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Institute forProspectiveTechnological Studies

EUR 21573 EN

T E C H N I C A L R E P O R T S E R I E S

The Demography/Education

Squeeze in a KnowledgeBased Economy(2000 - 2020)

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THE DEMOGRAPHY/EDUCATION SQUEEZEIN A KNOWLEDGE-BASED ECONOMY (2000-2020)

Author :GRY COOMANS (GeoLabour.com)

Research Associate at the WORK RESEARCH CENTRE, DUBLIN

The author of this report is solely responsible for the content, style, language andeditorial control. The views expressed do not necessarily reflect those

of the European Commission.

JANUARY 2005

Technical Repor t EUR 21573 EN

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European Commission

Joint Research Centre (DG JRC)

Institute for Prospective TechnologicalStudies

http://www.jrc.es

Legal notice

Neither the European Commission nor anyperson acting on behalf of the Commissionis responsible for the use which might bemade of the following information.

Technical Report EUR 21573 EN

European Communities, 2005

Reproduction is authorized provided thesource is acknowledged.

Printed in Spain

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Table of Contents

THE DEMOGRAPHY/EDUCATION SQUEEZE IN A 3KNOWLEDGE-BASED ECONOMY (2000 2020)

TABLE OF CONTENTS

Executive Summary ................................................................................................. 5

Structure of the Report ............................................................................................ 7

Chapter 1: Knowledgebased Society Requirements for Qualifications............ 91.1 The link between employment rates and educational attainments.................... 91.2 The link between employment growth and educational attainments.............. 111.3 Employment growth and educational attainments: some conclusions ........... 14

Chapter 2: Demographic Trends and Labour Supply .......................................... 172.1 Decline of the working age population........................................................... 172.2 Age distribution of the working age population............................................... 18

Chapter 3: Educational Attainments and Labour Supply.................................... 21

3.1 Transitions in education.................................................................................. 213.2 Generational progressions in education.......................................................... 223.3 Gender shares in education............................................................................ 25

Chapter 4: Demographic and Educational Effects on Labour Supply ............... 274.1 Strict demographic effects on the labour force................................................ 274.2 Strict educational effects on the labour force.................................................. 284.3 Total demographic/educational effects on the labour force............................. 29

Chapter 5: Potential Growth of Tertiary-level Employment ................................ 315.1A view on both periods: 2000-2010 and 2010-2020........................................ 31

5.2An integrated view on the period 2000-2020................................................... 335.3 The fate of the younger cohorts in the period 2000-2020................................ 34

Chapter 6:. Policy Implications - Speeding up the Tertiary Transition .............. 35

Annex 1: Sources ................................................................................................... 37

Annex 2: Methodological Restrict ions on Demographic Pro jections andEducational Statis tics ............................................................................ 39

Annex 3: Methodological Restrict ions - Calcu lat ing Maximum Employment

Rates........................................................................................................ 41

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Executive Summary


EXECUTIVE SUMMARY

Background and Objectives

This report was prepared by Gry Coomans, for the Work Research Centre in Dublin, onbehalf of the Institute for Prospective Technological Studies1 as part of a broad foresight

activity aimed at reaching a better understanding of the uncertainties and challengesassociated with the Enlargement process over a 10-year horizon. The main objective of thisreport is to suggest appropriate policy measures to support the development of theInformation Society in the EU New Member States and Candidate Countries in line with theLisbon Strategy.

This report focuses on the disruptive impact of the demographic changes that Europe willwitness over the next 10 to 15 years. Though we are all aware that the European society isageing, there has been little research that clearly identifies what the effects of this changemight be, particularly as regards the labour force in the emerging context of a knowledge-based economy. Even less has been published on its effects on the European New MemberStates. This report aims to document this issue and demonstrate the urgent need to takemeasures to avoid major problems in terms of labour shortages. It is our conviction that, if nomeasures are taken, the growth needed for the New Member States economies to convergemay never happen. This conviction is based on two key findings.

Key Findings

First, in the emerging knowledge-based society, the number of jobs for people with tertiary-level education is growing, while the number of jobs for those with lower education levels isdecreasing in most fields. In both the US and Western Europe, the number of jobs requiringtertiary-level education has now risen to a multiple of the average employment growth, in aratio of almost 2 to 1. Indeed, increased productivity depends on this, as any growth in theemployment of people with lower education levels contributes more to social cohesion than toeconomic growth.

In the EU-15, employment rates for those with tertiary education are the highest (83% onaverage, as against 49% for those with lower education levels). They are also the mosthomogeneous (falling between 78% and 88%, with an average unemployment rate of under5%) as compared to the rates for those with middle and low education levels. Hence, thefurther growth of tertiary-level jobs will depend:

- on the supply of educated youth, which is strongly determined by the output of theeducational system

- only to a very marginal extent on raising the employment rate of the tertiary-educatedpopulation.

Second, the size of the incoming younger generation is undergoing a clear decline. This isparticularly steep in the New Member States, with an expected 42% less young people agedbetween 15-24 in 2020, as compared with 2000. Any supplementary growth of tertiary-level

jobs will therefore depend on the changing share of tertiary-educated population from onegeneration to the next.

Indeed, all growth economies have gained their high yield as a result of past educationalinvestments, as has been the case in Ireland, Finland and Spain. In the EU as a whole, 25% ofthe 25-34 age group now have tertiary level education, and this is expected to rise to 30% by2020. However, the generational progression in educational attainment is still insufficient to

1 IPTS is one of the 7 institutes of the Joint Research Centre (JRC) of the European Commission.(http://www.jrc.es)

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6 INFORMATION SOCIETY DEVELOPMENT IN THE NEW MEMBER STATESA CONTRIBUTION TO THE LISBON STRATEGY ON MORE AND BETTER EMPLOYMENT

promote the knowledge-based society. The distribution across the EU of tertiary-educatedpeople in the 25-34 age group is also uneven in some countries they represent less than15%, whereas in others they represent close to or more than 50%. This (uneven) distributionwill be one of the main determinants of the geographical distribution of future economicgrowth.

Conclusions

In this study, we have mapped the potential growth of employment at tertiary level, aftercombining the demographic projections and the projections for each educational level. Thisexercise leads to the following conclusions:

Period 2000-2010:

During this period, the growth prospects of tertiary-level jobs will be fuelled by higheducational progression combined with slower economic growth and/or moderatedemographic decline of the working age population. This has happened in Ireland, France,Spain, Greece, Malta, Cyprus and Poland where it is expected that the observable influx

of the younger generations into higher education will compensate, to some extent, for thedeclining numbers of young people in such a combination that the expectable growth pathcan be fuelled with the necessary human resources.

Stagnation of educational attainments combined with negative demographic trends couldbe a negative sign for economic growth in countries like Germany, the Netherlands orSwitzerland i.e. three countries where the female population is still clearly laggingbehind in education.

All the Eastern European New Member States, with the exception of Poland, have clearlyunfavourable prospects for tertiary-level job growth due to the combination of steepdemographic decline and a transition to tertiary education that is too slow.

Period 2010-2020

No country in the EU-25 will escape the strain of narrowing margins between the needs ofthe labour market and the availability of tertiary educated youth in the second decade ofthe century. In Estonia, Latvia, Germany, Czech Republic and Hungary, the growth innumbers of tertiary educated people of working age is projected to become negative after2010. Only in Cyprus and Ireland will the annual increase of this group be above 2.5%. InAustria, France, Spain, Poland, Luxembourg, UK, and Belgium, their number willincrease annually by between 1.0 and 1.8%. In all the other countries, the increase isexpected to be below 1%. The potential growth of effective tertiary-level jobs will beclosely constrained by these numbers.

Only where the generational progression in educational attainments is highest (Cyprus,

Spain, Poland, Ireland, followed by France and Portugal) can the increased participationresulting from improved education compensate for demographic stagnation or decline.However, demographic decline may be so steep that educational progression may notsuffice to compensate as may be the case in Spain from 2010 to 2020. Germany, Italyand Finland in the worst position with clearly negative growth expected in the seconddecade.

Policy Implications

This reports states that, after two centuries of abundant supplies of young labour that madeopen labour markets possible, Europe is now facing a complete disruption in demographictrends. The main policy implication of this is the need to prioritise not only educational

output, but also all reforms that would improve the capacity of the education system to fulfilthe requirements of the knowledge-based society in both quantity and quality.

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Structure of the Report


THE STRUCTURE OF THE REPORT

Chapter 1 of the report illustrates how, in the framework of our economies, the educationaland qualificational characteristics of the Labour Force draw a renewed importance from theemergence of the knowledge-based society (KBS) that enforces new requirements in terms ofcompetence building.

Chapter 2 displays the downwards trends in demography affecting negatively the LabourSupply.

Chapter 3 documents the educational transitions favouring the shift towards a growing shareof highly qualified youth in some countries.

Chapter 4 illustrates the problem under consideration in this study: the squeeze that mightoccur between demographic decline and educational transition. The shift in educationaldistributions might or not compensate for the declining demographic quantities by improvingthe shares of quality-educated populations, to a level seen as sufficient to fuel bothemployment growth and productivity growth.

Coming back to the question raised in Chapter 1, that of the availability of tertiary educatedlabour force to fuel employment and economic growth, Chapter 5 provides a projection of thepotential growth of tertiary-level employment, on the basis of activity rates that would reachthe same levels attained now by the best performing EU countries.

Finally, Chapter 6 aims at drawing some policy and research conclusions.

Conventions on educational attainmentsFollowing the International Standard Classification of Education (ISCED-1997)LOW =ISCED 0-2 =Less than Upper Secondary SchoolMEDIUM =ISCED-3 =Upper Secondary LevelHIGH =ISCED 567 =tertiary education

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1. Knowledge-based Society Requirements for Qualifications


CHAPTER 1: KNOWLEDGEBASED SOCIETY REQUIREMENTS FORQUALIFICATIONS

1.1 The link between employment rates and educational attainments

The link between educational attainments and employment rates are usually straightforward:

the higher the educational attainment the higher the employment rate of that category. Thechart below illustrates this relation for employment rates of the 25-64 age group per level ofeducation (2002) in 28 European countries,2 and ranks the countries of EU25 per share ofemployment among the low educated.

Employment rate per educational l evel2002 (except 2003 LT and MT) L=Low; M=Medium; H=High

Source: Eurostat (Spring) LFS

0 20 40 60 80 100

EU15

SK

PL

CZ

EE

LT

HU

LV

BE

SI

DE

IT

FR

UK

IEAT

FI

MT

GR

LU

CY

ES

SE

DK

NL

PTEU25

BG

RO

CH

NO

H

M

L

2 EU25 +Norway, Switzerland, Romania and Bulgaria. Those non-EU countries are listed first in the chart

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In all cases, the employment rates regularly increase together with the educationalattainments: for the post-schooling age group (25-64), the EU15 average employment rates lieat 54% for the Low educated, at 73% for the Medium educated and at 84 % for the High(tertiary) educated.

Moreover, as illustrated by the chart above, the national differences can be considerablebetween the employment rates for low educated (ranking within the EU-15 between 16% inSlovakia and above 60% in Denmark or in the Netherlands), while they are systematicallymuch narrower for those at tertiary level (ranking between 77 and 87%).

Portugal - where the low-educated make 80% of the population aged 25-64, against 34% onEU-25 average is the only country that displays lower employment rates for those at UpperSecondary level.

Expectedly, the relationis opposite for theunemployment: on EU-

15 average, theunemployment rate liesat 11.9% for the loweducated, at 9.3% forthe medium educatedand at 4.8% for thetertiary educated foran average unemploy-ment rate at 9% (2002figures).

This has far-reachingconsequences. At oneend, there is a largeleeway to increase theemployment of loweducated, but there ishardly any for those attertiary level: for thelatter, any employmentgrowth would be inneed of an additional

supply of highlyqualified people. Inother words, tertiarylevel employment canonly be increased if theeducational systemprovides a largeroutput.

Unemployment rate per educational l evel2002 (except 2003 LT and MT) L=Low; M=Medium; H=High


0 10 20 30

EU15

NL

CY

LU

PT

DK

IE

SE

AT

MT

GR

SI

IT

BE

HU

UK

ES

FR

DE

FI

EE

CZ

LT

LV

PL

SK

EU25

BG

RO

CH

NO

H

M

L

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1.2 The link between employment growth and educational attainments

The second basic relation links the educational attainment and the actual employment growth.The chart below illustrates the employment growth rates in the EU15 and the USA during thelast decade. It shows on total that growth has been positive and of similar range (1.4%) inboth cases. Both in the EU and in the US, the employment growth of people with tertiarylevel education has been at least the double of that average of 1.4% - respectively 2.9% and3.2% - while it was simply negative for those with the lowest attainments respectively -3.3% and -0.6%.

* For the USA, :

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The same trend can be further illustrated by what is currently happening in the manufacturingsector (see graph below), where theemployment decline (less 4.6% between1999 and 2003 in the EU-15) isinvolving the low educated, but not the

tertiary educated. This internal shift isaccentuated for the younger generations,with a massive drop of employment foryoung low educated workers.

Across the EU-15, there are in fact alimited number of activities where theemployment of low educated is stillexpanding, mainly catering andconstruction. It is also useful to considerthe same indicator at regional level.

Among the 200 NUTS2 regions of theEU-15, only 22 display an employmentgrowth for the tertiary educated that liesbelow the average employment growth,for the same 1996-2003 period. In theregions of the New Member States, onlyEstonia displays such negative featurefor the 1999-2003 period.

Obviously, the trend towards highershares of tertiary-educated employment

and symmetric lower shares of low-skilljobs is a dominant observation across allof Europe. An important explanatoryaspect to this trend lies in sectoral shifts,which themselves are at the core of theemergence of the Knowledge-basedSociety.

The reallocation of the workforcebetween activities is one of the mainsources of the labour supply for more

productive activities. Historically,productivity growth in agriculture hasbeen freeing labour forces for the sake ofindustry, and now both agriculture andindustry are freeing workforce that can bereallocated in services. The table on thenext page illustrates how, over the recentpast (1999-2003) that reallocation hascontinued in Europe. On average,employment in agriculture went ondeclining fast, industry slowly, while the

employment in market and non-marketservices keeps on an upward trend. Only

Annual growth rate of employment per educational level 1996-2003

1996-2003, except 1997-2003 HU, LV, PL, RO; 1998-2003 CZ, LT, SK;

1999-2003 IE, UK, CY; NL 1996-2002.


Per educational level Total

-12 -8 -4 0 4 8 12

PL

EE

CZ

SK

LT

DE

SI

AT

DK

LV

GR

BE

UK

SE

IT

FRHU

PT

FI

LU

NL

IE

CY

ES

BG

RONO

CHHigh

Medium

Low

-4 -2 0 2 4

(Nace D) per educational level Low educat.level

EU-15*, 1999-2003 ( x1,000) Change in %

* EU-15 excluding BE and NL Source: Eurostat (Spring) LFS

Change in employment in Manufacturing

-1600

-1400

-1200

-1000

-800

-600

-400

-200

0

200

400

Low

Medium

H

igh

Total

-9

-11

0

-18

-20

-20 -10 0

15-24

25-34

35-44

45-54

55-64

Total

-4,6%

-1,8%

-12,3%

5,1%

-12,3%

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Poland shows a decline in the four sectors.

In the New Member States where agriculture still represents a high share of total employment and therefore significant reserves for reallocation like Poland, Lithuania and Latvia, theagricultural decline is unequal: steep in Latvia and Lithuania, but limited in Poland. In thelatter country, the decline is steepest in industry. Three eastern European countries show agood resistance of industrial employment: Latvia, Hungary and Slovakia to which the Czechregion of J ihozapad could be added, as well as the western region of Romania (RO05-Vest).On the contrary, no single region in Poland did preserve its industrial employment, and sixdisplay a decline by at least 15%. It also means that the old industrial belt of central Europebetter resists in its southern rather than its western or northern area. Nevertheless, it is to beexpected that industry in those countries will not be able to avoid further downsizing.

A: Share in total employment2003B: Employment index in 2003 (index 100=1999)Agriculture Industry M'kt Serv. Non-M'kt Serv.

A B A B A B A B

EU15* 3,8 92,5 28,2 98,0 38,7 107,4 29,1 107,2AT 5,2 90,8 28,9 97,0 40,5 102,5 25,4 104,0BE 1,7 87,3 25,4 97,0 38,4 105,0 34,5 102,3CY 4,2 115,7 23,4 110,0 47,6 114,5 24,8 125,2CZ 4,5 85,3 40,1 98,1 32,6 100,6 22,8 106,3

DE 2,3 79,6 31,6 89,8 36,1 101,1 30,0 100,0DK 3,1 96,1 23,2 85,5 37,1 104,7 36,3 104,4EE 6,2 72,6 31,7 99,4 36,3 107,2 25,9 103,2ES 5,5 89,4 31,0 114,8 41,3 116,5 22,2 120,8

FI 5,0 83,4 26,8 98,5 35,6 105,2 32,2 105,2FR 4,2 108,9 24,6 99,6 38,5 108,6 32,1 108,4GR 15,1 97,1 22,3 97,5 40,2 104,9 22,4 103,6HU 5,4 81,0 33,5 100,7 34,2 108,6 26,9 107,3

IE 5,6 83,0 28,0 109,0 40,3 113,8 25,6 122,6IT 4,5 93,6 32,0 104,9 37,1 111,6 26,5 106,2LT 18,3 93,9 27,6 99,6 29,4 107,0 24,7 93,9LU 2,3 127,8 19,4 94,4 44,2 108,4 33,8 111,7

LV 14,1 88,0 27,2 108,3 33,2 112,0 25,5 100,6MT 2,4 29,9 40,1 27,6NL 3,0 97,2 20,8 95,5 42,2 105,1 34,0 104,9PL 17,2 97,7 29,0 88,1 30,0 98,5 23,7 97,3

PT 8,9 97,7 34,7 98,5 35,0 108,2 21,5 101,7SE 2,2 95,0 22,7 96,5 36,7 112,5 38,3 109,8SI 6,7 80,0 37,6 98,8 32,8 108,5 22,2 104,1SK 6,0 84,0 38,2 101,1 30,4 108,0 25,3 100,8

UK 1,2 83,7 23,6 94,5 42,8 106,2 32,2 111,5

BG 9,9 32,6 32,5 24,9RO 33,5 79,1 31,1 18,7 16,6CH 3,7 92,3 22,6 41,4 29,5NO 3,7 82,9 21,7 37,0 37,4EU15*: BE and NL excl. Source: Eurostat LFS

Industry: Nace C-D-E-F Agriculture: Nace A-B

Non-market services: other. Market Services: Nace G-H-I-J -K

Age group 15-64 except BE and NL age group 15+.

All 1999-2003 exc. BE and NL 1999-2002, PL 2000-2002.

As to the service sector, where employment growth is concentrating, growth was high enoughto compensate for the declines in agriculture and industry only in Hungary, and to a much

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lesser extent in Latvia and Slovenia. In all cases, market services4 were heading to higheremployment levels, except in the Czech Republic where they hardly increased, and in Poland,where there was a unique 1.5% decline. However, it is clear that this is where futureemployment growth will have to concentrate. Compared to the 39% share of market servicesin overall employment in the EU15, Estonia lacks 2.5 percentage points, Hungary and Latvia

close to 5 percentage points, Slovenia and the Czech Republic 6 percentage points, whilePoland, Lithuania and Slovakia lack more than 8 percentage points.

Together with those sectoral shifts, the trend towards more education -intensive jobs iswidespread across all activities as illustrated by the chart above on the manufacturingindustry. That trend - the growing educational level requested by the labour market - gives agood indicator of how the shift occurs towards higher added value activities.

1.3 Employment growth and educational attainments: some conclusions

As to the consequences of the relation between employment growth and educationalattainments, they are manifold.

First of all, it sets the supply of tertiary-educated labour supply as the main bottleneck bothfor future overall employment growth and for productivity growth making together theoverall economic growth. It is indeed tempting to draw from the chart page 9 the followingstatement: to achieve any level of overall employment growth, say 1%, it is needed to havetwice that growth, say 2%, of employment of tertiary educated.

Second, remembering that the employment rate of the tertiary educated can hardly be raised,this 2 to 1 ratio then means that unless some generational progression of educationalattainment is widening the supply of tertiary educated workers, future growth could onlydepend on raising the employment rate of lower educated, who make a limited contribution toproductivity growth. This is where educational progression appears as the only possibleremedy to stagnating or receding demography.

A third consequence is that the reserves for employment growth that would derive from lowoverall employment rates are less important than the future availability of tertiary educated.For example in Italy, the slow progression in the number of tertiary-educated reduces themargin to overcome the shortcomings of the industrial-district-based model and to extend theuse of new technologies that would allow for its revival. While the best educated young tendto be absorbed by smart activities, the activities where modernisation lags behind are at riskto be trapped in an endless race for cost-containing along defensive patterns. Lack of tertiary-educated would then feed a dual system where the strain from globalisation will concentrateon the lower end.

Finally, the basic relation that puts the tertiary educated to the fore of employment growthalso involves that unemployment might develop at the lower end at the same time that skill-shortages multiply at all other levels. Considering the global trends to generationalprogressions in educational attainment, the question can be put as a problem of scissors-shaped evolution: will the demand for low educated workers decline faster or slower thantheir supply? (See box on the next page).

4 Market Services are: wholesale and retail trade, repair of motor vehicles, motorcycles and personal andhousehold goods (Nace G); hotels and restaurants (Nace H); transport, storage and telecommunications (NaceI); financial intermediation (Nace J); real estate, renting and business activities (Nace K).

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Box: Will the demand for low educated workers decline faster or slower than their supply?

During the 1996-2003 period and on EU-15 average, the employment of low educated people decreasedby over 3% annually (in the 15-64 age group), and the projection of the number of low educated people inthe same age group displays an annual decrease of 0.7% in the present decade, and an annual decrease of1.5% in the second decade of the century (See EU15 figures in tables below). In other words, the loweducated are at risk of increasing unemployment and decreasing employment rates. The reduction of theirsupply is a possible answer to this negative evolution.

The charts below show a variety of prospects. Nevertheless, inasmuch the past decline of employment ofthose with low educational attainment was to continue along the same trends as today, there are not manycountries where the scissors effect would seem to work to any significant extent in a favourable direction:besides Latvia (where the educational data appear fragile), we find in this list the countries where thegenerational progression in educational attainments has most contributed to the reduction in the number oflow educated (Spain, Belgium, Finland and France). In Portugal, Cyprus and the Netherlands, theemployment of low-educated was still displaying some residual growth. But two in these countries rankfirst in the EU as to the overall employment rate of low-skilled the Netherlands in the 15-24 age group,due to their highly developed active employment policies for the youngsters,and Portugal for those in the

following age groups, where low-educated still make up over 70% of the population.Annual growth of the population with Low Education, Age group 15-64, 2000-2010

-0,6-0,6

-5-4-3-2-101

EU15

SK

PL

HU

CZ S

IEE F

ILV

GR

BE IT F

R IE AT

DK

SE

LT

UK

ES

NL

PT

MT

CY

DE

LU

EU25

BG

RO

CH

NO

paGrEdL10

Annual growth of the population with Low Education, Age group 15-64, 2010-2020

-1,7-1,5

-5-4-3-2-1

01

EU15

SK

PL

HU

CZ S

IEE F

ILV

GR

BE IT F

R IE AT

DK

SE

LT

UK

ES

NL

PT

MT

CY

DE

LU

EU25

BG

RO

CH

NO

paGrEdL20

Annual growth of the employment of Low-educated, Age group 15-64, 1996-2003*

* See timing under chart page 9 above.

Source: Eurostat LFS, Eurostat 2004 Demographic Projections (Baseline scenario) and Geolabour Projection

-3,2-3,5

-15

-10

-5

0

5

EU15 SK PL HU CZ SI EE FI LV GR BE IT FR IE AT DK SE LT UK ES NL PT MT CY DE LU

EU25 BG RO CH NO

EG_Low

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2. Demographic Trends and Labour Supply


CHAPTER 2: DEMOGRAPHIC TRENDS AND LABOUR SUPPLY

We have seen above that employment growth and educational attainments demonstrate tohave observable relations. A further aspect impacting directly the future labour supply are thedemographic trends.

2.1 Decline of the working age populationAlong the recent (2004) demographic projections, the working age population (i.e. the 15-64age group under the EC convention), is to reach its peaking volume for the EU15 slightlyafter 2010: the working age population of the EU15 would be peaking at 258.4 million in2011 i.e. 1.3% above the 2004 figure, or 3% above the 2000 figure - and then decline to 254million in 2020.

Decennial growth of the 15-64 age group2000-2010

Source: Eurostat 2004 Demographic Projections

(Baseline scenario)

For CH, NO, TR: UN World Population Prospects

(Medium Variant - 2002 Revision)

a

-6,7

-5,7-2,4-2,4

-0,10,30,91,31,41,92,02,53,7

4,2

4,54,75,46,4

8,110,8

12,615,0

19,4

-7,2-2,5-1,9

5,822

2,1

2,0

3,9

-7,5

-15 -10 -5 0 5 10 15 20 25

EU15EELT

LVIT

DEHUCZDKSI

ATFI

PLPTUKBENLFRSKSEGRESLUMTIE

CYEU25

BGROCHNOTR

2010-2020

a

-7,0

-10,3-3,7-2,5

-7,7-9,7

-1,5-5,3

0,1-6,1

-8,2-3,1

0,0

-0,4

-1,1-5,9

-1,6-2,1-0,9

7,50,0

7,16,3

-13,3-7,4-7,7

-0,213,8

-1,6

-2,7

-1,4

-9,9

-15 -10 -5 0 5 10 15 20 25

EU15EELT

LVIT

DEHUCZDKSI

ATFI

PLPTUKBENLFRSKSEGRESLUMTIE

CYEU25

BGROCHNOTR

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Developments in the immigration policy might change this. The above projection assumes animmigration remaining, for the EU-15, at 2.5 per 1,000 population. Doubling the immigrationrate to 5 per 1,000 (to compare with the 4 per 1,000 long term immigration rate of the USA )would add 8 million working age people by 2020, making a 3% increase of the Labour force.But national prospects are here heterogeneous.5

At European level, the 2000-2010 decade shows still a slight positive growth of the workingage population at EU15 and EU25 level. But by 2020, the EU15 figures would be back belowtheir 2004 level and even so by 2015 when considering EU25 as a whole. These figures ofcourse vary from one country to another. The two earlier graphs illustrate those trends for thefirst (2000-2010) and second (2010-2020) decades of this century, showing that in a dozen ofcountries (including all Eastern European countries and also Germany and Italy) the trendaffects negatively the working age population much earlier and/or sharper than in others.

For both decades, the Baltic States display the sharpest decline, with an average loss close to15% of their working age populations. Among the other Eastern European countries, theCzech Republic and Hungary display hardly better figures, with respectively 9.4 and 7.7%decline. Poland would lose 6% of its working age population, and Slovenia only 4% - thanks,in this latter country, to increased immigration. Among candidate countries, prospects appeareven worse for Bulgaria (less 19% over the two decades), and Romania (-10%). In WesternEurope, Switzerland displays a 10% decline, while Italy, Germany and Finland show between4 and 6% decline.

At the upper end, Cyprus, Ireland, Luxembourg and Turkey would all show close to or morethan a one fifth increase during the 2000-2020 period. Malta displays a one eighth increase.All other countries would keep closer to the 2000 index, either slightly below (Slovakia,Portugal and Denmark) or slightly above (Austria and Belgium at +2%, France, theNetherlands, the UK, Sweden and Greece, all with +3 to +4%). Spain, where the working age

population was previously projected to stagnate and to decline sharply after 2020 - is now toshow a fast increase (+7% between 2000 and 2020) which is obviously due to its highimmigration rate since the turn of the century, that led the 2005 figure 10% above thatprojected in 2000.

It must be recalled that stagnating or declining figures represent an extremely far-reachingdisruption in historical trends: it is where the economist expects and where the world ofhuman resource managers and recruiters sees - the shift from a buyers market (or an openlabour market) to a sellers market (or a tight market, with high scarcity), whereby mostbehaviours on the labour market will involve major adjustments and require innovativebehaviours. The comparison of the two charts above clearly indicates that it is in the second

decade (2010-2020) that the strain will spread around.

2.2 Age distr ibution of the working age population

The figures above represent only the first aspect of the demographic changes ahead. A secondaspect is related to the age distribution of the labour force. On one hand, in most of Europe, itis the ageing workers group, i.e. the 55-64 age group, that will increase fastest (plus one thirdin the EU25 in the 2000-2020 period), while the number of those aged 45-54 will onlyincrease by 13%, and that of those aged 15-44 will decline by 12.4%

5 Source: GeoLabour Projection. The present report does not develop this line of research, but immigration andits related policy could be researched thoroughly to further document the same labour supply issues. On thissubject see also our methodological note on page 5

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2. Demographic Trends and Labour Supply


On the younger side

It is on the younger side of the age span that the changes are due to be most impressive. OnEU15 average, decennial declines in the 15-24 age group will amount to 4 and 5.6% in thepresent and the next decade respectively, ending up with a close to 10% decline during the2000-2020 period.

The collapse of the number of young people in most of the Central European economies is ahigh-certainty evolution. In all eastern European New Member States, the number of thoseaged 15-24 is due to decrease by slightly over 40% on average of all 8 countries within thelimits of 34% (in Lithuania) and 53% (in Estonia). A decline of such a magnitude isunprecedented in modern times, and the extent of consequences on the labour market can onlybe surmised. But if ones stresses that young educated people should be introducing updatedqualifications into the Labour Force, such a decline of their global number may involvetremendous consequences on the economic capacity of the country.

Decennial growth of the 15-24 age group2000-2010

Source: Eurostat 2004 Demographic Projections

(Baseline scenario)

For CH, NO, TR: UN World Population Prospects

(Medium Variant - 2002 Revision)

a

-22,7-22,3-20,4-19,9

-17,3-16,4-16,1

-15,4-15,2

-11,4-4,7-3,5-1,7

-0,32,42,94,96,36,98,69,6

18,319,2

-23,4-18,3

0,011,5

6,6

-4,0

-6,3

-1,3

-23,7

-50 -40 -30 -20 -10 0 10 20

EU15ESPTGRCZSI

HUPLIT

IESKEELVLTMTFI

FRDEBEATDKCYNLUKLUSE

EU25BGROCHNOTR

2010-2020

a

-4,1-12,6

-27,8-19,6-20,2

-30,6-2,8

3,6-30,2

-34,4-41,4

-34,5-13,1

0,8-11,9

-4,5-10,2

5,2-18,0

3,8-9,4

8,2-15,2

-33,3-28,7

-17,3-3,4-3,1

-5,6

-10,0

-8,7

-2,5

-50 -40 -30 -20 -10 0 10 20

EU15ESPTGRCZSI

HUPLIT

IESKEELVLTMTFI

FRDEBEATDKCYNLUKLUSE

EU25BGROCHNOTR

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On the older side

Simultaneously, the group of the ageing workers will represent an increasing share of thelabour force. The chart below illustrates the prospects for the EU15 and those for Germany where this ageing is to be most pronounced, due to the past fertility calendars.

For lack of data availability, such projectioncannot be made for the New Member States,but in terms of cohorts, the ageing process isto remain more progressive until the effect ofthe fertility collapse that took place after1990 exerts its full effects on the agedistribution i.e. in the second decade.

The EU-15, on one hand, has clearly passedthe stage where ageing workers paid thehighest price: the employment rate of the 55-

64 age group in the EU15 has regained 5.5points between 1996 and 2003 (from 36% to41.5%), although half of this age group stilldisplayed low educational attainment in2003. Along this progression, the target set atthe Stockholm Summit in 2001, i.e. bringingthe employment rate for this age group to anaverage 50%, is unlikely to be attained, but

much may here depend on the contribution given by the overall employment growth. But inthe New Member States, the ageing workers have paid a high price to the transition - besidesthe other victimised groups, being the women, the youngsters and the low qualified and

their employment rate has not yet recovered from its slightly above 30% level.

To illustrate some of the changes in behaviours that such quantitative evolutions are likely tointroduce on the labour market, it is useful to look at the forerunner in this respect, namely

Japan. Indeed, Japan is undergoing a decline in the number of young people aged 15-24 of25% between the peaking year 1990 and the year 2005. This has begun to produce extremelytypical changes in the youngsters behaviour: the freeter derived fromfreeand the Germanarbeiter is now the current naming for those young (mostly but not exclusively qualified)workers, ready to zap from one to another employer at short notice, for whatever reasons andat first vexation as it may happen. Even in Europe and in the USA, human resource directorsare more and more often explaining that they are confronted with similar behaviours of young

zapping employees even adopting group resignation, all at once or with some delay,6

oradopting behaviours that are hard to integrate into old-shaped organisational frameworks.

6 This kind of behaviour is in fact anything but unprecedented. Before Taylorism managed to sequentialize thework procedures, this behaviour was common among qualified craftsmen, who were in a strong position vis-a-vis their employer. A famous book relates this first published by a French employer in 1870, complainingabout the difficulty to enforce discipline-based work organisations. See: Denis POULOT, Le sublime, ou letravailleur comme il est en 1870, et ce quil peut tre, Ed. F. Maspero, 1980.

Projection of age distributionTotal civilian workforce EU15

Source of data: Eurostat LFS, GeoLabour Projection

0

5

10

15

20

15_

19

20_

24

25_

29

30_

34

35_

39

40_

44

45_

49

50_

54

55_

59

60_

64

1996 20012011 2021

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3. Educational Attainments and Labour Supply


CHAPTER 3: EDUCATIONAL ATTAINMENTS AND LABOUR SUPPLY

We have seen that there are strong links between employment growth, educationalattainments, and demographic trends. The educational level of a given population plays a keyrole7 among those links: a low share of tertiary educated people among a declining cohort ofyoung people appears to be a major threat to both employment rates and economic growth. Inline with such hypothesis, the following three sections integrate the available data related tothe outputs of the educational system across Europe. As said in the introduction of the report,the analysis relies on traditional educational output data given the common assumption thatthe educational attainment remains an efficient predictor of professional and qualificationflexibility were this predictor weakening over time or unevenly questioned acrosscountries.8

3.1 Transitions in education

As shown in the graph below, most of Europe has by now achieved the secondary transition,9partially by means of raising the compulsory schooling age and partially because educationappears both to parents and youngsters as a high-yield investment. Only around one third(33.7%) of the EU25 cohorts aged 25-64 of still remains at low educational level, while46.2% achieve the secondary level.

D is t rib u tio n p e r e d u c a t io n a l a t ta i n m e n tA g e g ro u p 2 5 - 6 4 2 0 0 0

S o u r c e : E u r o s ta t L F S

3 3 , 7

3 6 , 8

4 6 , 2

4 2 , 1

2 0 , 1

2 1 , 1

0 ,0 2 0 , 0 4 0 , 0 6 0 ,0 8 0 ,0 1 0 0 , 0

E U 1 5

F I

E E

U K

S E

B E

D K

C Y

N L

I E

D E

L T

E S

F R

L U

L V

G R

S IA T

H U

P L

C Z

S K

I T

P T

E U 2 5

B G

R O

C H

N O

L o w M e d iu m H ig h

7 By focusing on Education, we simply underline that in such area, policy certainly matters. Still, one couldargue that in demographics (family policies and associated) policy could play a key role also. This should befurther investigated. See Th. Lindh, J . Palme, Report on Study of the implications of demographic trends onthe formations and development of human capital, E.C. DG Empl. Institutet fr Framtistudier, Dec. 2004.

8 On this subject see our methodological note on page 5.9 Transition in the educational attainments by which the young cohorts are brought up to the Upper Secondary

level

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Portugal is clearly lagging behind, and still displays 80% of the 25-64 age group with onlyLow educational attainment (ISCED 0-2, i.e. less than Upper Secondary). The otherMediterranean countries seemingly display also the least favourable distribution, with Spain,as will be discussed below being a special case.

As to the New European Member States, they all show a share of Low educated populationbelow 20%, except Slovenia (25%) and Hungary (29%), Bulgaria (31%) and Romania (33%).

This means that all of themare doing better than the EU15 average (35.2% in 2002, downfrom 44.3% in 1996).

3.2 Generational progressions in education

A dynamic view tells more about the present achievements. The best indicator is based on thecomparison of the shares of each educational level for the older generation (the 55-64 agegroup) and for the younger generation (the 25-34 age group) as shown in the chart below. Thedifference between the two figures tells the generational progression in educationalattainments, and this is where the relative positions undergo far-reaching changes.

The generational progression in educational attainments shows that, on EU15 average, theshare of low-educated has diminished by 26 points: from 52% in the 55-64 age group to 26%in the 25-34 age group. The share of high-educated increased by 10 points: from 15% in the55-64 age group to 25% in the 25-34 age group. The medium education level has alsoincreased by the remaining 16 points (from 33% to 49%). Overall, the chart below, whereEU25 countries are ranked per increasing importance of their tertiary transition, shows that allcountries in EU25 have raised their educational attainment level from one generation to theother during the last 40 years.

C hang e in the ed uca tional distribution between

the 55-64 and the 25-34 age group 2000

S ource: E urostat LF S

-50 -30 -10 10 30 50

EU15

E S

C Y

IE

B E

F R

F I

G RDK

LU

S E

LTU K

N L

P T

P L

S I

IT

A T

S K

H U

E E

C Z

DE

LV

M T

EU25

B G

R OC H

L

M

H

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The chart shows also where the overall progression was highest (right side of the chart):following Romania, Cyprus and Greece, the highest general progression happened in Spain,Ireland, Belgium, Finland, and France, then Hungary, Italy, Poland and Slovakia.

Positive performances in terms of tertiary transition10 (dark blue lines in the chart), are to befound mainly in Spain, but also in Cyprus, Ireland, Belgium, France, Finland and Greece allcases where employment growth was steady in recent years.

The strong case of generational progression in Spain

When concentrating on the increasing share of High attainments (dark blue lines on theright on the chart), Spain clearly stands out, with an increase of 25 points (from below10%, in 2000, for the 55-64 age group to above 34% for the 25-34 age group), andconsidering only women a 32 points increase (from 6 to 38%, and even 41% in 2003) against +18 points for men (from 13% to 31%, and even 34% in 2003).

It clearly tells that Spain engaged in the tertiary transition even before achieving a fullsecondary transition, and now displays a unique x-shaped distribution for the younger

generation, with a 40% (Low) 23% (Medium) 37% (High, all in 2003) distribution. Italso means that more than half of those reaching the Upper Secondary level study furtherto obtain a tertiary degree. In some regions of Spain (Pais Vasco, Navarra or Madrid), itis now close to (for males) or above (for females) half of the 25-34 generation thatdisplay tertiary attainments.

In line with the overall hypothesis of this study, this dramatic generational progressioncan be seen as the crux of the explanation of the Spanish performance in terms ofemployment growth: between 1996 and 2003, the overall employment increased by 3.9%annually, and the employment of tertiary-educated increased by an annual 7.3% -summing up all age groups between 15 and 64. And the unemployment rate, over thesame period, decreased from 22 to 11% (from 42 to 22% for the active youngsters aged

15-24).

On the opposite, Italy for example illustrates how the progression concentrated on attainingthe Upper Secondary level, while the progression to tertiary attainments still remainsmoderate (7% of the age group 55-64 at tertiary level, and still only 13% of those aged 25-34).

The case of Germany is also interesting and resembles that of the USA: they started fromrelatively high levels, with close to a quarter of those aged 45 and over at tertiary level, butthey display hardly any progression in the younger generations: 22% in the 25-34 age group,with a moderate progression for females compensated by a regression for young males. This

is obviously a considerable handicap for the German economy, where overall employmentgrew by an annual 0.1% between 1996 and 2003, to compare with only 1.2 % for those attertiary level.

In the New European Member States, while only Estonia and Cyprus start from a high shareof highly educated people in the 25-64 age group, the chart above suggests hardly any case oftertiary transition. In such case, the issue of a tertiary transition would become the majorchallenge of the Educational system in those countries during this decade.

10 Transition in the educational attainments by which the young cohorts are brought up to the Tertiary level ofthe Educational system

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The case of Poland deserves closer scrutiny. The chart below shows how the share of tertiary-educated in the 25-34 age group has recently begun to climb even if the jump between 2002and 2003 is statistically uncertain.11 Such a progression is of course rather delicate to projectinto the future, as its presents the feature of a starting process that makes it uncomfortable toconsider the recent changes as a basis for future trends. Therefore, all projections build on

such trends must be labelled as high-uncertainty projections.

Share of tertiary attainments in Poland, Age group 25-34, 1998-2003

Source: Eurostat LFS

y =12,734x0,2812

R2

=0,8581

y =8,4089x0,2814

R2

=0,8254

0

5

10

15

20

25

30

35

1998

2000

2002

Males

Females

The statistical disruption is evident when looking at the years 2000-2002. This progression isconfirmed by other available data, like those shown below in the chart on tertiary diplomasdelivered in Poland over the last two decades. A similar chart for other countries also suggeststhat tertiary progressions are under way in Hungary, Latvia or Slovakia. But they do not seemto present the same level of dynamics as in Poland. On the contrary, the figures of the Czech

Republic might be rather worrying.

coo30605trav

Annual number of tertiary diplomas per period of attainment

(Index 100 =annual average 1986-1990)

Source : Eurostat LFS 2002

0

50

100

150

200

250

300

CZ EE HU LV LT PL SK

1991-95

1996-2001

11 The reference years of the corresponding statistical series are too recent - further observation should validatethe sustained existence of this tertiary transition

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3.3 Gender shares in Education

An additional aspect is the role of females in the generational progression of educationalattainments. The following chart illustrates the difference between male and female shares oftertiary attainments in the 25-34 age group, both for 2000 and for 2020 along the loglinearprojection of those shares for each gender. On EU15 average, females now display a highershare of highly educated as compared to males, and this gap is likely to increase.

In the lower area of the chart, the countries where females are still lagging behind males areGermany, the UK, Luxembourg, Malta, Austria and the Czech Republic, and massively inSwitzerland. Noteworthy, the projection suggests that the gap might persist during the nexttwo decades in Germany, Luxembourg and Switzerland.

The reason for this may well appear linked to theparadigm of Kindern, Kirche, Kcheparadigm, where women would be preferably assigned, but other elements are adding up onthe argument such as those of earnings differentials of females and males at tertiary level.

The stake in this might thus be thefollowing: the countries with massiveoverall progressions have indeed givena central role to females in terms oflabour force, whilst those withstagnating educational attainments,like Germany or Switzerland, did not

They are at risk of handicappingthemselves through gender inequality.Reducing this inequality would be afirst rank priority in those countries toimprove the overall progression in theeducational attainments of the Labourforce, and to raise the femalecontribution to economic growth.

D i f fe r e n c e b e t w e e n f e m a l e an d m a l e s h a r e so f t e r t ia r y a t t ai n m e n t s i n t h e 2 5 -3 4 a g e g r o u p

2 0 0 0 * a n d 2 0 2 0

2000*: average 1999-2000-2001, exc. 2003

for LT and MT. S ource: Eurostat S pring LFS

for 1999-2000-2001.

G eoLabour P rojection for 2020

-20 -10 0 10 20

EU15DEUKLUMTATC Z

S KNLC YIT

HUF RIE

DKG RS EE SP TBEP LLVLTS IF I

E EEU25

BGR OC HNO

2020

2000

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4. Demographic and Educational Effects on Labour Supply


CHAPTER 4: DEMOGRAPHIC AND EDUCATIONAL EFFECTS ON THE LABOURSUPPLY

The implication of the different progressions across countries is that it puts the countries indifferent positions to compensate the diverse recessive demographic effect on the Labourforce by the activation effect of the educational progressions.

Indeed, the rate of participation to the Labour force increases together with the educationalattainments, as seen above, and any progression in educational attainments exerts a pull effecton the average participation rate. The charts below illustrate this step by step and per country.

4.1 Strict demographic effects on the labour force

The chart below presents the sheer demographic effect on the labour force.12 This can beconsidered as a constantactivityscenario per gender and age, regardless of any educationaldimension.

For example, the high growth in Cyprus derives from the high demographic growth of the agegroups 25-54, where activity rates are highest, notwithstanding the relative decline of the

younger age group (as seen in 2.1). Reversely, the decline in Estonia corresponds strictly tothe projected decline of its population, employment rates being considered as constant (2000)regardless of educational attainments change.

Hence, if it was only for the demographic changes, the evolution of the labour force in EU25would stay favourable for only some countries during the 2000-2010 period, and wouldbecome frankly negative for about all of EU25 during the next decade.

12 It is calculated by applying constant rates per gender and age (as in 2000) onto the projected demographiccohorts.

Demographic effect on the labour force2000-2010 and 2010-2020E xpressed as % of the labour force in the first year of the decade

Source: GeoLabour, based on Eurostat 2004 Demographic Projection (Baseline scenario)

-30 -20 -10 0 10 20 30

EU15E ELVLTITF I

CZDEHUS I

P LBEDKATFRNLSKP TUKSEGRE SLUIE

C YEU25

BGR OCHNO

2000-2010

2010-2020

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4.2 Strict educational effects on the labour force

The second chart below presents the sheer educational effect.13 It is equivalent to aneutralisation of the demographic changes, isolating what is strictly due to the educationalshift.

Here Cyprus shows an example of how the sheer educational shift, that exerts by itself a pulleffect on the average activity rate, would increase the size of the labour force even if the sizeof the different gender and age groups remained constant. On the opposite side, Romania, theBaltic countries or the Czech Republic show obviously negative trends, as was alreadypredictable from the earlier data about the generational progressions in education (see Chapter3).

Hence, if it was only for the educational progressions, the evolution of the labour force inEU25 would stay favourable for all countries during the 2000-2010 period with the exceptionof Romania, and those favourable effects would continue but decline in proportion during thenext decade, with negative impacts in Estonia and Lithuania.

13 It is obtained by applying the 2000 activity rates per gender, per age and per educational attainments onto thedemographic projections of cohorts per educational attainments, and by deducing what is strictly due to thedemographic shift as it is calculated earlier in section 4.1.

Educational effect on the Labour force2000-2010 and 2010-2020Expressed as % of the Labour force in the first year of the decade


and Labour Force Survey (spring) No data available for UK, IE and MT

-4 -2 0 2 4 6 8

EU15LTLVDE

EESI

CZATGRLUSEDKPLSKFI

PTFRCYNLHUBEITIE

ESEU25

BGROCHNO

2000-2010

2010-2020

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4. Demographic and Educational Effects on Labour Supply


4.3 Total demographic/educational effects on the labour force

Finally the third chart presents the total growth of the labour force, summing up thedemographic effect and the educational effect meaning a scenario of constant behaviour pergender and age group AND per educational level, given the projections that are made for thesize of each gender/age/educational subgroup.

The resulting chart shows how, for the EU15, the total effect amounts to a 4.6% increase ofthe Labour force during the present decade, being the combination of 3.2% due to thedemographic shift and 1.3% due to the educational progression. For the second decade, theeducational effect would increase the Labour force by 1.4%, whilst sheer demography wouldcut it by 3.3%, ending up with a 1.9% decline unless of course activity rates are raised forother reasons.

This chart show for example how Spain would similarly fuel its Labour force growth in thepresent decade, thanks to a 4% educational push adding up above the 10.2% demographiceffect, totalling an increase of the Labour force above 14%. But for the second decade; the

educational push (+3.4%) would not compensate for the negative demographic effect (less4.1%), ending up in a slight decline. But Spain, where the employment rate increased from47.6% in 1996 to 59.6% in 2003 (as compared to 64.5% in the EU15) could also furtherincrease the activity rates to fuel employment growth.

Decennial growth of the Labour force2000-2010 and 2010-2020Expressed as % of the Labour force in the first year of the decade


and Labour Force Survey (spring) No data available for UK, IE and MT

-20 -10 0 10 20 30 40

EU15EELTLVCZFISI

ITPLHU

DEATDKFRBESKNLPTSEGRES

LUCY

EU25BG

ROCHNO

2000-2010

2010-2020

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Amongst eastern European New Member States, the prospects for each of the next twodecades are very different.

For the present decade, in the Baltic States, the impact of demography is clearly negative, andnotwithstanding some educational progressions in Latvia and Estonia, the totaldemographic/educational effect on the Labour force is negative, and continues to be so in thesecond decade.

For Slovakia, Poland and Slovenia, a residual demographic in the present decade is reinforcedby some educational progressions, but the total effect is only significant in Slovakia (+5.3%),while it is moderate in Poland and Slovenia (close to 2.5% in both countries). In the seconddecade, the total effect is clearly negative, and brings the final figure below its 2000 levelboth in Poland and in Slovenia. Poland, which is now displaying the lowest employment rate(51%) in the EU25, as well as Slovakia and Slovenia could certainly find large additionalreserves in the re-activation of inactive people.

Hungary, where the demographic appears close to neutrality in the present decade, finds someexpansion in the generational progression in education, but it must be said that thisprogression entirely derives from the progressive exit of the low-educated generations bornbefore 1945 as the transition to secondary education was achieved in the first post-wardecade, with hardly any further progression for the generations born in the last 40 years.

Therefore, in the second decade, the contribution of the educational progression is extremelylimited, and far from compensating for the steep demographic regression.

Last, the Czech Republic: the educational progression remains much too moderate tocompensate for the demographic decline that becomes steep in the second decade.

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5. Potential Growth of Tertiary-level Employment


CHAPTER 5: THE POTENTIAL GROWTH OF TERTIARY-LEVEL EMPLOYMENT

The previous chapters assumed that employment-related behaviour remain constant acrosstime i.e. that activity rates in each gender, age and educational subgroup would remainconstant reflecting a choice that were to remain stable in each gender and age group duringthe next decades. This of course is a simplification: further activation of inactive people canbe organised to fuel employment growth as it can be seen today by comparing nationalsituations across Europe.14 Also, activity rates change together with the transformation of theeconomy as we have seen earlier.

Hence, any estimation of the potential employment growth that would take in accountchanging employment rates will depart from the constant activityscenario we have used upto now.

Still, we will see that the benchmarking along the best European performers is not addingup a lot above the demographic and educational effects, due to the rather homogeneously highemployment rates for tertiary-educated across the EU, leading to the conclusion that

demographic and educational shifts will act more and more as highly determining factors foreconomic growth.

The charts below display the potential growth in tertiary-level employment, making adistinction between the potential annual employment growth of the 2003-201015 period and ofthe 2010-2020 period. The calculation is based on projections about demography, educationalattainments and employment rates, while activity rates would converge to the values of thebest performers.

5.1 A view on both periods: 2000-2010 and 2010-2020

In the EU15, the least demographically recessive countries and those that performed

simultaneously a high generational progression in educational attainment - i.e. Ireland,France, Spain and Luxembourg - are those that have at their disposal the highest growthmargins for the tertiary-educated, and henceforth also for the rest of the Labour force.

Greece presents similarities with Spain in all main aspects, although in a somewhat attenuatedform: both countries had preserved high fertility rates into the 1980s, i.e. one decade later thanfor most other European countries, and this is still fuelling the growth of the working agepopulation in the present decade; high immigration in recent years still compensates for theeffect of the fertility collapse starting in the mid-1980s; and educational progression wassteady. In both countries the second decade of this century will involve a high price paid todemographics, due to the record collapse in fertility between the early 1980s and the early

1990s (from approx 2.2 in 1980 down to below 1.4 in 1990).Belgium combines a high yield on past educational investments and a moderate pressure atthis stage from demographic recession. The UK, Sweden and Portugal are in anintermediate position, with all a potential slightly close to or slightly above 3% annual growthfor the employment of tertiary-educated.

Still in the present decade, Finland, Italy and Germany, Austria and the Netherlands alldisplay a residual potential lying between 1.9 and 2.6% - which may reveal rather short to fuelvigorous employment growth, and certainly so, for the latter four countries, if they do notmanage to reduce the gender gap. Last, in Denmark, where the educational attainments

14 For some further details, see Annex 315 Except 2002-2010 for the Netherlands and Luxembourg.

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already are high, the stability of demographic figures combined with the high employmentrate at the starting point leave no margin for further growth in the present decade.

P otential annual employment growthTertiary-educated, 15-64 age group2003-2010

Source: GeoLabour, based on Eurostat 2004 Demographic

Projection (Baseline scenario) and LFS (spring)

For non EU25 countries: population based on UN World

Population Prospects (Medium Variant - 2002 Revision)

a

1,92, 02, 12,42,62, 9

3, 33,5

3, 84,9

5,55,5

6, 0

1,51,51,61, 61,7

2, 23,1

4, 05,1

2,82,6

-0,44, 0

4,1

3,7

6,3

-0,4

-2 0 2 4 6

EU15DKATDENLF IIT

P TSEUKBELUFRIE

ESGR

S IHUEESKCZLVLTP LCY

EU25BGROCHNO

2010-2020

a

1, 7-0,5

0, 60,20,4

0,90,5

1,10,9

1, 41, 7

2, 6

1,4

0,7-0,3

-0,60, 6

-0,2-0,4

0,31, 4

3,3

0,20,1

-0,21,3

0, 8

0, 7

0,7

0, 3

-2 0 2 4 6

EU15DKATDENLF IIT

P TSEUKBELUFRIE

ESGR

S IHUEESKCZLVLTP LCY

EU25BGR OCHNO

In the New Member States, besides Malta and Cyprus that display large reserves, only Polandcould draw a significant advantage from its recent rush to tertiary attainment, with a 4%annual potential growth of tertiary-level employment but this holds as long as the fertilitycollapse of the 1990s does not affect the working age population as it will be the case in thesecond decade..

Lithuania, insofar definitional problems are not distorting the prospects, appears in an

intermediate position, with an annual 3% growth potential.

All other countries (Estonia and Latvia, Czech and Slovak Republic, Hungary and Slovenia)display much lower margins, whose limited magnitude cast a doubt as to their capacity tokeep pace with the requirement of the KBS not to mention the question of leapfrogging.

For the second decade, the narrowing of growth margins is general across all of EU25. Onlythree countries, where demographic figures are not stagnating, show margins above 2%:Malta, Ireland and Cyprus. The two latter combine the advantages of past educationalinvestment and of demographic dynamism.

Two countries display 1.7% potential annual growth of tertiary-level jobs, namely France and

Austria the latter owing more too immigration, the former to less deteriorated fertility in the

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5. Potential Growth of Tertiary-level Employment


P otential annu al em ployme nt growthT ertia ry-educated, 15-64 age gro up2003-2020



For non EU25 countries: population based on UN W orld


a

0 ,51 ,1

1 ,21 ,3

1 ,61 ,71 ,8

2 ,02 ,1

2 ,83 ,0

3 ,33 ,3

0 ,30 ,50 ,60 ,61 ,0

1 ,11 ,4

2 ,54 ,1

1 ,31 ,1

-0 ,32 ,4

2 ,2

2 ,0

3 ,8

0 ,0

-1 0 1 2 3 4 5

E U 1 5D KD EF I

N LIT

S EP TA TU KB EL UG RE SF RIE

E EH UC ZL VS K

S IL TP LC Y

E U 2 5B GR OC HN O

1990s. Luxembourg displays 1.4% and the UK 1.1% - and both countries are handicapped bythe somewhat lagging female catching up in higher education..

Eleven countries display a potential somewhere between 0.2 and 0.9%.

Five countries display negative figures, meaning that along the recent trends, no educational

progression could compensate for the demographic declines. Four of them are New MemberStates: Estonia and Latvia, Hungary and the Czech Republic. The fifth is Germany, whichpays a high price to its educational stagnation like Switzerland and also the USA.16

5.2 An in tegrated view of the period 2000-2020

When making no distinction of period up to 2020, the rankings remain expectedly alike. Ittends to confirm that the effective employment growth might concentrate along the Atlanticshoreline of Europe, with Ireland, France, Spain, Luxembourg, Belgium and the UKdisplaying more than an annual 2% growth of the tertiary-level jobs over the two decades.Greece and certainly Cyprus besides Malta for which indications are more partial, wouldbelong to the same high-growth group.

16 See G. Coomans, Atlas, op. cit.

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P otential annual em ployme nt growthT ertia ry-educated, 15-44 age gro up2003-2020



For non EU25 countries: population based on UN W orld


a

-1 ,2-0 ,3

0 ,00 ,20 ,30 ,30 ,50 ,60 ,60 ,6

1 ,01 ,31 ,4

1 ,51 ,6

1 ,81 ,92 ,0

2 ,53 ,9

4 ,35 ,2

1 ,40 ,7

- 1 , 61 ,2

0 ,9

1 ,0

1 ,5

-3 ,1

-2 0 2 4 6

E U 1 5L TD EE EL VN LD K

F IC ZP TB EIT

H UL UG RS KS I

U KS EA TE SF RP LIE

C Y

E U 2 5B GR O

C HN O

Among central and eastern European countries, the picture appears clearly patchier. Polandprospectively seems to have at least part of the available reserves to keep pace with therequirements of the KBS. Indeed with less than 2% growth per year for tertiary-level jobs, itis to be feared that productivity growth might not be diffused throughout the economicsystem. Wherever the best part of the labour force could not be attracted, harsh competition

will force into defensive strategies.5.3 The fate of the younger cohorts in the period 2000-2020

It is useful to make a distinction between age groups, by isolating the younger cohorts attertiary level to the rest. The younger cohorts are indeed reputed to bring better updatedqualifications and to be more flexible. The prospects are then put under heavy strain.Considering the 2003-2020 period, only Cyprus, Poland and Ireland display close to or above4% of potential annual growth in the numbers of tertiary-educated people aged 15-44.

France and Spain display above 2%. Five countries (Austria, Sweden, the UK, Slovenia andSlovakia rank from 1.9 down to 1.4%, followed by Greece, Luxembourg and Hungary, allthree between 1.4 and 1%. Seven countries (Italy, Belgium, Portugal, the Czech Republic,Finland, Denmark and the Netherlands) display a potential below 1%, but still positive.

Four countries, of which the three Baltic States, display a negative figure, with Germanydisplaying a negative 1.2% annually i.e. an overall decline of more than 20% between 2003and 2020. This is where Germany pays a high price both to its demographic recession and itseducational stagnation like Switzerland.

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6. Policy Implications - Speeding up the Tertiary Transition


CHAPTER 6: POLICY IMPLICATIONS - SPEEDING UP THE TERTIARYTRANSITION

First, what is at stake is the tertiary transition in education. Today, the educational system iscommonly supposed to provide a young labour force with updated school qualifications in

line with basic computer literacy. These are acquired at the end of secondary education through a mix of school learning and intra-generational mimetism. However, the productiveuse of ICTs requires more than basic computer literacy, and an educational shift that involvesyoung people in ICT education up to tertiary level is needed.

Second, considering the speed of technological change in both production and consumption,permanent up-skilling is required to take advantage of all opportunities. This is, of course,related to lifelong learning or lifelong development of competencies along the lines of theLisbon strategy. Depending on a countrys training systems and cultural attitudes, this can bemore or less formalised. It can be tracked statistically by recording the numbers thatparticipate in formal training, but more research is needed to scrutinise the links between theknowledge-based society on the one hand, and the new rationale of competence building onthe other.

Third, the conditions of collective productivity are changing due to the need fororganisational innovation embedded in ICTs. In the former Taylorist/Fordist technologicalparadigm, organisational forms reflected the existing technology by combining relativelyclosed professional stratifications and discipline-based monitoring of individual performancethrough formalised and prescriptive tasks. The efficient use of ICTs, however, needsteamwork and responsible autonomy, i.e. flexibility, learning capacity, and tacit and socialskills. In these circumstances, formal educational attainments have become, de facto, lessimportant in hiring practises.17 Therefore, what becomes a central issue is the capacity topromote organisational innovation, creating learning organisations that depend less on formal

qualifications and are able to achieve effective lifelong development of competencies for bothproductivity growth and personal fulfilment.

Fourth, the importance of widening the tertiary-educated labour supply to promote theknowledge-based economy as the matrix of future productivity growth has been demonstratedby the recent trends in differentials in employment growth according to educational level.Promoting the mobilisation of existing reserves and the extension of the supply shouldtherefore be a first priority in labour market policies.

As regards the available reserves, anything that prevents the attainment of gender parity mustbe seen as more and more counterproductive. Whether tertiary-educated women are beingunder-utilized or whether limited rewards discourage them from making the continuous

educational investment necessary, women nevertheless constitute the main reserve that couldimprove the productive capacity of the labour force. In this respect, family-friendly policies both at government and enterprise level - are a pre-condition of better mobilisation.

Age-friendly policies will improve the participation of ageing workers. There is no future forour ageing societies unless active ageing becomes a priority. Given the handicap that closedprofessional paths represented for the industrial age, and given the existing unfavourableskills distribution, things can only improve over time. It can also be assumed that difficulties,

17 See Laurie J. BASSI, Are employers recruitment strategies changing?: Competence over credentials? inCompetence without credentials, March 1999, US Department of Education, available underwww.ed.gov/pubs/Competence/section3.html . This shift is by the way becoming more and more a concern inthe hiring business, where a lot of efforts are devoted to develop both job assessment and skill assessmenttechniques.

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due to shortages, in replacing outgoing workers with young people will encourage ageingworkers to participate more in training and re-skilling in the future.

The present low level of immigrant integration allows for wide improvements. In Spain,Ireland and Finland, immigrants already make up a significant share of additionalemployment. Immigration will be more viable if immigrants are invited to fully participate inthe educational progression that is becoming the norm for nationals. Their educationalascension would also give room for continuing immigration coming in at the lower end.

Fifth, there can be no doubt that education policy should become a priority for all countries.By 2020, it is expected that the share of tertiary-educated people in the 25-34 age group willrange from over 50% in Norway and Cyprus, to below 15% in Italy, the Czech Republic,Slovakia and Romania (with a European average of 30%). Margins for further growth aretherefore considerable.

Reforming educational systems to adapt to the knowledge-based society is as important asincreasing educational output. Qualification systems are often inherited from the past, whenthey were assigned to closed professional and social paths. Improving the modularisation ofeducation as the Bologna reform has begun to do is one of the most important means toimprove the fit with the knowledge-based society. Giving up the selection through failureand the locked positions provided by the hierarchy of school certificates will open up thegame, and allow the mobilization of all talents, essential in times of shrinking labour supply.

Too many diploma-based entitlements to work have simply been inherited from the highlystratified industrial age. The knowledge-based society principle requires that acquiringknowledge and know-how, experience and tacit skills, and learning and social skills, is notconstrained by credentials-based entitlement to work. It also requires that a new approach istaken even with jobs requiring low qualifications, to allow better recognition of the effectivecompetencies involved so they can better be mobilised for productivity growth.

After two centuries of abundant labour supply that made the open market labour marketspossible, the emerging demographic change will give rise to a structural shortage of the talentneeded to fuel a healthy economy in our ageing society. Only the principle of the learningorganisation can provide the basis for active ageing and for sustained growth. There can be nodoubt that the capacity to promote the learning organisation principle will determine and isalready determining both collective and private competitiveness. Promoting education,training and lifelong development of competencies is both the target and the means.

Anything that prevents equal access, whatever your gender or age, to learning facilities at anylevel in the educational or training system and work organisation will incur increasing costs interms of growth potential. The importance of this issue requires that more research and closer

scrutiny be devoted to identifying the bottlenecks to equal access, and setting up not onlyactive ageing, but also learning ageing.

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Annex 1: Sources


ANNEX 1: SOURCES

The database that was used is a collection from:

Eurostats Labour Force Survey (LFS, Spring), including data on employment,unemployment and education.

Eurostats New Cronos data for past population figures

Eurostats Demographic Projections (2004 revision, baseline scenario) for all EU25Member States +Bulgaria and Romania.

UN World Population Prospects (2002 Revision, Medium Variant) for all other Europeancountries.

OECD for additional educational data (Education at a Glance, 2003 and 2004)

US Bureau of Labour Statistics, for US-related employment figures.

GeoLabour Projection (Dublin) for all regional projections (G. Coomans, Atlas of

Prospective Labour Supply, 2004)

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Annex 2: Methodological Restrictions on Demographic Projections and Education Statistics


ANNEX 2: SOME METHODOLOGICAL RESTRICTIONS ON DEMOGRAPHICPROJECTIONS AND EDUCATIONAL STATISTICS

Demographic projections, as well as a statistical approach to qualificational and educationalrequirements related to the emerging KBS generate numerous methodological issues. Twomajors ones that the reader should have on mind are detailed here.

A first issue is the uncertainty that entails the projections for demographic and educationalfigures. Demographics, on one side, are known to display a supposedly higher level ofpredictability compared to other fields in social sciences. For example, it could be stated thatall who will be in the working age population (15-64) in 2020 were born latest in 2005.Nevertheless, in times of fast changing demographics due to irregular past fertility calendars,adjustment policies and behaviours can change the deal at relatively short notice: the bestexample is the high increase of immigration rates in the recent past in Mediterraneancountries where the catastrophic projections that were made until the late 1990s are nowrevised.

On the other side, the projections of numbers per educational attainment cannot be built butunder the assumption that past trend can be extrapolated in some way preferably withloglinear functions instead of linear ones. When the past trends are regular and display nosigns of being polluted by statistical noise, the projectionist feels comfortable. When recenttrends are disrupting medium term trends, then the projection must be labelled as highlyuncertain and this is precisely the case in some transition countries such as Poland. But inall cases, educational attainment projections are policy-relevant in the medium term, andtherefore any past trend-based projection must here be considered as no more than a constantbehaviour projection or as a constant progression projection were it softened by aloglinear future trend. Its usefulness totally lies in one question: what happens if no policy orbehaviour change affects the present trend? Contributing to giving answers to this question is

a main ambition of this report.Second, it is in many cases by reference to old schemes that the real qualifications areconsidered, both as to their substantial nature and as to the extent to which experienceaccumulated over years is enriching them.

As to their substantial nature, no theoretical model has ever been produced that allows toobjectivize the notion of qualification, although many elements indeed were separately. It istherefore important to go beyond the argument that ideological biases or some accepted socialrecognition would pollute the in se content of a given qualification. Indeed the qualificationand its contents should now be referred also to the changing organisation of work and to thechanging organisational requirements that are embedded in the new technological paradigm

and in globalisation. For example, does the naming low qualification allow taking fullaccount of the flexibility that is more and more required to have some job done, and does itallow to recognize the extent of competences that are mobilised and developed while doing it?Similarly, to what extent must the experience accumulated over years be made equivalent tosome sort of qualification and know-how building while the previous Taylorist/Fordistparadigm was mostly assigning the skill-building within closed professional paths?

The issue in these questions is not speculative nor simply definitional, but it has much to do and no less when it is about so-called low qualified jobs- with the tuning of thecombinations of factors of production that end up in higher productivity in the frame of fastchanging technology, and even more so when declining demographic numbers force to renew

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both the work organisation and, first of all, its analytical categories.18 In times of fast changesin the sector allocation of production factors, whether in transition economies or in matureeconomies, these aspects can reveal to have a central importance. Where the pressure willarise from local bottlenecks in the labour supply, then there will be no other solution, if any,than giving up the adequationist approach by which some given qualified worker is

supposed to just fit for a given job, and shifting to more constructivist approaches that allowto build higher-level fits, through multi-skilling and cross-training.

The problem here lies as much in the real changes as in the social recognition of what thepositive content of flexibility involves. For all those reasons, the attention paid to educationalattainments must be considered as typical of statistics-dependent analysis. It simply relies onthe common assumption that the educational attainment remains an efficient predictor ofprofessional and qualification flexibility were this predictor weakening over time orunevenly questioned across countries. Nevertheless, mentioning the limitations of thispredictor still has to bow in front of resisting indications that the educational attainmentsremain, at a macro level, the most significant determinants of employability, as is illustrated

below by employment and unemployment rates distributions.

18 See Paul Santelmann, Qualification ou comptences, En finir avec la notion demplois non qualifis ,Editions Liaisons, 2002

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Annex 3: Methodological Restrictions on Calculating Maximum Employment Rates


ANNEX 3: METHODOLOGICAL RESTRICTIONS ON CALCULATING MAXIMUMEMPLOYMENT RATES

Potential employment growth can be calculated alongdifferent methodologies. It can be benchmarked, forexample, against any level of overall employment rate. Itcan, alternatively, be benchmarked against the employ

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