Demographic change in Europe: the labor market and fiscal effects in 2030

Publication type

Research Paper

Series Number



NEUJOBS Working Papers


Publication date

January 15, 2014


The effect of demographic change on the labor force and on fiscal
revenues is topical in light of population aging and potential pension
shortfalls. This paper evaluates the effect of demographic changes between 2010 and 2030 on labor force participation
and tax revenue. When assessing the effects of policy reforms on the labor
market, most studies still only focus on labor supply. The interaction of
supply and demand is not explicitly modeled, which can lead to biased estimates
of potential labor market outcomes. This paper overcomes this shortcoming by
feeding labor supply and labor demand elasticities into a setting where the
population changes to reflect 2030 projections. We show how the interaction of
labor supply and labor demand changes the projected labor force in 2030 and
impacts on tax revenues. We find that disregarding the demand side reaction to
demographic change leads to an underestimation of employment rates and tax
revenue in the EU-27.





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