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the boomer shift

This is part of The Globe and Mail's week-long series on baby boomers and how their spending, investing, health and lifestyle decisions could affect Canada's economy in the next 15 years. Is Canada ready for the boom?

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Sutera is not letting a good crisis go to waste.

The pretty medieval town that clings to the slopes of Mount San Paolino, about 70 kilometres southeast of the Sicilian capital Palermo, had a population of 5,000 as late as the 1970s. Today, there might be 1,500 left, a figure that would theoretically go to zero in a decade or two as deaths greatly outnumber births and jobs vanish, forcing the few young people to flee to the big Italian and northern European cities.

Sutera found a solution of sorts that would take the twin difficulties hammering Sicily – rapid depopulation and the mass influx of refugees – and turn them into an opportunity. It did so by offering free houses to European visitors who fancied holiday homes in Sicily (as long as the property taxes were paid) and accepted about 50 migrants from Somalia, Nigeria and elsewhere in sub-Saharan Africa. It gave them free houses too – more than half the town was empty.

Lorenzo Tondo, a Sicilian journalist who has in-laws in Sutera, says the new arrivals are working in farming, doing construction, teaching English to the locals and opening services, such a barber shops, delivering a little jolt to the moribund local economy. "Sutera is a great example of integration," he says. "The Italians have accepted them and go out with them at night."

Sutera's migrant experiment, and others like it, is too small so far to trigger a Sicilian renaissance, but it says a lot about the economic, demographic and retirement challenges facing greater Europe. While the global population is still growing, Europe is the only continent whose numbers are expected to shrink by 2050. The baby boomers (a North American term) are retiring en masse, birth rates are the world's lowest and median and average ages are rising, putting enormous strain on pension systems.

The cure is to encourage more women to have more babies, raise the employment rates for both men and women, or replace the depleted stocks of humanity with immigrants while buying time through pension reform, such as raising the retirement age and basing pensions on contributions, not final earnings. The deep recessions in Europe since the 2008 financial crisis have accelerated the reforms, although there is a lot work still to be done to reduce their financial burden without impoverishing retirees.

The first two – more babies and higher employment rates – do not seem to be happening, leaving immigration and pension reform as potentially the most effective options. Both are fraught with difficulties, especially immigration in a continent battered by a refugee crisis.

According to a 2015 report from Eurostat, the European Union's statistics agency, the median age among the EU's 28 countries has risen to 42.2 years in 2014 from 39.2 a decade earlier (the measure means that half population was older than 42.2 years and half younger). Germany is the greyest country, with a median age of 45.6 years (in Canada, in 2013, the median age was 40.2 years). Germany had the lowest share of young people (up to the age of 14), at 13.1 per cent of the population. It also had the second-largest share, after Italy, of old people (age 65 plus), at 20.8 per cent.

Ireland has the EU's youngest median age (36 years) and the lowest portion of oldsters (12.6 per cent). Germany's economy may be far stronger than Ireland's, but Germany is also sitting on the far bigger demographic time bomb, one that will go off when the dwindling number of working taxpayers makes it difficult, perhaps impossible, to support the rising number of tax-consuming retirees.

Germany expects to take in a million asylum-seekers, many from Syria, this year alone. Leaked government figures suggest that the true number could be 1.5 million. Chancellor Angela Merkel may have taken the moral high ground by inviting so many refugees into Germany, much to the ire of the anti-immigrant parties, but the country also needs them for economic reasons. It has been estimated that Germany needs to take in more than 500,000 immigrants every year just to offset the decline in the number of people employed in the workplace.

Skeptics abound. They say mass immigration will not cure any European country's demographic and pension problems because the people who arrive from the Middle East and Africa are unskilled or semi-skilled. In the era of robotics, automation and deindustrialization, there are few jobs for them.

While it may be true that the industrial jobs are disappearing rapidly, that has been the trend for decades in most countries. Industrial jobs in Germany have been in something close to free fall since the early 1970s; manufacturing's contribution to gross domestic product is about 22 per cent, down from 30 per cent in 1980. The figures in Britain are starker.

But economies adapt. Service jobs are taking the place of manufacturing jobs. "I do not buy the argument that the migrants will not find jobs," says independent economist George Magnus, the author of The Age of Aging, a book about the demographic shift and how it is changing the global economy. "There are more services jobs now than manufacturing jobs. Look how labour-intensive a supermarket is."

He also notes that migrants tend to be young and entrepreneurial. Since many of them cannot slot easily into brand-name companies, they tend to start their own businesses.

Countries with low birth rates and aging populations, like Germany and Italy, need immigrants. The European Commission's 2015 Ageing Report predicts that Germany's population will shrink to about 71 million in 2060 from 81 million in 2013. The country's dependency ratio – the percentage of those over 65 compared with those in their working years – is forecast to rise to 59 per cent from 32 per cent. That means there will be fewer than two active workers to support every retired German. The trend is clearly unsustainable.

Ms. Merkel has attracted a lot of criticism, even from her own political allies, for rolling out the welcome mat to a million or more refugees. But she may be doing a big favour for Germany and the boomers. Taking in immigrants is helping to fix moribund towns like Sicily's Sutera; the same formula could work on a larger scale.

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