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Older Workers: evidence from OECD countries

Raymond Torres, OECD

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Outline of presentation

A. Demographic trends: challenge and possible impact

B. Responding to the challenge through a strategy to promote employment of older workers

C. Key policy dilemmas

This work is being published in “Live Longer, Work Longer”, based on 21 OECD country reviews

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A. The ageing challenge

Cohort effect: young cohorts are getting smaller than older cohorts:

In the US and UK, by 2020, the size of the 20-24 age group will be smaller than that of the 60-64 group

In Canada, this will happen in 2015, in France in 2010, and in Italy, Germany and Japan it is happening now!

Longevity effect: irrespective of the cohort

effect, people live longer –life expectancy tends to improve 2 years every 10 years

4

US

%20-24

%60-64

0

2

4

6

8

10

12

14

16

1995

2000

2005

2010

2015

2020

2025

2030

2035

2040

2045

2050

Cohort effect: by 2020, less youth than older people in the US…

5

Japan

United Kingdom

%20-24

%60-64

0

2

4

6

8

10

12

14

16

1995

2000

2005

2010

2015

2020

2025

2030

2035

2040

2045

2050

… as well as in the UK

6

Japan

Canada

%20-24

%60-64

0

2

4

6

8

10

12

14

16

1995

2000

2005

2010

2015

2020

2025

2030

2035

2040

2045

2050

The curves will cross in 2015 in Canada…

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Japan

France

%20-24

%60-64

0

2

4

6

8

10

12

14

16

1995

2000

2005

2010

2015

2020

2025

2030

2035

2040

2045

2050

… in 2010 in France, …

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Japan

Germany

%20-24

%60-64

0

2

4

6

8

10

12

14

16

1995

2000

2005

2010

2015

2020

2025

2030

2035

2040

2045

2050

…and now in Germany, Italy and Japan!

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Japan

Italy

%20-24

%60-64

0

2

4

6

8

10

12

14

16

1995

2000

2005

2010

2015

2020

2025

2030

2035

2040

2045

2050

10

Japan

Japan

%20-24

%60-64

0

2

4

6

8

10

12

14

16

1995

2000

2005

2010

2015

2020

2025

2030

2035

2040

2045

2050

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Individuals aged 65 and over as a percentage of the population aged 20-64

US

Japan

EU

0

10

20

30

40

50

60

70

80

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Longevity: by 2050, the 65+ will be 40% to 70% of the 20-64 group, compared with less than 30% today

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Possible impact on growth and living standards

If nothing changes, labour force growth will be cut by half in US and will contract in size in EU and Japan

Economic growth will decelerate

There will be pressure to raise pension and other social spending, while the tax base will shrink

=> This is unsustainable

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Annual percentage changeLabour force growth under the constant scenario

US

Japan

EU

-1,5 -1,0 -0,5 0,0 0,5 1,0 1,5 2,0

1950-2000 2000-2020 2020-2050-1,5 -1,0 -0,5 0,0 0,5 1,0 1,5 2,0

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Economic Growth –a simulation based on unchanged policy

Average economic growth rate in% 1970-2000 2000-2030

US 2.2 1.7Canada 2.0 1.3France 2.1 1.1Germany 2.2 1.5Italy 2.2 0.8Japan 2.6 0.7UK 2.1 2.0

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Meeting these challenges will require mobilising more fully the labour resources of older people

Percentage of the population who are employed, 2004

0

10

20

30

40

50

60

70

80

90

100

Icelan

d

Sweden

Norway

New Z

ealan

d

Switzer

land

Denm

ark

Japa

n

United

Sta

tes

United

King

dom

Canad

a

Korea

Finlan

d

Austra

lia

Mex

ico

Portu

gal

OECD

Czech

Rep

.

Irelan

d

Nethe

rland

s

Germ

any

Franc

e

Spain

Greec

e

Luxe

mbo

urg

Slovak

Rep

.

Hunga

ry

Austri

a

Belgium Ita

ly

Poland

Turke

y

50-64 25-49

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B. Three key barriers to working at an older ageB. Three key barriers to working at an older age

Negative attitudes

High labour costs

Strict job protection rules

EARLY EXIT FROM LABOUR

MARKET

Financial disincentives

Employer barriers Weak employability

Public pension rules

Formal & informal early retirement schemes

Few options for phased retirement

Obsolete skills

Inadequate help for older jobseekers

Unsuitable work conditions & poor health

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1. Work disincentives Pension systems and other early retirement schemes

penalise work at older ages Effective age of retirement is below official age in most

countries

Effective age of retirement and the official age, 1999-2004

55

57

59

61

63

65

67

69

71

73

75

Mex

ico

Korea

Japa

n

Icelan

d

Switzer

land

Portu

gal

Irelan

d

Denm

ark

New Z

ealan

d

United

Sta

tes

Sweden

Turke

y

Norway

Canad

a

Austra

lia

United

King

dom

Greec

e

Czech

Rep

ublic

Spain

Nethe

rland

s

Germ

any

Poland Ita

ly

Finlan

d

Slovak

Rep

ublic

Franc

e

Belgium

Austri

a

Luxe

mbo

urg

Hunga

ry

Effective age Official age

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Ensure greater neutrality in work-retirement decisions

Moving towards actuarial neutrality Taking account of rising life expectancy

Improving incentives to continue workingImproving incentives to continue working

Reduce early retirement options

Raising pension age Phasing out formal early retirement schemes Ensuring that other welfare benefits are not used as early

retirement pathways

Beyond neutrality – actively promote participation

Increasing pension rights with age Part-time pensions Combining work and pensions

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Key issues:

Actuarial neutrality raises difficult issues concerning initial age, equity and adequacy of benefits.

Are measures to promote later retirement sufficiently targeted?

How to increase the flexibility of work-retirement decisions while discouraging early retirement?

How to deal with the stock of older people already on long-term benefits?

Improving incentives to continue workingImproving incentives to continue working

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2. Employer barriers Hiring and retention rates decline steeply after 50,

reflecting: Negative employer attitudes

Seniority wages and hiring rates

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1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8

Ratio of male earnings 55-59/25-29c

USA

GBR

CHE

SWE

ESP

NOR

NLDLUX

KOR

JPNITAIRL

HUN

DEUFRA

FIN

DNK

CZE

CAN

BELAUT

AUS

0

2

4

6

8

10

12

14

1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8

Ratio of male earnings 55-59/25-29**

Hiring rate of men 50-64 (%)*

Correlation coefficient: -0.64

AUT

BEL

CHE

CZE

DEUDNK

ESP

FIN

FRAHUN

IRL

ITA

JPN

LUX

NLD

NOR

SWE

UK

0

1

2

3

4

5

6

7

1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8

Ratio of male earnings 55-59/25-29c

* Ratio of employees with less than one year of tenure to all employees, 2004.

** Full-time workers only.

Labour costs that rise with age faster than productivity

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Tackle negative employer attitudes

Through age discrimination legislation And through information campaigns and guidelines

Align labour costs closer to productivity

Link earnings more closely to individual performance Avoid wage subsidies that are simply targeted by age

Focus on enhancing employability of older workers rather than on job protection

Reassess impact of job protection rules on labour mobility and hiring of older workers

Changing employer practices

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Key issues:

Age discrimination legislation is no panacea.

Should wage subsidies go to employers or to older workers via an earnings top-up?

Important role for non-governmental organisations.

How can good practices be promoted among SMEs?

Changing employer practices

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3. Weak employability Inadequate employment services

Percentage of employees in age group who received job-related training over the previous year

Obsolete skills Training declines sharply with age

0

5

10

15

20

25

30

35

40

Sweden

Switzer

land

Finlan

d

Denm

ark

United

King

dom

Norway

Nethe

rland

s

Austri

a

Belgium

Franc

e

Luxe

mbo

urg

Italy

Czech

Rep

Irelan

d

Slovak

Rep

Germ

any

Poland

Hunga

ry

Portu

gal

Spain

Greec

e

50-64 25-49

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3. Weak employability

Many older workers report poor working conditions

Percentage of employees with unpleasant working conditions*

0

10

20

30

40

50

60

Greec

e

Spain

Portu

gal

Irelan

d

Finlan

d

Luxe

mbo

urg

Italy

United

King

dom

Belgium

Austri

a

Franc

e

Sweden

Germ

any

Nethe

rland

s

Denm

ark

50-64 25-49

* For between one-half to all of the time, exposed in main job to at least one of the following: vibrations from hand tools or machinery; loud noise; high or low temperatures; breathing in vapours, fumes, dust or dangerous substances; handling dangerous products; and radiation such as X rays, radioactive radiation, welding light or laser beams.

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Ensure older unemployed are actively seeking work in exchange for better employment services

General exemptions from looking for work should be abolished

More resources should be devoted to helping older job seekers

Encourage greater take-up of training

More flexible courses

Better opportunities for lifelong learning

Improve the work environment

Greater flexibility in work hours

Adapting working conditions

Strengthening employability

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Key issues:

For older workers, the returns to training may not be high, thus need to invest more in lifelong learning. But how to do this? Who should pay for training and how can the more

disadvantaged groups be encouraged to train?

How best to encourage public and private employment

agencies to give more priority to helping older

jobseekers find jobs?

How can employers – especially SMEs – be encouraged to improve working conditions for both younger and older workers?

Strengthening employability

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THE BOTTOM LINE

Older workers must be given better incentives and opportunities to carry on working