Depopulation and Ageing in Europe and Japan: The Hazardous Transition to a Labor Shortage Economy PAUL S. HEWITT T he arrival of the twenty-first century heralds a turning point for the postwar welfare state. Most of the advanced industrial democracies entered the new millennium with a record share of their populations in the working ages – 20 to 65 . Yet, by 2010 , tens of millions of postwar baby boomers will be streaming into retirement, and available labor forces in the European Union( EU ) and Japan will never again be so large in our lifetimes. This historic shift means that the problems of unemployment that dominated social thinking in the twentieth century will soon give way to the social crisis of labor shortages. Policies devised after World War II to allocate too few jobs among too many workers – generous unemploy­ment, disability and retirement benefits together with labor regulations that sacrifice efficiency for stable employment – will be radically coun­terproductive in the new era of tight labor markets. Reforming these policies may become a task no less urgent than the upheaval that led to their rise in the first place. Between 2000 and 2010 , several industrial nations, including Ger­many, Japan, Austria, Spain, Italy, Sweden, and Greece, will for the first time in modern memory experience a contraction of their working pop­ulations. The century’s second decade will see the EU and Japan enter a period of population decline lasting into the indefinite future. According to the U . S . Census Bureau, by 2030 the EU can expect to have 14 percent fewer workers and 7 percent fewer consumers than it does today. In Ja­pan, over the same period, the number of workers and consumers are poised to decline by 18 percent and 8 percent respectively. Ageing Recessions The casual observer can be forgiven for regarding such trends with something less than alarm. After all, the general thrust of labor and social IPG 1/2002 Depopulation and Ageing 111