Sectoral Impacts of International Labour Migration and Population Ageing in the Czech Republic

Abstract

This study assesses macroeconomic and sectoral impacts of demographic changes in the Czech Republic as a result of population ageing and international migration. To do so, it develops a unique dynamic Overlapping Generations Computable General Equilibrium (OLG–CGE) model with detailed representation of individuals of different ages, educational attainment and occupations, as well as interrelations among industrial sectors in producing intermediate and final outputs. The numerical simulations show that the Czech economy will face a substantial reduction in its effective labour supply and changes in aggregate as well as sectoral demand patterns, leading to lower economic growth (4.4% lower GDP by 2050 in absence of technological progress), increase in unit labour costs (5.2% higher wages in absence of inflation) and lower competitiveness of the economy as a whole. Replacement migration may alleviate the pressure, yet the current gross immigration would need to increase by at least 8-17 thousand individuals per year compared to the UN projections (a 15–34% increase) without changing emigration patterns in order to offset the adverse long-term effects.