Consequences of the Demographic Change for the Swiss Labour Market
Summary of Results
Under the funding of SNF Project No. 169532 “Consequences of the Demographic Change for the Swiss Labour Market”, the following research has been conducted. First, in cooperation with INFRAS, we conducted a representative survey among Swiss firms. Second, as input for a model of the Swiss labor market that allows studying the effect of the demographic change, Manuel Buchmann estimated elasticities of substitution between high- and low-skilled workers in Switzerland and in the same working paper showed the superiority of alternative, occupation-based skill classifications over traditional education-based classifications in the context of the Swiss labor market. Third, funded under supplementary grant 169532/2, Manuel Buchmann visited the University of Ottawa and cooperated with Prof. Marcel Mérette and Prof. Patrick Georges to develop a CGE-OLG model of Switzerland with a detailed labor market component. In a first step, a simplified version of the model is used to analyze the effect of different labor market specifications on model outcomes. Next, the full model is used to evaluate the effect of demographic change on the Swiss labor market. With the exception of the firm survey, all components of the research conducted under this grant are part of Mr. Buchmann’s Ph.D. Thesis.
Part 1: Survey
Between September 2017 and April 2018, Conny Wunsch and Manuel Buchmann drafted a survey directed at a representative sample of Swiss firms in the sector aggregates analyzed in the main part of this project. This survey had two goals: 1) We wanted to collect qualitative evidence on how demographic change already affects the labor market in relevant sector and skill aggregates and how firms judge the future development of potential labor shortages. 2) We were particularly interested in the substitutability between workers of different skill levels and different industries. The results from this survey allow for an interesting comparison to the results of the subsequent scientific paper estimating the same elasticities empirically.
The technical implementation of the survey, organization of mailing addresses and technical support were managed by INFRAS. After a trial run on a small subsample of firms, the survey ran between May 8 and June 26 2018. On the advice of INFRAS, the start of the survey was strategically delayed by a few weeks to avoid any major holidays. 5’000 firms were invited to participate in the survey. The final response rate was 14%, which corresponds to 695 firms. This was enough to conduct a sectorally disaggregated analysis.
As the main result of this survey, we calculated an index of the affectedness by demographic change for each sector aggregate. An evaluation of this index confirmed the hypothesis that the health sector is particularly affected by demographic change and already experiences labor shortages. The results also show that the IT sector is not expected to be as strongly affected by demographically induced labor shortages as other sectors. On the other hand, the construction sector is already affected by labor shortages, particularly with regards to medium-skilled labor. Due to the high average age in combination with a lack of young workers, this situation is expected to worsen in the coming years. The construction sector is not often talked about by other studies, which makes this result remarkable.
The full survey, the methodology and the results have been fully documented in a report. Additionally, a summary of the results has been published in the non-scientific outlet “Die Volkswirtschaft”. It has also been reported on in the magazine of the University of Basel, UniNova. A dataset containing the anonymized survey results has been uploaded to FORSbase.
Part 2: Econometric Model
In order to not only have qualitative but also quantitative evidence on the elasticity of substitution between low- and high-skilled labor in Switzerland, Manuel Buchmann econometrically estimated this parameter based on historical data on wage gaps and skill shares between 1992 and 2017. As a first result, this estimation yielded concrete estimates for the parameters in question. Maybe more importantly, it confirms the choice of using occupation-based competence levels to identify skill levels of workers over more traditional identifiers based on education as not only valid, but even clearly superior at describing the trends observed in Swiss data in the past 25 years. A first draft of this paper was written between July 2018 and February 2019. The draft was extended and finalized between September 2019 and January 2020.
The resulting working paper constitutes the first chapter of Manuel Buchmann’s Ph.D. Dissertation. Mr. Buchmann presented the paper at the EALE SOLE AASLE World Conference in June 2020. Other planned conference participations in the spring and early summer of 2020 had to be canceled due to the Coronavirus pandemic.
Part 3: Numerical Models
We cooperated with two experts in CGE-OLG modeling to develop the main numerical models of this project. To facilitate this, Manuel Buchmann visited the University of Ottawa between March and August 2019. Together with Prof. Marcel Mérette and Prof. Patrick Georges, who both have extensive experience in modeling of demographic change in CGE-OLG models, he developed the foundations of a large-scale CGE-OLG model of Switzerland. Using an initial, simpler version of the model, he evaluated the impact of the choice of labor market elasticities on model outcomes. In the resulting paper he showed, that differentiating between workers of different ages can affect model outcomes significantly without adding much computational burden. This practice is still very uncommon in the literature but may affect conclusions drawn from the results of OLG models significantly, depending on the research question at hand. This paper constitutes the second chapter of Mr. Buchmann’s Ph.D. Thesis.
Upon his return to the University of Basel in September 2019, the baseline version of the full, large-scale model was coded and first results had been evaluated. The results of the baseline version of the model show the drastic effects of demographic change in the form of four major effects. First, simulated GDP per capita grows until 2030 but then starts declining until the end of the model horizon. Second, contribution rates to the pension system would have to almost double until 2080 to keep the pension sustainable. Third, due to changes in the age distribution of the population, consumption and investment demand shifts away from construction and towards the health sector. Fourth, the model predicts massive wage rate increases in particular for young workers in service-oriented sectors. Due to the stickiness of wages, this effect will most likely lead to labor shortages in most sectors, but especially in the health sector.
Manuel Buchmann presented these results to representatives of the private and public sector in the canton of Ticino as part of a workshop organized by the “Gruppo di Riflessione sul mercato del lavoro ticinese”.
Between September 2019 and January 2020, the model was extended with several alternative scenarios. Most prominently, this includes a scenario assuming a moderate participation rate increase of women or older workers, respectively. The outcome of this scenario was compared to an increase in the statutory retirement age of two years. This comparison was particularly interesting, because both shocks yield a very similar response in GDP per capita. However, the increase in GDP per capita is achieved very differently. While the participation rate increases reduce labor shortages and thereby firms’ productivities, the retirement age increase increases consumers’ disposable income by reducing the contribution rates to the old age pension system and therefore promotes consumption demand. This in turn leads to a higher labor demand of firms and therefore an increase in labor shortages. Thus, to reduce or avoid labor shortages in the future, increasing the participation rates through other means than increasing the statutory retirement age is preferable.
This research constitutes the third chapter of Mr. Buchmann’s Ph.D. Thesis. It has also been disseminated to a non-scientific audience through various articles and a book contribution.
Buchmann M. (2020). The Effect of Demographic Change on the Swiss Labor Market: The Role of Participation Rates. WWZ Discussion Papers 2020/10, Universität Basel. https://edoc.unibas.ch/77494/1/20200622143658_5ef0a5ea7e1c4.pdf
Buchmann, M. (2020). “Skilled or Unskilled? An occupation-based approach of classifying workers in Switzerland”. Working Paper.
Buchmann, M. (2020). “The Impact of the Choice of Labor Market Elasticities on OLG-CGE Model Outcomes”. Working Paper.
Buchmann M. und C. Wunsch (2019). Der Zusammenhang zwischen demografischem Wandel und Fachkräftemangel: Auswertung einer Unternehmensbefragung. Universität Basel. https://wwz.unibas.ch/fileadmin/user_upload/wwz/00_Professuren/Wunsch_Arbeitsmarktoekonomie/Forschung/1._Bericht_demografischer_Wandel.pdf
Buchmann, M. (2021): Demographic Change and the Labor Market in Switzerland [Doctoral Dissertation]. University of Basel.
Buchmann M. und C. Wunsch (2020): Der Zusammenhang zwischen demografischem Wandel und Fachkräftemangel: Eine Unternehmensbefragung [Dataset]. Distributed by FORS, Lausanne, 2020. https://doi.org/10.23662/FORS-DS-1215-1
Buchmann, M. (2021). Auswirkungen des demografischen Wandels auf den Schweizer Arbeitsmarkt. In: H. Budliger (Hrsg.), Demografischer Wandel und Wirtschaft, ISBN 978-3-658-31520-7, Springer Gabler Verlag, im Druck. https://www.springer.com/de/book/9783658315207
Becher J. (2018). Demografie und Arbeitsmarkt. UNI NOVA Nr. 132 / November 2018. https://www.unibas.ch/de/Forschung/Uni-Nova/Uni-Nova-132/Uni-Nova-132-Demografie-und-Arbeitsmarkt.html
Buchmann M. und C. Wunsch (2019). Demografischer Wandel verschärft Fachkräftemangel. Die Volkswirtschaft Nr. 5 / 2019. https://dievolkswirtschaft.ch/content/uploads/2019/04/19_Buchmann_Wunsch_DE.pdf
Buchmann M. und C. Wunsch (2020). Frauen an die Arbeit! Wie sich der demografische Wandel auf den Schweizer Arbeitsmarkt auswirkt. Panorama August 2020. https://www.panorama.ch/dyn/1129.aspx?id_article=1893
Handelskammer Beider Basel (2020). Überalterung führt zu Fachkräftemangel. HKBB Wissenschaft Wirtschaft, 26.02.2020. https://www.hkbb.ch/de/standortpolitik/bildung/ueberalterung_fuehrt_zu_fachkraeftemangel.php