European populations are getting older due to continuous improvements in longevity and progressively better health. In the project FutuRes: Towards a Resilient Future of Europe, funded by the European Union’s Horizon Europe programme, the researchers have developed economic models that evaluate diverse policy pathways.
Challenges of an ageing population
Europe’s ageing population means European labour markets face labour and skills shortages. To address this, it is vital to develop policies that fund future pensions, healthcare and education to ensure the wellbeing of future generations.
Robotics, artificial intelligence (AI) and migration are policy strategies that are often suggested as possible ways to mitigate these and help to create a true longevity society.
Research shows that delegating tasks to automated robots and expanding the labour pool by recruiting workers from abroad can alleviate skills shortages to some degree, however, their effects are limited and can be short-lived.
Exploring the best policy strategies
The Southampton research team, involving Dr Emily Barker and Professor Jakub Bijak, has developed an economic model that analyses the impact of trends in migration and automation on future labour markets, employment conditions, pay and pensions.
It simulates national economies that have been populated with households, competitive firms and a fiscal authority. These deliver useful foresight into the effects and trade-offs of different policies and interventions over five to 10 years.
The model shows that high levels of automation can advance an economy but for European countries with relatively low levels of job automation, investment in these technologies can be expensive and risks leaving some people behind.
We were trying to represent how the economy works through many mathematical relationships describing households, firms and the government, as well as the way in which they make decisions and interact.
The team used a computer programme calibrated to actual data to make the models look like a real economy. They were then used to create different policy scenarios and were tested on different countries from all corners of Europe.
The models illuminated the trade-offs between the impacts of various policy solutions on different areas of the economy and society. Economies are very complex systems so changes in one area can bring about costs and consequences elsewhere.
Recommendations for future policy
The research findings revealed important considerations for social and economic policy. The recommendations include:
- creating a multidimensional policy strategy that focuses on attracting workers to the labour market sectors that are experiencing the most acute shortages
- focusing on increasing the labour market participation rate, especially for working-age people. One option is to increase the minimum wage that would raise the employment of the lowest skilled workers who currently have the highest non-participation rate
- making labour markets more attractive by offering flexible or decreased hours
- addressing the still-prevalent gender gaps in the labour force by allowing greater flexibility across different stages of the life course
Jakub added: “Of course, the fundamental challenge of modelling any social systems, and especially such complex ones as we look at, is their uncertainty. We do not exactly know how things work and how different parts of the system may react to any changes. Uncertainty cannot be wished away nor ignored, but it can be acknowledged and described: its description is a fundamental part of our work.”
Neither migration nor job automation can be seen as ‘magic bullets’: both are important, but resilient policies will require using many different tools together than relying on either migration or robots. Policy choices are all about trade-offs, and models help us understand them.
Professor Jakub Bijak
