Workforce ageing and economic productivity: the role of supply and demand of labour, an application to Austria

Alexia Fuernkranz-Prskawetz, Vienna Institute of Demography
Thomas Fent, Vienna Institute of Demography

The aim of this paper is to study the sensitivity of projected economic productivity (measured by output per worker) with respect to alternative projections of the quantity and quality (measured by individual productivity) of labour supply as well as with respect to alternative assumptions on the substitutability of workers at different ages. Our simulation results indicate that the degree of substitutability between workers at different ages has a pronounced influence on projected relative productivity. We also show the negative trade-off between an increasing labour force at older ages and aggregate productivity when the age-specific productivity profile is either decreasing or hump-shaped over age in comparison to a constant age-specific productivity profile. We conclude by showing that a decline in economic productivity can be attenuated if labour force participation rates are adjusted to levels currently observed in northern European countries.