Today Markets Analysis: Europe has spent years treating demographic decline as fundamentally a shortage of people. But the economic problem is more complicated. A larger population does not automatically mean a more productive economy. As artificial intelligence, automation and productivity-enhancing technology change the amount and type of labour businesses require, Europe faces a more fundamental question: should it be maximising the number of workers, or the economic value of each additional worker?

Europe is ageing. Birth rates are low, populations are becoming older and many industries genuinely face labour shortages.

That part of the argument is straightforward.

But the policy response has increasingly focused on increasing the supply of people available to work.

The more difficult economic question is whether population growth and productivity growth are the same thing.

They are not.

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More people means more labour — but also more demand

An additional worker can add to economic output, tax receipts and the available labour supply.

But that same person also becomes an additional consumer of housing, healthcare, transport, energy, food, education and public infrastructure.

That is not a political opinion. It is basic economics.

If a country has five million residents and its population rises significantly while the supply of housing, hospitals, schools, roads and other infrastructure does not increase at the same rate, the additional population creates additional demand against a constrained supply of resources.

The result can be higher prices, greater congestion and pressure on public services.

Housing provides perhaps the clearest example.

EU house prices increased 5.1% year-on-year in Q1 2026, while rents increased 3.0%. Over the period from 2015 to Q3 2025, EU house prices had risen 64.9% and rents 21.8%.

Migration is not the only reason for those increases. Housing construction, planning restrictions, financing conditions, investment demand, income and demographics all matter.

But there is no economic mystery surrounding the demand effect:

more residents require more homes.

If supply does not keep up, the additional demand puts upward pressure on scarce housing.

The same principle applies to healthcare.

More residents mean more potential patients. If the number of doctors, nurses, hospitals and appointments does not increase sufficiently, capacity becomes tighter.

Waiting lists can therefore become longer even if the healthcare system itself has not become less efficient.

The same calculation applies to roads, public transport, schools and other infrastructure.

This is why the economic value of the additional population matters.

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The worker has to generate more than the worker consumes

This is where Europe’s migration debate should become much more economically sophisticated.

The relevant question is not simply:

“Is this person working?”

It should be:

“What is this person’s net economic contribution?”

That calculation includes several variables:

• productivity;
• wages;
• taxes paid;
• benefits received;
• demand for public services;
• housing demand;
• healthcare utilisation;
• infrastructure requirements;
• participation in the labour force;
• and the extent to which the worker fills a genuine labour shortage.

A highly skilled engineer earning €100,000 and filling a shortage in a strategically important industry represents a very different economic proposition from a low-productivity worker earning €25,000 in a sector where labour supply is already abundant.

Both are workers.

Their economic contribution is not necessarily equivalent.

That distinction is becoming increasingly important.

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Europe’s own data shows a significant skills difference

The argument does not require claiming that all migrants are unskilled.

The data does not support that.

But neither does the data support the idea that Europe’s additional labour supply is automatically composed of highly skilled workers.

Eurostat’s latest migrant integration statistics show that in 2025, 41.1% of non-EU citizens had a low level of educational attainment, compared with 19.5% of nationals.

At the other end of the scale, 37.6% of non-EU citizens had tertiary education compared with 45.8% of nationals.

There has been substantial improvement. Among non-EU citizens aged 25–34, the share with tertiary education increased from 24.2% in 2014 to 36.7% in 2024. But it remained below the 45.1% recorded among nationals of the reporting countries.

That matters because education and skills influence productivity, wages, employment and fiscal contribution.

Eurostat’s 2025 figures also show unemployment was substantially higher among people with low educational attainment: 10.5%, compared with 4.7% for medium education and 3.6% for high education.

The economic conclusion is therefore fairly obvious:

If Europe needs additional workers, it should care about the productivity and skills of those workers — not simply their number.

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Even highly educated migrants can be underutilised

There is another problem that is often overlooked.

Migration does not automatically convert education into economic productivity.

The ECB reports that in 2024, 40% of non-EU citizens with tertiary education were working in medium- or low-skilled occupations, nearly twice the rate for nationals.

The ECB explicitly identifies this mismatch as a drag on productivity because workers employed below their qualification level are not contributing their full potential.

This creates an extraordinary inefficiency.

Europe can spend years educating or attracting highly qualified people, only to place some of them into jobs that do not use their capabilities.

The solution is therefore not merely:

“More migration.”

It is:

“Better matching between migration, skills and economic demand.”

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The AI equation changes the argument

This is where the debate becomes considerably more important.

Europe is entering an economy where the amount of labour required to produce a given amount of economic output may fall in some industries.

Artificial intelligence is already spreading rapidly.

The ECB reported in August 2026 that the proportion of workers using AI at work had increased from 26% in 2024 to 41% in 2025 and 52% in 2026.

The adoption gap is also significant: 61% of highly educated workers reported using AI compared with 37% of workers with lower levels of education.

The ECB’s research does not suggest that AI has already produced a massive aggregate employment collapse.

It does, however, show that AI has the potential to change production processes and employment significantly. In its research covering 5,000 European firms, two-thirds reported that their employees were already using AI, while around one-quarter reported investing in AI.

This changes the demographic equation.

If one company can eventually produce the same output with 100 AI-assisted employees that previously required 150 employees, simply increasing the labour supply is not necessarily the optimal economic strategy.

The value increasingly lies in productivity per worker.

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Europe may have a labour shortage — but also a productivity problem

This is the central paradox.

Europe genuinely has labour shortages.

The ECB reports that foreign workers accounted for more than half of euro-area labour-force growth over the past four years, equivalent to approximately 4.2 million additional workers, increasing their share of the euro-area labour force from around 8% in 2021 to 10%.

So migration has clearly expanded the labour supply.

But the same ECB analysis warns that matching workers to appropriate occupations remains a major challenge.

That distinction is crucial.

Europe can solve a headcount problem without necessarily solving a productivity problem.

And if the additional population requires housing, healthcare, education, transport and other public infrastructure, the economic return from additional labour needs to be considered against those costs.

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The housing calculation cannot simply be ignored

This is perhaps where the political debate has become detached from economics.

Governments cannot increase population indefinitely and assume infrastructure will automatically catch up.

If 500,000 additional people arrive in a country, those people do not arrive carrying 500,000 newly constructed homes with them.

They compete for the existing housing stock while new housing is built.

If construction cannot keep pace, prices rise.

The same principle applies to healthcare capacity.

It applies to schools.

It applies to roads.

It applies to public transport.

It applies to energy and water infrastructure.

The fact that migration can also generate economic activity does not invalidate this calculation.

It means policymakers have to calculate both sides of the equation.

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The fiscal question is even more important

There is an uncomfortable question at the centre of this debate:

What is the lifetime fiscal contribution of the additional worker?

A high-income professional paying substantial income tax, social contributions and consumption taxes may make a very different contribution to public finances than a low-income worker requiring subsidised housing, healthcare, education or other public expenditure.

This does not mean that low-income workers have no economic value.

They clearly perform necessary work.

But policymakers should stop pretending that every additional worker produces the same economic return.

The marginal economic contribution matters.

And so does the marginal cost.

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Europe should compete for skills, not simply population

Europe’s demographic problem is real.

But there are several ways to respond to an ageing population.

One is to increase immigration.

Another is to increase productivity.

Another is to encourage higher labour-force participation.

Another is to invest in automation and AI.

Another is to extend productive working lives.

Another is to improve education and vocational training.

The strongest strategy is likely to involve all of these, rather than treating migration as the primary solution to every demographic problem.

And immigration itself can be designed around economic requirements.

If Europe has shortages in:

• doctors;
• nurses;
• engineers;
• AI specialists;
• software developers;
• skilled construction;
• energy;
• advanced manufacturing;
• scientific research;
• financial technology;

then immigration policy should actively compete for those skills.

That is fundamentally different from pursuing population growth for its own sake.

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The productivity premium is becoming more important

The next decade could make this distinction even more important.

AI is likely to increase the productivity of some workers while reducing demand for some routine occupations.

Highly educated workers are currently much more likely to use AI at work than lower-educated workers.

That does not mean every highly educated worker will prosper or every low-skilled worker will lose their job.

It means the economic premium attached to skills that complement technology may become increasingly important.

Europe therefore faces a choice.

It can compete globally for people.

Or it can compete globally for productive human capital.

Those are not necessarily the same thing.

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Today Markets View

Europe should stop measuring the success of migration policy primarily through the number of people entering the labour force.

The more important metric is economic output and fiscal value generated per additional worker relative to the additional demand placed on housing, healthcare, infrastructure and public finances.

Migration can be economically beneficial when it fills genuine labour shortages, raises productivity and expands the tax base.

But population growth without sufficient productivity growth can create a different problem: more people competing for limited housing and public capacity.

That is particularly relevant when Europe is simultaneously entering an era of rapid AI adoption.

The question facing policymakers is therefore no longer simply:

“How many workers does Europe need?”

It is:

“What kind of workers does Europe need, and how much economic value can each additional worker create?”

“Europe has spent years treating demographics primarily as a numbers problem. But the next phase of the European economy may make productivity far more important than population size. If AI can allow businesses to produce more with fewer people, the economic case for simply maximising the labour supply becomes weaker. The objective should be to attract, develop and retain workers whose skills complement Europe’s future economy — while ensuring that housing, healthcare and infrastructure expand alongside population where population growth is required.”

— Louis Roche, Analyst, Today Markets

The question Europe cannot avoid

Europe does need workers.

But it does not necessarily need more workers at any economic cost.

It needs workers who can contribute to productivity, fill genuine shortages, generate tax revenue and participate effectively in the economy.

At the same time, policymakers need to recognise the other side of the equation: every additional resident creates additional demand.

That demand has to be accommodated.

The economic calculation is therefore simple in principle, even if politically difficult in practice:

Additional economic output + additional tax revenue + productivity gains

versus

Additional housing + healthcare + infrastructure + public expenditure + integration costs.

The migration policy that produces the largest population is not necessarily the migration policy that produces the strongest economy.

And as AI continues to change the relationship between labour and output, Europe’s most important demographic question may ultimately become:

Does Europe need more workers — or more productive workers?

Analysis by Louis Roche, Analyst, Today Markets