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Falling birth-rate can bring prosperity
03 November 2010
Vienna University of Technology, TU Vienna
The population is ageing – and demographic change is also altering working life. However, according to studies by Vienna University of Technology, the effects could well be positive.
Birth figures are falling and the proportion of elderly people in the population is rising. This development is often associated with negative consequences for economic growth, but there are no reliable empirical values to back this up, nor can economic models provide clear statements to this effect. Business mathematics analyses at Vienna University of Technology have now shown that a drop in population could actually have a positive effect on prosperity. However, this would require an increase in the level of education of the workforce – at every age.
Calculations, not guesswork
There has never been a population development like this before, with a decline in the birth rate and rising life expectancy. This means we cannot rely on historical examples in our forecasts. It is vital to come up with alternative model approaches that look not just at economic framework conditions, but also the changing age structure of the population. "We have expanded the neo-classical model of demand for labour to include the age structure of employees," explains Prof Alexia Fürnkranz-Prskawetz from the Institute of Mathematical Methods in Economics at TU Vienna. She was supported in this project by her colleagues Prof Vladimir Veliov ("Operations Research and Control Systems" group at the Institute of Mathematical Methods in Economics at TU Vienna).
Fewer people, greater investment in education
The declining birth-rate releases resources that parents could ideally invest in improved education for their children - and more education would help the economy. If the production resources that this releases were to be distributed amongst ever-fewer people in a shrinking population, the population reduction would lead to a rise in prosperity. If better machines or education opportunities are available to the individual members of the workforce, this increases productivity. "However, this only works if these released resources are actually invested in productive economic areas and not mostly in growing social and pension services," says Prof Alexia Fürnkranz-Prskawetz.
The models developed at TU Vienna can help people make the right choice in major decisions: Should preference be given to employing young people instead of older people? Should the budget available for further education be invested more in young people or older people? "Our model shows that the best approach is also to invest in the further education of older members of the workforce," explains Prof Fürnkranz-Prskawetz. More education for older people results in significant advantages for a company, particularly as there are fewer young people.
Statistical studies look at Austrian companies
Empirical studies are also useful when considering the significance of older employees within a commercial enterprise. Inga Freund, an assistant at Prof Fürnkranz-Prskawetz’s insitute, has taken a systematic look at the age structure in Austrian companies and compared it to the companies' productivity (together with Bernhard Mahlberg, also TU Vienna). "Older and younger people are simply not interchangeable," says Inga Freund. While younger employees work faster on average and are able to grasp things more quickly, older people have more experience. And the results of the study show that even if the productivity of older employees does not match up to that of the younger generation when viewed in each individual case, a company should not just rely on its younger employees. "The productivity of a company is not just the sum of the productivity of each individual employee," explains Inga Freund. "Our results indicate that a higher proportion of older employees is not connected to low company productivity."
Jobs for older people
Prof Alexia Fürnkranz-Prskawetz recommends that companies should recognise the strengths of older employees and not just look at personal work output: "The collective know-how within the company and the organisation structure are often more important than individual productivity." The mathematical models also show that it is worth it for companies to prepare in good time for future demographic developments. "Companies will start including the demographic change process early on in their personnel development plans and ensure they have the right mix of old and young," predicts Prof Fürnkranz-Prskawetz.