The ageing of the European Union’s population is unstoppable. European mortality rates have fallen steadily for the last century, while the EU total fertility rate (TFR, average number of children per woman) hit a record low of just 1.37 in 2023. In countries including Malta, Poland, Spain and Italy, 2024 TFRs are expected to be around just half of the replacement rate of 2.1 – levels previously only seen in some advanced Asian economies.
Rapid population ageing poses numerous challenges but the right public policies can, in the long run, mitigate the worst economic effects. There are two principal means by which public policies can meaningfully affect future population trends: fertility and net migration.
A significant economic policy literature exists showing so called ‘family-friendly policies’ can have some positive effect on fertility levels in European and other advanced economies. These policies, through better provision of relevant government services or fiscal transfers, improve the social and economic situation of working mothers and women of childrearing age. Measures such as publicly accessible childcare and paid parental leave can have a lasting impact in boosting both fertility levels and prime-age female labour-force participation. Societal norms that dictate relatively equal sharing between men and women of household work and, especially, child-rearing responsibilities, have a similar positive effect.
But widespread adoption of family-friendly policies has not halted the EU’s overall rapid fertility rate decline. While producing some positive results, such policies will not return the EU to anywhere near the replacement rate.
Consequently, the only likely effective public policy with which to affect the EU’s population, even in the long run, is immigration policy. In the aggregate, net migration to the EU has been high for many years. For at least the last decade, it has postponed overall population decline. Without it, the EU’s population would already be dropping fast.
Yet, as EU future growth rates slow, fiscal pressures rise and the political limits to public acceptance of rising migration levels becomes increasingly evident, it becomes ever more important for EU governments to ensure that rising net-migration levels are associated with improved long-term economic prospects and improved public finances. This necessitates looking at the economic implications of different channels of immigration to the EU.
The four main channels of immigration are family-based, education and study, work, and refugee and other protected statuses. These reflect the naturally diverse objectives of immigration policy. Countries want to provide immigrants with the freedom to live where they want with their families, to attract talented foreign students and workers and to provide a safe haven to those fleeing war and persecution.
But given the economic and political importance of immigration policy in the EU, the weighting given to these different channels in shaping immigration policy must change. Economic considerations need to be prioritised.
Studies from Denmark and the Netherlands support the need to secure the economic gains from immigration. They highlight the variable impact on public finances of different channels of migration. The Danish and Dutch analyses show the far more positive economic impact and net-positive contribution to public finances from employment-based and, to a lesser degree, education-based migration. Asylum-based and family-based migration have generally resulted in net-negative contributions to public finances in Denmark and the Netherlands.
Only about a quarter of all EU residence permits currently relate to employment and education-based migration, meaning the aggregate positive impact of immigration on EU public finances may be at risk. This status quo may not be economically sustainable for many EU countries. To keep overall migration levels at a politically and economically acceptable level, governments may have no choice other than to focus increasingly on the promotion of employment-based migration at the expense of asylum- and family-based migration.
Denmark in recent decades has shown that it is politically and practically feasible to transition to a system of overall higher migration, and more employment- and education-intensive immigration. New residence permits issued in Denmark rose from roughly 20,000 per year in the late 1990s to about 60,000 annually by 2014 (interrupted by a lockdown-induced decline during COVID-19 and not counting Ukrainian refugees after 2022). Detailed Danish residence permit data shows that by 2018, asylum and family reunifications only accounted for about 5% of the total number of new residence permits, while by 2024 education – including from other EU countries – accounted for about 35%, total employment-based for another 35%, and Ukrainians and non-employment/education EU related migration the rest.
This immigration policy outcome shows the feasibility of implementing in other EU countries immigration systems characterised by rising overall levels and more employment- and education-based inward migration. This would secure the biggest – and indeed necessary – positive effect on future potential growth rates and fiscal sustainability from rising net migration.