Demographic change: How organizations can use data to plan ahead

Demographic change is impacting healthcare, the social security system, the labor market, and more. In Europe and other regions, addressing the needs of the aging population and ensuring that economies can keep functioning sustainably requires new policies and strategies. 

What is demographic change? 

Demographic change is a process in which a population shifts in its composition, such as its age structure. Changes in birth rates, fertility, deaths, life expectancy, infant mortality, and migration flows alter demographics.

In Europe, for example, demographic change is characterized by low birth rates, a shrinking youth and workforce, and an aging population. In the US, the trajectory is similar, as it is the case for all other Western OECD countries.

Other trends like migration from rural areas to urban ones also affect demographic patterns at the local level.  

What is the demographic transition model? 

The demographic transition model tracks population development based on birth and mortality rates. Frequently used in Social Studies and other related fields, the model is segmented into four stages, with a fifth one seeking to predict future population trends: 

1. High mortality and high birth rates  
2. Mortality rate falls but birth rate remains high  
3. Mortality is low and birth rates begin to fall  
4. Mortality and birth rates are low 

The first stage applied to most populations from the pre-Industrial era. In the second stage, mainly due to advancements in health, mortality decreased. Currently, most countries are experiencing the third and fourth stages.  

Population size is defined by three core components: birth rate, death rate, and, in more recent models, also net migration. As the birth rate decreases and life expectancy increases, the average age of a population rises – leading to demographic change.  

Positive net migration can affect the shift towards an aging population. The World Bank defines net migration as “the number of immigrants minus the number of emigrants, including both citizens and noncitizens”. When there are more people arriving in an area than leaving it, the composition of the population changes.  

In Germany, for example, the net migration of young people counteracts the aging of society, although it has not been able to reverse it. Around 23% of all migrants who arrived in 2022 were under 18 years of age, and 30% were between 18 and 30 years old, according to the Federal Statistical Office. 

Causes of demographic change

Advances in health and technology have transformed population development and have allowed people to live longer. An increased life expectancy is combined with a drop in fertility rates, which translates into fewer people giving birth. The result is that younger groups decrease in size while elderly age groups grow. 

For example, the average birth rate in the EU has steadily fallen over the previous 50 years to 1.5 births per woman, according to Eurostat. 

Factors that can delay and even deter having children include:

• Access to birth control 
• Changing lifestyles and wealth 
• Education levels 
• The costs associated with raising children, from housing to schooling 
• Uncertainty and new conditions provoked by crises 
• Incompatibility with training, studies or career development 

Consequences and effects of demographic change  

The demographic shift impacts multiple spheres in society. When a population changes, so do its needs. Public services and the private sector must then adapt to new challenges. 

Growing Pressure on Healthcare Systems

• With an aging population, the demand for medical care and nursing is increasing, putting more strain on healthcare systems. To meet this rising demand, more investment in research and development in the healthcare sector is needed. Technological advancements and digital solutions can help make treatment more efficient and partially compensate for the shortage of skilled workers.
• Another challenge is the shortage of nursing staff, who are retiring and simultaneously moving to other professions. To attract new professionals and retain existing employees, employer attractiveness analyses can help. These provide scientifically valid data on the requirements of (potential) employees for their employers.

Strain on Social Security

• Demographic change also poses significant challenges for social security systems, especially pension funds. In Germany, for example, fewer and fewer workers have to support a growing number of retirees.

• To secure retirement provision in the long term, there are various levers. These include raising the retirement age, promoting private retirement savings, or reforming pension calculations. The system must be adjusted to remain stable in the future without overly burdening younger generations.

Implications for Governments

• Governments need to adjust their financial planning to demographic changes. This means they must allocate more funds for pensions and care. At the same time, they should develop strategies that enable older people to play an active role in society and the workforce, such as continuing education programs and support for volunteer activities.

• Policymakers could counteract the shortage of skilled workers through targeted immigration policies to create incentives for qualified workers from abroad.

The Importance of Diversity & Inclusion for Companies

• Companies are particularly affected by the impacts of demographic change. With fewer young workers available, it becomes more challenging to find and retain qualified employees. Companies must therefore find new ways to meet their staffing needs and continue to train their employees.

• An important aspect is creating an open and inclusive corporate culture. Companies should prepare for their workforce to become increasingly diverse, including in terms of age and cultural background. Training and adapted working conditions can help create a work environment where all age groups feel comfortable and can work productively.

Chances of demographic change 

Recognizing population trends is an opportunity for informed decision-making.

One example is the European Commission’s “Demography Toolbox”, which consists of measures to address demographic shifts in the EU. Its four pillars are: 

• Helping parents reconcile their careers and personal lives, particularly through available high-quality childcare and work-life balance. 
• Facilitating youth access to education, the labor market, and housing. 
• Encouraging older generations to stay active in the workforce and in society while promoting their well-being. 
• Attracting international talent and aiding them in their integration process to the EU through legal pathways to address labor shortages.

Demographic change and the case for health investments 

As the global population ages and life expectancy continues to rise, health systems worldwide are increasingly seeking sustainable finance models to address the growing socioeconomic burden of diseases. 

WifOR’s Health Economics research provides crucial data that guides targeted investments aimed at improving both individual and public health outcomes, boosting economic growth, and building more resilient societies.

By using specific metrics that assess the burden of various diseases, investments can be strategically allocated to areas that promise the highest returns in both economic and societal terms.

Example: In Germany, cardiovascular disease (CVD) imposes a significant socioeconomic burden each year, resulting in 55 million hours of lost paid work, equivalent to 1.1 billion euros, and 1.9 billion hours of lost unpaid work, valued at 23.4 billion euros.The Heart and Brain Alliance (Herz-Hirn-Allianz) is working to reduce cardiovascular disease incidents in Germany by 30 percent by the year 2030. If this goal is achieved, it would result in an annual return of 16.5 million hours of regained paid work, worth 342 million euros, and over half a billion hours of recovered unpaid work, valued at 7 billion euros.

Learn more about WifOR’s Health Economics research here.

Demographic change and labor market challenges 

In regions with a shrinking workforce, like Europe, detecting labor shortages and incorporating skilled labor into the job market is essential. In Germany alone, there are currently an estimated 3.4 million vacancies – a figure which is prognosed to almost double in the next seven years. 

To address this issue, WifOR developed a new Skilled Labor Monitor (SLM). The tool forecasts the (future) availability and need for skilled workers across different regions, industries, and occupations. Using data-driven analysis, the SLM enables governments and businesses to understand labor trends.

Try the Skilled Labor Monitor for Upper Austria here 

The tool designed for Upper Austria provides a prognosis up until 2040 and delivers relevant information on:

• Current and expected gaps between supply and demand for skilled labor 
• Distribution of skilled workers per industry 
• The predicted evolution of supply and demand for different sectors and professions 
• How variables like migration and a higher participation of women in the workforce can directly affect job supply and demand 
• The potential to add further variables in the future, such as the average wage 

Conclusion

Demographic change describes the transformation of populations based on factors such as the birth rate, death rate, and migration. In regions like Europe, the aging population – a result of a longer life expectancy – combined with the declining birth rate is posing several challenges. Among them are the reduction of the number of people in the workforce and new healthcare needs. 

In the face of these demographic shifts, companies and businesses can take advantage of data solutions to adjust their strategies, budgets, and services to the population shift.  

The Skilled Labor Monitor (SLM) is an example of how research-based tools can help stakeholders address labor shortages, make informed business and policy decisions, and ensure sustainable economic growth. Similarly, WifOR’s research underscores the positive impact of health investments to attend the needs of evolving populations. 

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