The flourishing state of IW faces potential challenges due to the increasing number of baby boomers retiring.
The German workforce is confronting a substantial predicament: By 2036, roughly 19.5 million individuals from the baby boomer generations will retire. On the other hand, only 12.5 million young workers are anticipated to join the job market. Experts express fears of capital depletion and conflicts regarding wealth distribution.
The aforementioned data emerged from a study conducted by the Institute of the German Economy (IW) in Cologne. The IW analyzed birth cohorts starting from 1954 to 1969 using information from the 2022 population census, data from the Federal Statistical Office, and its computational methodology. As of the end of 2022, around three million baby boomers had reached retirement age. By 2036, an additional 16.5 million are predicted to do so, as per IW's calculations.
However, the IW forecasts that only 12.5 million working-age individuals will enter the labor market by 2036. This will result in significant consequences: The ratio of people over 67 for every 100 people of working age was about 30 in 2022. The IW estimates this ratio to increase to approximately 41 by 2040. Despite a projected population growth of roughly 2.3% to 85 million people by 2040, the aging population in Germany will continue to be the primary social and political challenge, according to the IW.
"The impending wave of baby boomers retiring will bring disruptions in the labor market," stated IW researcher Holger Schäfer. Managing these consequences will be challenging if the workforce potential is not augmented by increased immigration and more working hours from locals. In such a scenario, there will be wealth losses that will exacerbate distribution conflicts, especially since the proportion of non-working population will increase substantially, as explained by the economists.
To tackle this issue, the government should boost immigration from foreign countries by expediting visa issuance and simplifying the recognition of foreign professional qualifications. Furthermore, the federal government should provide incentives for working-age individuals to continue their employment beyond retirement age and increase the working hours of current workers, according to the institute.
Despite the significant rise in social costs due to demographic factors, the SPD and Greens intend to implement the Rentenpaket II without modification. Critics, including economists, employers, and the Federal Court of Auditors, have criticized Rentenpaket, particularly due to its burden on younger generations during a parliamentary hearing.
The impending retirement of baby boomers could lead to economic challenges, such as capital depletion and wealth distribution conflicts, as mentioned by IW researcher Holger Schäfer. To mitigate these issues, the government should consider boosting immigration and encouraging locals to work beyond retirement age.
The economy, particularly the labor market, may face significant disruptions due to the large number of baby boomers retiring by 2036, resulting in a mismatch between the number of retirees and the new workforce entrants.
