Decomposing the Effect of Population Ageing on Labour Supply

Current demographic analyses suggest that Germany’s workforce will both age and shrink in the coming decades. This paper provides a decomposition of the projected change in the overall labour force into a population and a participation component. Using a scenariobased approach, the analysis was enlarged by deriving a migration effect and a pure ageing effect from the population component. Furthermore, the interaction between population structure and labour participation was evaluated in more detail. An important result is that the most reliable factor of any labour force forecast, the current age structure of the population, will have a strong effect on the size of the future labour force. Furthermore, the effect of increasing labour participation rates will be significantly offset by the negative population trend. In Germany, domestic labour reserves will not be able to compensate the demographically related loss of workers