ESRI and Department of Finance publish research on the impact of ageing on productivity growth in Europe
- Ireland’s ageing population is expected to increase demand for comparatively lower-productivity services such as health and social care.
- In theory, an increasing share of lower productivity sectors would put downward pressure on overall productivity and, therefore, economic growth.
- This research finds that, so far, the productivity gains achieved in other sectors have compensated for this effect, meaning aggregate productivity has only been marginally impacted.
- A continued focus on productivity-enhancing investments in human and physical capital is needed to offset the impacts of ageing.
Europe’s population is ageing. As a result, there is likely to be increasing demand for health and care services across Europe. These sectors are typically more labour-intensive with lower productivity growth.
Previous research showed that as lower productivity sectors account for an increasing share of output, aggregate productivity falls. This phenomenon is often referred to as “Baumol’s disease”.
To better understand this dynamic, the Department of Finance and the Economic and Social Research Institute (ESRI) undertook analysis using European data.
The results show that although there is some evidence of the patterns suggested by Baumol, these have not (to date) been substantial enough to generate a drag on overall productivity growth across Europe. Instead, the continued growth of more productive sectors has offset the potential adverse implications of Baumol’s cost disease.
This emphasises the importance of taking continued action to promote business growth, competitiveness and productivity improvements in the economy.