OECD job markets resilient but population ageing to cause labour shortages, fiscal pressures

Al Etihad

09-07-2025

10 July 2025 00:23
ABU DHABI (ALETIHAD)Job markets remain resilient, with labour force participation reaching record highs in many OECD countries and unemployment at historically low levels. However, there are signs of a slowdown as geopolitical and trade policy uncertainties dampen economic activity, according to a new OECD report.The OECD Employment Outlook 2025 reports that OECD-wide employment, which reached 668 million in May 2025 – up by about 26% since 2001 – is expected to grow by around 1.1% in 2025 and 0.7% in 2026.Having been at or below 5.0% for more than 3 years, the OECD-wide unemployment rate stood at 4.9% in May 2025, and is projected to remain near this low level through 2026. It was 0.5 percentage points higher for women than for men.Gender gaps in employment and labour force participation are narrowing in many countries. Between the first quarter of 2024 and the first quarter of 2025, on average across OECD countries, the employment rate of women rose by around 0.2 percentage points more than that of men. The gender gap in the participation rate narrowed by 0.3 percentage points over the same period, largely driven by more women entering the labour force.Real wages are growing across most of the OECD, but remain below the levels seen in early 2021, just before the post-pandemic inflation surge, in around half of countries.'OECD labour markets continue to be resilient: employment rates have risen further over the past year to 72.1% in the average OECD country, the highest level since at least 2005,' OECD Secretary-General Mathias Cormann said.'But population ageing is set to lead to significant labour shortages and fiscal pressures. We estimate that, by 2060, the working-age population will decline by 8% in the OECD and annual public spending on pensions and health will rise by 3% of GDP. Ambitious policy action is needed to improve job opportunities for older workers, unlock the untapped labour market potential of women and young people, and revive productivity growth, including by ensuring that workers have the right skills to benefit from new AI tools.'Population AgingThe outlook forecasts that the working-age population will decline by more than 30% in a quarter of OECD countries by 2060. The old-age dependency ratio – defined as the ratio of individuals aged 65 years and above to the working-age population – increased massively from 19% in 1980 to 31% in 2023 and is projected to rise further to 52% by 2060.Without decisive policy action, GDP per capita growth would slow down by about 40% in the OECD area – from 1% per year in 2006-19 to 0.6% per year in 2024-60 on average. All but two OECD countries would see their per-capita growth declining.By reducing the rate of labour market departures by older workers to the level in the 10% of OECD countries with the lowest departure rates, the outlook shows that OECD countries could significantly reduce the projected loss in GDP per capita growth from demographic ageing.This will involve promoting career mobility for mid-career and older workers, and fostering lifelong learning to ensure that older workers have the relevant skills and can adapt to new labour market needs and opportunities.
Reviving productivity growth will also need to be part of the solution, including by promoting the trustworthy use of AI and other digital technologies.
Source: Aletihad - Abu Dhabi