Demographic challenges and prospects for economic growth

By Andreas Charalambous and Omiros Pissarides

Demographic trends, most notably the declining trend of indigenous populations, mainly due to low birth rates, is a key challenge for all developed countries. The problem is evident even in developing economies some of which have, until recently, faced an overpopulation problem, such as China.

In parallel, we observe significant increases in migration flows from less to more developed economies. This trend is expected to intensify, primarily due to poverty and climate change which will affect living conditions, particularly in African countries.

The low birth rate and the increase in migration flows are major challenges for Cyprus as well. Particularly in recent years, asylum seekers and economic migrants have increased rapidly with a large proportion channelled through the occupied areas. Already, the percentage of foreigners among the total population and the employment pool has exceeded 20 per cent, while the trend continues to point upward.

The policy dilemmas are evident. Global experience reveals that, despite various measures to support families, the phenomenon of low birth rates in developed countries will hardly be reversed. Therefore, the formulation of an appropriate migration policy is of strategic importance for future development and growth prospects.

Quantitative control of the flows of asylum seekers, with full respect of basic human rights, through the establishment of appropriate structures and the acceleration of application examination procedures, is necessary, not least for the purpose of proactively dealing with potential political tensions. It is also imperative to overcome national and local reactions and to promote a comprehensive strategy at EU level, which would aim, among others, at the rational distribution of asylum seekers throughout the EU territory. The task is not straightforward since many obstacles have to be overcome, in particular those concerning the degree of social acceptance, the impact on cultural balances and the absorption of the necessary fiscal burden.

In order to successfully address the above-mentioned challenges, it would be essential to formulate a flexible and comprehensive immigration policy, with a view to attracting labour force on a long-term basis (instead of the hitherto “ad hoc” approach) in order to cover the observed shortages in labour force. Such shortages are already visible and mainly concern low-skilled occupations. However, Cyprus is also faced with increasing needs in highly specialised professions as part of the consolidation of its role as an international business centre.

Without such a long-term strategy in place, labour shortages will intensify, including those in critical sectors of the economy, such as health. Wage pressures will become unbearable for businesses. The sustainability of our pension system will be threatened and, more generally, the future potential for growth and prosperity will be severely constrained.

A multidimensional policy of attracting foreign labour on a long-term basis is already being promoted, for example in the Nordic countries and in Germany. An important element of such a policy is the elaboration of a simple scoring system, which will take into account the needs of the workforce in Cyprus. In addition, the strategy must promote the social integration of immigrants, covering their needs towards affordable housing, children’s education, social security, access to medical care, Greek and, possibly, English language skills and continuing training.

Andreas Charalambous and Omiros Pissarides are economists