The impact of population ageing on innovation and productivity growth in Europe

When we try to answer the question what an ageing workforce will mean for the future European productivity growth, we have to start with the question about what productivity is. In this report we follow the common convention and use value added based labour productivity, the single most frequently computed productivity statistic. Applying growth accounting methods, one can show that the growth rate of labour productivity depends on capital deepening and the growth rate of total factor productivity, the latter often being referred to as a "measure of ignorance". In this report we argue that productivity is a system attribute rather than a property in the individual inputs. In particular, since capital and labour are value-weighted aggregates of a great number of fundamentally different humans, objects and services, combined in a great number of ways, there is no unique specification how workforce ageing will influence productivity. Our main argument is that individual productivity cannot be separated from its social context. Productivity growth is closely related to investment in research and development that underlies technological growth. Since the composition of human capital will determine the growth potential of technology (in particular innovation versus imitation) we discuss the educational composition in the past and its development in the future together with past and future projections of the age composition of the workforce as central explanatory factors of productivity growth...