AI adoption alone is insufficient to offset the economic hit of ageing populations, says a new EBRD report.
Europe is getting older, and the political willpower to handle such a shift is threatened by the “greying of politics”, according to a new report.
Ageing leaders, as well as ageing voters, are “narrowing the political space for changes”, said researchers from the European Bank for Reconstruction and Development (EBRD). The report pays particular attention to emerging economies in Europe where the EBRD invests.
In this part of Europe, a shrinking working-age population could reduce annual GDP per capita growth by an average of almost 0.4 percentage points between 2024 and 2050.
Such a transition, driven by falling fertility rates and rising life expectancy, places mounting fiscal pressure on governments.
“The big message from the report is that the time to act is now, before demographic trends close off the options,” Beata Javorcik, the EBRD’s chief economist, told Euronews.
“Politicians must be brave, they must be willing to communicate difficult trade-offs, and they must be able to resist short-term pressures.”
AI isn’t a ‘magic solution’
Measures to tackle the economic hit of ageing include fertility policies, increased migration, measures to boost labour force participation, and the application of new technologies.
With regard to fertility policies — which encourage women to have more children — the EBRD claims the permanent impact is limited, despite the high costs to governments.
“By 2019, the majority of governments in the EBRD regions had adopted policies to encourage childbearing, up from just 5% of economies in 1980,” said researchers.
“While some generous benefit packages have produced short-lived upticks in births, sustaining higher fertility has proved difficult once incentives have ended.”
When it comes to adopting new technologies, particularly artificial intelligence, the EBRD also noted that these tools can boost productivity — but it’s not a one-stop solution.
“Advances in AI technology are likely to raise workers’ productivity in some occupations, but displace workers in others,” said researchers.
In EBRD economies in the EU, fewer workers have the types of employment that can benefit most from AI-driven productivity gains relative to advanced Europe.
When politics trumps economics
The most powerful lever to manage population ageing, according to the EBRD, is getting more people into the workforce — particularly older citizens.
Extending working lives means that individuals can contribute to the economy for longer, particularly in professions with fewer physical demands.
Statutory retirement ages across the EBRD have been increasing in recent years and range from 55 to 67, although the average effective retirement age is lower. This means that raising official thresholds won’t necessarily encourage people to work longer if there is still the option to retire earlier.
Despite the promise of retirement reforms, a major barrier is political willpower, said the EBRD.
Extending working lives is a politically thorny issue, and many lawmakers — ageing themselves — are unwilling to broach the subject.
“As leaders age faster than the population, they tend to be more responsive to the needs of their own generation, meaning the older generation,” said Beata Javorcik.
“And of course, it's always the older generation that tends to vote more frequently than younger people.”
According to an OECD survey published this year, citizens 18-29 are 21 percentage points less likely than those aged 50 and over to vote in national elections.
The case for migration
The overrepresentation of older generations in politics also tends to produce more restrictive migration policies, said the EBRD.
While immigrants can place stress on welfare systems, their contributions to the labour market can be extremely useful for ageing populations — especially if these individuals are young and skilled.
Emigration rates in the EBRD economies have consistently exceeded the global average, while immigration rates are modest. In 2020, 6.4% of residents in EBRD regions were foreign born, compared to 20% in advanced economies worldwide.
While young citizens tend to support laxer migration policies than their older peers, a lack of political representation means their “voices risk being drowned out”, warned the EBRD.
“Rebalancing this dynamic will require not only daring reforms, but also efforts to mobilise younger voters,” researchers concluded.
