Immigration policy and demographic change in Scotland: learning from Australia, Canada and continental Europe

2. Policies to Address Demographic Shortages

In this chapter we briefly review the wider range of interventions at different levels of government that can be deployed to address population decline and ageing. We then consider the role of immigration policy within this wider suite of approaches. 

In the interests of clarity, we will use the term ‘shortage’ to represent the condition that such policies are attempting to rectify. However, the nature of demographic shortages is expressed differently within different policy contexts. At national level, we find policies addressing both aggregate and sectoral shortages (Figure 2.1). Policies to address aggregate shortages tend to focus on longer-term fiscal, welfare and social policy issues associated with population decline and ageing. Policies to address sectoral shortages take a workforce planning perspective, often focused on labour shortages in particular sectors or occupations. At the local level, discussion of population change is usually framed by concerns about local service provision, well-being, and the critical mass required for community-based development, with policy focusing on shortages in a particular geographical area. 

Across all three policy spheres, approaches fall into two broad groups, focusing either on mitigation, or adaptation. These terms are borrowed from the literature on climate change, and refer to interventions that aim to influence overall trends (mitigation); as opposed to those aimed at adjusting, managing or compensating for such changes (adaptation). Based on these two distinctions – types of shortage, and types of intervention – Figure 2.1 classifies 6 possible approaches to addressing demographic challenges.

Figure 2.1: Policy levels and approaches

	National		Local
	Aggregate shortage	Sectoral shortage	Geographic shortage
Mitigation	Immigration (general increase) Family policies	Immigration (sectoral/occupation based)	Immigration (destinations)
Adaptation	Workforce activation	Training/incentives	Smart shrinkage

While many OECD countries have adopted measures to address the demographic challenges outlined in Chapter 1, it is rare for interventions to be solely targeted at modifying the trajectory of demographic change. Most, if not all, of the types of intervention discussed below have multiple objectives, relating to fiscal sustainability, equality, adjusting to societal trends in family formation, and so on. They are commonly elements of social welfare, family or labour market policies. It is thus important to keep in mind that most of the policy “levers” relevant to demographic change are perceived by policy-makers as secondary to other policy goals, or even as unintended consequences. It is worth noting that in the context of responses to the 2008 Financial Crisis, there are also examples of adjustments to these policies driven by austerity, which are likely to exacerbate negative demographic trends. 

It is also important to consider which level of governance has competence to legislate on, and is involved in implementing, interventions to address shortages. The EU has some involvement in aspects of social policy relevant to population (for example in relation to employment rights, including parental leave), and has become increasingly involved in debates about ageing populations.^[10] However, most social, fiscal and labour market policies relevant to addressing shortages continue to reside at national level.^[11] This section therefore focuses on this level of governance. 

However, in many countries, local government has competence over a range of policies relevant to addressing shortages, including aspects of economic and social development. The degree of decentralisation varies across countries, with some (federal) states enjoying substantial autonomy, for example in relation to tax-raising powers and labour market and welfare policies. In Scotland, the UK government reserves powers over (amongst other things) immigration, benefits and social security, and employment. The Scottish Government has powers in a number of relevant areas, including economic development, health and social services, education, training and housing. Local authorities have a general interest in population trends within their boundaries, which impact directly and tangibly upon fiscal redistribution calculations. However, the Councils have limited scope to influence population or migration, through measures under their “permissive powers” relating to economic development, their “regulatory powers” relating to housing, and “mandatory duties” in the spheres of education and social work. 

2.1 Aggregate Shortages

Mitigation

A number of states have pursued a range of family policies aimed at increasing fertility rates, and thus mitigating population decline and ageing. Such measures include various incentives to encourage families to have more children, such as cash payments for new parents, maternity, paternity and parental leave, guarantees to mothers that they can return to their previous job after a specified period of leave, childcare and subsidies for nursery places.^[12]

There is some literature comparing family policies between European countries.^[13] The Nordic countries have a long tradition of relatively progressive policies in this area, while the Central and Eastern European countries are distinctive for their post-socialist heritage, demonstrating high rates of workforce participation amongst women.^[14] France and Germany have strengthened their interventions in this area, but with different assumptions about childcare – Germany having a more recent drive towards gender equality.^[15] The countries of Southern Europe (Greece, Italy, Spain and Portugal) have welfare regimes that place less emphasis on the role of the state to support young families, relying more upon the extended family.

On the whole the evidence suggests that these kinds of policies have a positive impact on fertility rates, although this impact depends on the wider welfare regime within which they are embedded, and the way in which different elements interact.^[16] Some studies suggest that the effects are greatest among lower-skilled women and lower-income families.^[17] Indeed, it has been argued that cash incentives may have only a marginal effect, but that policies such as paid parental leave, which address the balance between work and childcare, seem to offer greater chances of success.^[18] Based on an overview of the literature, family policy measures may have some positive effects on fertility, but there is little evidence of precisely which interventions have most impact: ‘a specific measure, a package of measures, the welfare state as a whole, the favourable economic conditions, social norms and values, or something else.’^[19] 

The obvious lag in impact on population, and specifically on the working age population, means that family policies are no short-term fix, although they do have a role to play in long-term strategies. In the shorter term they are more likely to be justified in terms of their benefits for gender equality and raising workforce participation.

Adaptation 

National governments have introduced a range of policies to help adapt to – rather than mitigate – changing demographics. These include various forms of ‘active ageing’ and ‘workforce activation’ approaches. The aim of such policies is to minimise the negative effects of population decline, including in relation to pensions, social security, health and social care, and economic performance more generally.^[20] 

Active ageing is not simply motivated by the fiscal savings associated with raising the age at which state pensions are paid. It also encompasses a range of initiatives designed to encourage older people to stay active, in leisure as well as in work, delivering health benefits and social care savings.^[21] Canada’s Age Friendly Communities movement, based upon principles developed by the World Health Organisation, is a good example of this more holistic approach.^[22] Such measures have been criticised as focusing narrowly on extending working life, in particularly where they involve restrictive or punitive approaches designed to prevent early retirement.^[23] However, there are a range of approaches that can focus on providing positive incentives. Some academics catalogue a range of “Active Labour Market Policies”, which are currently used in EU Member States, including social security or tax reductions, wage subsidies, public works or job guarantees, subsidies for employees or self-employed, in-work training, and training for unemployed.^[24] Further afield, Australia has implemented a series of measures to encourage employers to appoint workers over 50, including wage subsidies and a range of workforce planning supports.^[25]

The EU has also been active in shaping national approaches in this area, issuing a series of papers since 2005 on active ageing and setting targets on participation rates as part of the Lisbon and EU2020 Strategy.^[26]

2.2 Sectoral Shortages

Adaptation

Population decline and ageing can contribute to acute shortages in particular sectors. This may occur both as a result of the decrease in the economically active share of the population; but also because of rising demand for goods and services associated with an older population (for example, the demand for health and social care, or leisure activities for the retired). These factors can exacerbate other causes of shortage, such as skills mismatches, and rapidly developing industries. 

One tool for addressing such shortages is to plan and support training for particular occupations, especially those considered essential for delivering core public services. For example, most countries set quotas for education/training of doctors, nurses and teachers. In England, projections of the demand for teachers are made by a model maintained by the National College for Teaching and Leadership. These are the basis for policy to manage the number of teacher training places, and various incentives for graduates, and those who change career later in life.

Governments may also introduce measures to make particular occupations more attractive. For example, NHS Scotland (and England) run a Targeted Enhanced Recruitment Scheme, with financial incentives for newly trained GP’s to work in shortage areas. Similar recruitment and retention incentives are used in Australia.^[27] It has been argued that ‘Maldistribution of doctors exists in virtually all OECD countries’, and are especially prevalent in rural or socio-economically disadvantaged areas.^[28] This study found a very broad range of ‘carrot and stick’ policy measures in place to address this issue.

Policies may also address skills mismatches through training and reskilling.^[29] Retraining has been used to incentivise older workers to stay in the workforce longer, thus addressing aggregate shortages as well. However, these policies often have goals beyond demography. Reskilling adapts the workforce to shifting labour trends such as the proliferation of non-standard employment (part-time, casual, or home-based employment), downsizing, and the development of new occupations. Beyond these goals, training and reskilling have been portrayed as promoting ‘lifelong learning’ and contributing to a higher level of social/civic ‘actualization’.^[30] Adult training courses also contribute to the secondary goal of social inclusion. There are demographic, economic (growth and innovation), and wellbeing goals at the heart of retraining initiatives. 

Policies to incentivise re-skilling and training as an adult may include providing monetary incentives for training, or providing employers with subsidies to provide training to their workers. Governments must also consider whether there is adequate and appropriate provision of training courses. The provision of vocational education and training thus ties into the wider educational landscape. For example, in Australia, policies included establishing a wider system of public technical and further education institutes and developing the Australian Qualifications Framework (AQF). 

Many governments have also developed tools for estimating current sectoral shortages, and for anticipating future ones, as a tool for planning training. For example, the Danish ‘national skills anticipation system’ uses quantitative forecasting, sector studies, qualitative methods, employer surveys and surveys of workers and graduates in order to do both skills forecasting and skills assessment.^[31] The European Commission has also engaged in forecasting skills needs and encouraged member states to build forecasting systems.^[32]

2.3 Geographic Shortages

Adaptation

In many countries, demographic shortages are not evenly distributed across all areas, but are especially acute in a number of specific local areas. These are often remoter rural areas which have been affected by urbanisation, often over a period of decades or centuries; or they may be post-industrial areas, affected by out-migration of people seeking employment opportunities. In these cases, the root cause of demographic decline is out-migration, often to other areas within the country, rather than overseas (though in some countries, such as the Central and East European countries, out-migration may also involve longer-distance international movements towards Northern and Western Europe). 

In many parts of Europe, both urban and rural, the long-term effects of migration on the age structure have created a legacy of low fertility rates and high mortality which can easily slip into a downward spiral. This trend can be very difficult to reverse, and measures to address it tend to focus on encouraging in-migration (a form of mitigation), as discussed below; or on various types of adaptation. Indeed, most countries have focused on ways of coping with decline, or ways to maximise the benefits of decline, rather than policies to reverse demographic trends. This entails a switch to a focus on the well-being of remaining residents, for example through improving the attractiveness of their residential environment and new kinds of service provision.

These approaches have been termed ‘smart shrinkage’, a concept that emerged from literature on ‘shrinking’ cities in the ‘rust belt’ of the US Mid-West and which was later applied to a European context.^[33] Subsequently the term “shrinking regions” became mainstreamed through a seminal report for the European Parliament in 2008 which adopted the following definition: ‘a region that is “shrinking” is a region that is losing a significant proportion of its population over a period greater than or equal to one generation’.^[34] Although ‘smart shrinkage’ approaches seem to have originated in the US, they have, more recently, become conflated with the EU Commission’s Directorate General for Agriculture’s ‘smart villages’ initiative which is a broader, more positive, rural development approach.^[35]

Of particular relevance to Scotland is the proposed application of ‘smart shrinkage’ as part of Ireland’s National Spatial Strategy. Academics suggest that this approach offers a ‘non-growth’ alternative for remoter rural areas, beyond the hinterlands of the smaller cities which are seen as the engines of polycentric regional development policy.^[36] However, as we move into an era in which relational (as distinct from geographic) proximity is playing an increasing role, the implicit assumptions of this kind of strategic spatial planning  about the role of agglomeration-driven growth are open to question, and arguably have a weak evidence base.^[37] In other words, even the remotest and most depopulated areas may have potential for growth in the future.

2.4 The Role of Immigration 

Immigration policy, by which we mean policies to admit foreign nationals to live and work in a country or region of destination, can be classified as a mitigation strategy, which may play a role in addressing all three types of shortages: aggregate, sectoral, and geographic. 

In terms of aggregate shortages, immigration can contribute to an overall increase in the working-age population. Since international migrants who move for employment reasons tend to be younger, such flows may also have a greater relative impact on age structures and dependency rates: migrants are far more likely to be economically active (indeed employment is often a condition of entry and stay); and they are more likely to be of child-bearing age. 

The use of immigration to mitigate aggregate shortages has been referred to as ‘replacement migration’. However, most analysts have concluded that replacement migration cannot be the sole policy tool for mitigating demographic change. A widely cited UN report (2001) explored the level of net migration required to maintain current potential support ratios (PSR).^[38] It found that the annual number of immigrants needed to maintain PSRs at their 1995 levels or above 3.0 was substantially larger than any previous levels of immigration. An OECD policy paper (2012) found that if current levels of net migration were sustained, they would lower the old-age dependency ratio by around 2% on average.^[39] Our analysis found that Scotland would need much higher annual net migration to sustain dependency ratios.^[40] Sustaining immigration at the sort of levels required for this would likely raise a wider set of social and political challenges. 

It has also been observed that immigrants may have higher fertility rates, thus contributing to population increase. However, research also suggests that fertility patterns over time tend to converge with those of the host population.^[41]

Nonetheless, immigration can make an important contribution to a wider package of policies. Unlike the types of family policies discussed earlier whose impacts are lagged and often difficult to evaluation, immigration provides an immediate and direct form of mitigation. 

Immigration policy can also be designed to address sectoral shortages, by selectively admitting migrants to work in particular sectors or occupations, or with particular skills. Indeed, most EU countries have oriented their immigration policies to address these more specific shortages, whether through shortage occupation lists, skills or salary thresholds. However, most countries have tended to frame such policies as one part of a wider set of adaptation measures to train or reskill the domestic population, or incentivise domestic workers to take up jobs in shortage occupations. 

Immigration may also be a means of addressing geographic shortages. As we shall see in Chapter 3, a number of countries have tailored their admissions policies to recruit migrants to specific areas of the country, often through decentralised systems that allow differing degrees of autonomy to federal units, states, or provinces. In Scotland, EEA free movement has facilitated in-migration to almost all areas of the country, including remote and rural areas. While such movements tend to be just a small proportion of overall in-flows (with far greater proportions settling in cities and less remote areas), these small numbers have had a disproportionate impact on local areas. Even a small increase in in-migration can have a significant positive effect on small communities.^[42] We should also note that domestic migration can potentially play a role in mitigation. However, historically such internal mobility has often had a contrary effect, with flows dominated by rural-urban movement, or retirement migration. Domestic migration will be the topic of an upcoming Expert Advisory Group report, and not covered directly in this report.

In short, immigration policy is typically deployed in combination with other mitigation and adaptation strategies to manage demographic change. Clearly, immigration can raise wider social and political challenges for host countries and communities, and for this reason, it is often not the most prominent or favoured response adopted by governments. 

However, immigration has a number of advantages compared to other approaches:

• Immigration programmes can be a swift and reliable means of increasing the working-age population, compared to other types of interventions such as domestic measures to expand the active population or encourage higher birth-rates.
• Immigration programmes can be tailored in a flexible way to meet specific labour market shortages, through recruiting people with relevant qualifications, skills, and occupational preferences. This can be a reliable and efficient means of addressing shortages due to skills or preference mismatch.
• Immigration can be designed to encourage mobility to/settlement in particular areas. Indeed, in many cases, in-migration may be the only way to reverse population decline, given the age structure of existing populations.