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Demographic decline does not necessarily condemn CESEE EU countries to a low growth future

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  • Richard Grieveson

Abstract

Labor markets in many EU countries in Central, Eastern and Southeastern Europe (CESEE EU) are increasingly tight, reflecting strong growth, emigration and demographic decline. This Situation will only get worse in the coming years, and represents an increasingly significant challenge to economic growth. Immigration from Ukraine is a partial short-term fix, but not a long-term solution. Significant returns of workers to the region after Brexit seem to be unlikely. For political reasons, large-scale immigration from outside Europe is impossible to imagine. As a result, there is a risk that – faced by persistent labor shortages and higher wage demands – firms will move production away from the region, and that the CESEE EU countries will be condemned to a low growth future. However, this is not inevitable. First, there are big incentives for capital owners to Keep production in CESEE EU countries despite strong wage increases, including proximity to Western markets and the quality of governance, institutions and infrastructure relative to other European or nearby emerging economies. Second, recent rises in productivity, and moves toward automation, indicate a possible long-term solution to demographic challenges.

Suggested Citation

  • Richard Grieveson, 2018. "Demographic decline does not necessarily condemn CESEE EU countries to a low growth future," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue Q3-18, pages 122-130.
  • Handle: RePEc:onb:oenbfi:y:2018:i:q3-18:b:11
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    File URL: https://www.oenb.at/dam/jcr:02851c10-fcbb-4d1f-b056-5095d246e2dc/11_Demographic_decline_feei_2018_q3.pdf
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    References listed on IDEAS

    as
    1. Vasily Astrov & Mario Holzner & Sebastian Leitner & Isilda Mara & Leon Podkaminer & Armon Rezai, 2018. "Die Lohnentwicklung in den mittel- und osteuropäischen Mitgliedsländern der EU," wiiw Research Reports in German language 12, The Vienna Institute for International Economic Studies, wiiw.
    2. Vasily Astrov & Serkan Çiçek & Rumen Dobrinsky & Vladimir Gligorov & Doris Hanzl-Weiss & Peter Havlik & Mario Holzner & Gabor Hunya & Michael Landesmann & Sebastian Leitner & Isilda Mara & Olga Pindyu, 2016. "Labour Shortages Driving Economic Growth?," wiiw Forecast Reports Autumn2016, The Vienna Institute for International Economic Studies, wiiw.
    3. Amat Adarov & Vasily Astrov & Rumen Dobrinsky & Vladimir Gligorov & Richard Grieveson & Doris Hanzl-Weiss & Peter Havlik & Mario Holzner & Gabor Hunya & Sebastian Leitner & Isilda Mara & Olga Pindyuk , 2017. "Cautious Upturn in CESEE: Haunted by the Spectre of Uncertainty," wiiw Forecast Reports Spring2017, The Vienna Institute for International Economic Studies, wiiw.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    demographics; productivity; automation; labor markets; migration;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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