadvantages among specific groups of older workers. To help us better understand inequalities in WLE₅₅, we are currently extending our calculations of WLE to cover all working ages. If, for instance, low-educated workers start working at earlier ages than highly educated workers, inequalities in total WLE might be smaller than inequalities in just WLE₅₅, i.e. among older workers only.

References

Dudel, C., Myrskylä, M. (2017): Working Life Expectancy at Age 50 in the US and the Impact of the Great Recession. Demography 54: 2101-2123.

Dudel, C., Loichinger, E., Klüsener, S., Sulak, H., Myrskylä, M. (2023): The extension of late working life in Germany: trends, inequalities, and the East-West divide. Demography. https://doi.org/10.1215/00703370-10850040 

European Commission (2010): Annual growth survey: Advancing the EU’s comprehensive response to the crisis.

Fuchs J., Söhnlein D., Weber B., Weber E. (2018). Stochastic forecasting of labor supply and population: an integrated model. Population Research and Policy Review, 37, 33-58.

OECD. (2015): Pensions at a glance 2015. Available at OCED.

Phillipson C. (2019). “Fuller” or “extended” working lives? Critical perspectives on changing transitions from work to retirement. Ageing & Society, 39, 629-650.

Statistisches Bundesamt, 2022: 15. koordinierte Bevölkerungsvorausberechnung – Deutschland. Available online.

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