Demographic Pressure in the European Union Increasing Labor Market Participation, Migration or Old Age Participation to Maintain Fiscal Sustainability

On top of the sovereign debt crisis in the European Union, demographic change is exerting enormous pressure on public finances. We analyze four policy options: lowering pension benefits, increasing labor market participation of the native population, immigration and participation of older people. Our results show that the most publically indebted EU economies face the highest increases in public spending on the retiring baby boom generations over the coming decades. Fortunately for these economies, it turns out that adjusting their labor market participation is easier than for their neighboring economies within the EU. Increasing labor market participation to 60% keeps several countries largely out of the woods