Aging Populations and Labor Shortages

How falling birth rates and longer lives are shrinking workforces in many countries, and what role migration can and cannot play.

Population aging happens when the average age of a population rises, usually because people are living longer and having fewer children. It is one of the biggest economic shifts of this century. In countries such as Japan, South Korea, Italy, and Germany, the number of working-age people is shrinking while the number of retirees grows, and many other countries, including China, are heading in the same direction.

Why populations age

Two forces drive aging. First, life expectancy has risen dramatically thanks to better health care, nutrition, and sanitation. Second, the fertility rate, the average number of children born per woman, has fallen. A rate of about 2.1 is roughly what is needed to keep a population stable over time without migration. Many rich countries now have fertility rates well below that; South Korea’s has fallen below 1, among the lowest ever recorded anywhere.

The economic pressure

Economists often track the old-age dependency ratio, which compares the number of people above working age to the number of working-age people. As this ratio rises, fewer workers support each retiree through taxes that fund pensions and health care. At the same time, demand for care workers grows. The result can be a labor shortage, a situation where employers struggle to find enough workers, especially in health care, elder care, construction, and agriculture.

Fewer workers per retiree

Imagine a country where there are four working-age people for every person aged 65 or over. If each retiree's pension and health care cost 20,000 dollars a year, each worker contributes about 5,000 dollars a year toward it through taxes. Now suppose, a few decades later, there are only two workers per retiree. To pay the same support, each worker must contribute about 10,000 dollars - twice as much. That is the kind of squeeze aging countries are trying to manage.

What migration can do

Immigration can help. Migrants tend to arrive during their working years, so they immediately add to the workforce and to tax revenue. Several aging countries have opened new routes for foreign workers. Japan, long known for low immigration, created a new visa category in 2019 aimed at sectors with shortages, such as nursing care and construction. Germany has also expanded routes for skilled workers from outside Europe. Many care homes and hospitals in aging countries already rely heavily on migrant workers.

What migration cannot do alone

A well-known United Nations study around the year 2000 explored replacement migration: how much immigration would be needed to offset aging. It found that keeping the ratio of workers to retirees constant would require immigration on a scale far beyond anything historically seen. One reason is simple: migrants grow old too, so they delay aging rather than stopping it. For this reason, most economists see migration as one tool among several. Others include raising retirement ages, encouraging more people, especially women and older adults, to work, investing in automation and productivity, and supporting families who want children.

Balancing goals

Countries weigh these tools differently depending on their values and politics. Some prefer to rely more on automation and higher labor participation; others see immigration as an essential part of the answer. Each choice involves trade-offs in cost, social change, and public support.

Treating migration as a complete fix for aging

It is tempting to think that bringing in more young workers will solve aging entirely. But migrants age as well, and the numbers required to fully offset aging are extremely large. Migration can ease the pressure, but lasting solutions usually combine it with productivity gains, longer working lives, and higher workforce participation.

Key takeaways

Populations age because people live longer and fertility rates fall.
A rising old-age dependency ratio means fewer workers supporting each retiree.
Aging creates labor shortages, especially in care, construction, and agriculture.
Migration adds working-age people, and countries like Japan and Germany have expanded routes.
Migration alone cannot fully offset aging; it works best alongside other policies.