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Dramatic shifts in demographics could overwhelm global retirement policies: IMF

Demographics, global retirement

The sheer number of people growing older could be enough to undo even the best-laid retirement policies, the International Monetary Fund has warned.

In the latest batch of chapters released from its World Economic Outlook, the IMF said changes to retirement incentives, investment in education and training, tax reform and improved workplaces may not be enough to mitigate the impacts of a global ageing population.

While there is “considerable scope” for policies that encourage workforce participation by more women, younger workers and older workers, the IMF researchers, Francesco Grigoli and Zsóka Kóczán, led by Petia Topalova, suggested part of the solution could come down to migration policies – at least for advanced economies.

The researchers explained: “Investing in education and training, reforming the tax system, and reducing incentives to retire early – along with stronger policies that improve the job-matching process and help workers combine family and work life – can encourage people to join and remain in the workforce.


“Ultimately, however, the dramatic shifts in demographic structure could overwhelm the ability of policies to mitigate the effects of ageing on labour force participation, which underscores the need to rethink migration policies to boost labour supply in advanced economies.”

According to the IMF’s analysis, women’s workforce participation around the world is increasing, as is older workers’. The researchers argued that this means policies designed to help workers enter, remain or re-enter can have a significant role to play in shaping the labour force, while also helping to counteract the economic impacts of ageing populations.

Countries that fail to address their ageing populations are likely to suffer an economic slow-down, while the financial requirements of a top-heavy population would be carried by those of working age, the researchers continued.

“Automation – while beneficial for the economy as a whole – has weighed on the participation rates of most groups of workers, with more persistent negative effects in the United States than in Europe,” the researchers said.

“But encouragingly, policies aimed at improving the job matching process in labour markets can partially offset this effect.”

With these trends in mind, the researchers noted the role of family-friendly policies to encourage people to remain in work while parenting, along with a reduction in the incentives for workers to retire early.

“For older workers, reducing the incentives to retire early, by raising statutory retirement ages or making pension systems more actuarially fair, could lengthen working lives, although care should be taken that reforms do not jeopardise other goals, such as a basic social safety net for vulnerable individuals,” the researchers said.

Nevertheless, the researchers concluded that even if countries implement such policies, the sheer weight of demographic shifts could still see depressed participation rates and a consequent dampened economy.

“Unless technological progress delivers offsetting productivity gains, many countries may need to reconsider immigration policies to boost domestic labour supply, alongside policies to encourage older workers to postpone retirement,” the researchers said.

“Although receiving migrants can pose challenges for host countries, the chapter’s analysis suggests that net migration accounts for roughly half of the population growth in advanced economies over the past three decades – any efforts to curb international migration would thus further exacerbate demographic pressure.”

Additionally, technological advances that support production while mitigating the need for labour could also assist growth in the face of ageing populations.

However, policymakers should also be aware of the impact of such technologies on the disrupted sectors, the researcher said.

“Increasing investment in education and training can not only make the workforce more resilient to changing labor needs, but also encourage labor force participation,” the researchers said.

“Investing more in the education of the young is also critical to prepare them for the jobs of the future.”

The IMF’s findings are in line with those of the Australian National University professor of demography Peter McDonald.

Speaking to Nest Egg recently he argued, “Migration has a big impact on the longer term, it concentrates the population more in the working ages, it provides a much larger tax base.”

However, the Grattan Institute has also noted the impact of immigration on housing affordability.

In a report released in March, researchers John Daley, Brendan Coates and Trent Wiltshire said reducing immigration intake is the second-best option to housing policy reform.

“Reducing immigration would reduce demand, but it would also reduce economic growth per existing resident,” the researchers said.

“First-best policy is probably to continue with Australia’s demand-driven, relatively high-skill migration, and to increase supply of housing accordingly.

“But Australia is currently in a world of third-best policy: rapid migration, and restricted supply of housing, which is imposing big costs on those who have not already bought housing.”

Speaking to Nest Egg on Wednesday, Housing Industry Association principal economist Tim Reardon contended that the answer to Australia’s affordability question is to build more houses, avoid increasing tax pressure on homeowners and understand the role of effective migration policies in meeting the country’s economic needs.

Dramatic shifts in demographics could overwhelm global retirement policies: IMF
Demographics, global retirement
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