Central Bank Governor Gabriel Makhlouf said today that in the face of unprecedented shocks in recent years, the Euro area labour market has held up exceptionally well, but he cautioned that some cooling is expected in the future.
Mr Makhlouf was speaking in Paris today at the Organisation for Economic Cooperation and Development (OECD) about how demographics, migration and technology will reshape Europe's workforce.
He said the employment growth slowdown also reflects demographic factors that were initially rather slow-moving, but are now beginning to bite.
"Between 2024 and 2027 the euro area working age population is projected to fall by 0.7% (or 1.5 million workers between the ages of 15 and 64)," the Central Bank Governor said.
"The longer-term impact is stark: the 'old-age dependency ratio’ in the euro area (the population aged 65 and over as a proportion of the population aged 15-64) is set to increase sharply from 33.7 in 2022 to 51.2 in 2050," he stated.
He said that an older population with lower consumption and higher savings could place downward pressure on aggregate demand, limiting price growth in certain sectors.
"At the same time, a shrinking working-age population will tighten labour markets in the absence of increases in labour force participation rates. This puts upward pressure on wages that feed into services inflation," Gabriel Makhlouf said.
Governor Makhlouf said that with shrinking populations, increasing labour force participation is a necessary part of the solution.
"We also need to look beyond the traditional definition of working age population as 15-60/64 years of age and boost participation in the post-60/65 population. In a world of longer lifespans and health spans, sustaining living standards will need people to work beyond what is currently considered ‘typical’ retirement age," he added.
The Central Bank Governor said that an ageing population, declining fertility and shrinking work forces will drag on employment growth and therefore economic growth in the coming decades, with migration only offering a partial - albeit important - solution to the challenge.
He also said that while we are still in the early take-up phase of AI technology, adoption of the technology is historically fast.
"What we have seen so far in terms of the use of AI, including in my own organisation, suggests that it has the potential to disrupt existing employment patterns, both as a substitute for existing labour through the automation of certain tasks and as a complement to existing skills." he said.
"Together, this will create new opportunities for workforce growth and productivity gains. We need to prepare now for the changes that are coming. This means, among other things, more flexible labour markets that allow for worker mobility within and between firms, as well as across sectors and occupations," he urged.
"It also means providing training opportunities for workers - both younger and older - to drive upskilling and support transitions to new roles that may not even exist yet," he added.
