exports as well as attract domestic and foreign investment. The OECD’s product market regulation indicator shows conditions in ECA to be 30 percent more prohibitive than the EU average, with particular bottlenecks arising from high public ownership and barriers to trade and investment (OECD 2022).

The invasion of Ukraine has put at risk decades of hard-won gains in regional trade and investment integration by fracturing critical trade routes, supply chains, and financial intermediation. This could result in less specialization, fewer economies of scale, less competition, and the slower spread of productivity-enhancing innovations.

Policies are urgently needed in many ECA countries to tackle intensifying demographic pressures by raising labor force participation. These include measures that would help raise retirement ages toward EU levels and help align retirement ages between men and women. In most ECA countries, the average effective labor market exit age remains below the EU average, with a large part of this gap accounted for by an earlier retirement age for women. Over the next decade, average effective retirement ages are expected to increase in the EU to 65 years for men and women, but in most ECA countries they will remain below this level (European Commission 2021). In some cases, such as Poland, earlier reforms to increase the retirement age of women have been reversed, with current legislation setting retirement ages at 65 years for men and 60 years for women. But in several economies (Bulgaria, Romania, Türkiye) pension reforms are planned that lift statutory retirement ages for men and women over the next decade or so.<sup>18</sup> These measures can be supplemented with others that increase the average effective labor market exit age (Carone et al. 2016). For instance, pension age reforms can be complemented with broader labor market policies tailored to older workers, including measures that incentivize job searches by older workers, and that support the retention of older workers, as well as increased investing in health care to promote healthier aging (Bodnár and Nerlich 2020).

Despite efforts to increase female labor force participation, women continue to make up a large share of the inactive population in both ECA and the EU.<sup>19</sup> Female labor force participation may be boosted by job training programs specifically for women, including vocational training. This is especially urgent given low training participation in the region (Bandiera, Buehren, Burgess, et al. 2020).

Measures that support the integration of migrants from Ukraine could boost the labor force and consequently potential growth (figure 10.D; IMF 2022a; Strzelecki, Growiec, and Wyszy ń ski 2020). The skill-matching issues discussed above can be addressed by active labor market policies, including measures that promote job search, training, and re-training. Many of these policies should target lower-income and lower-skilled

> 18 Increasing the female retirement age has been found to bolster female participation in such countries as Japan and Switzerland (Lalive and Staubli 2015).

> 19 In Romania, about three-quarters of the inactive population aged 25 to 59 years are women (among the highest of the EU), pointing to the need for further investment to expand access to child and elder care. The share of women in the inactive population aged 55 to 64 years is above the EU average in both Poland and Romania, partly reflecting lower legislated retirement ages and thus younger average effective exit ages.