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Older Workers: evidence from OECD countries

Raymond Torres, OECD

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

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

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!

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 Longevity effect: irrespective of the cohort effect, people live longer –life expectancy tends to improve 2 years every 10 years

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

US

16 14 12 10 8 6 4 2 0 %20-24 %60-64 19 95 20 00 20 05 20 10 20 15 20 20 20 25 20 30 20 35 20 40 20 45 20 50

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… as well as in the UK

United Kingdom

16 14 12 %60-64 10 8 6 %20-24 4 2 0 199 5 200 0 200 5 201 0 201 5 202 0 202 5 203 0 203 5 204 0 204 5 205 0

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The curves will cross in 2015 in Canada…

Canada

16 14 12 10 8 %60-64 %20-24 6 4 2 0 199 5 200 0 200 5 201 0 201 5 202 0 202 5 203 0 203 5 204 0 204 5 205 0

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… in 2010 in France, …

France

16 14 12 %60-64 10 8 6 %20-24 4 2 0 199 5 200 0 200 5 201 0 201 5 202 0 202 5 203 0 203 5 204 0 204 5 205 0

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…and now in Germany, Italy and Japan!

Germany

6 4 2 0 16 14 12 10 8 %60-64 %20-24 19 95 20 00 20 05 20 10 20 15 20 20 20 25 20 30 20 35 20 40 20 45 20 50

9 Italy

6 4 2 0 16 14 12 10 8 %60-64 %20-24 19 95 20 00 20 05 20 10 20 15 20 20 20 25 20 30 20 35 20 40 20 45 20 50

10 Japan

6 4 2 0 16 14 12 10 8 %60-64 %20-24 19 95 20 00 20 05 20 10 20 15 20 20 20 25 20 30 20 35 20 40 20 45 20 50

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

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

80 70 60 50 40 30 20 10 0 2000 Japan US EU 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

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

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=> This is unsustainable

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-1,5

Labour force growth under the constant scenario

Annual percentage change

1950-2000 -1,0 -0,5 2000-2020 0,0 0,5 1,0 2020-2050 1,5 2,0 -1,5 1950-2000 -1,0 -0,5 2000-2025 0,0 0,5 1,0 2025-2050 1,5 2,0 US US Japan Japan EU EU

Economic Growth –a simulation based on unchanged policy

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Average economic growth rate in% 1970-2000 2000-2030 US Canada France Germany Italy Japan UK 2.2 2.0

2.1

2.2

2.2

2.6

2.1

1.7

1.3

1.1

1.5

0.8

0.7

2.0

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

15 Percentage of the population who are employed, 2004

100 90 80 70 60 50 40 30 20 10 50-64 25-49 0 Ic eland Sw eden N N ew Z ay ealand Sw D enm U ark Japan nit U ed nit ed at es anadaKorea Kingdom land Aus tralia M ex ic o Port ugal OEC C zec D h R ep.

Ire N et land Germa ny Fran ce Spain Greec Lux e bourg Slov ak R ep.

H Aus tria Belgium Italy Poland rk ey

B. Three key barriers to working at an older age

Financial disincentives

Public pension rules Formal & informal early retirement schemes Few options for phased retirement

16 Employer barriers

Negative attitudes High labour costs Strict job protection rules EARLY EXIT FROM LABOUR MARKET

Weak employability

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

75 73 71 69 67 65 63 61 59 Effective age Official age 57 55 M ex ic o KoreaJap an Ic el an Swit d zer la nd Po rtug al Ire la D N nd en m ew ar Z U k ea ni la ted nd St ates Swed en Tu rk ey N or w C ay an U ad Au ni a st ted ra lia Kin gd om G re ece R ep ub lic N Sp et ai he n rla nd G er s m any Po la nd C zech Ital Slo y Fin vak la R nd ep ub lic Fra nc Be e lg iu m Au st ria Lu xem bo ur H g un ga ry

Improving incentives to continue working

 Ensure greater neutrality in work-retirement decisions   Moving towards actuarial neutrality Taking account of rising life expectancy  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

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 Beyond neutrality – actively promote participation    Increasing pension rights with age Part-time pensions Combining work and pensions

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Improving incentives to continue working

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?

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2. Employer barriers

Hiring and retention rates decline steeply after 50, reflecting:  Negative employer attitudes  Labour costs that rise with age faster than productivity

Seniority wages and hiring rates 20

14 1.0

12 10 8 6 4 2 0 1.0

1.1

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

Ratio of male earnings 55-59/25-29

c

7 6 AUS GBR DNK FIN CAN KOR HUN USA CZE SWE NOR ESP IRL ITA CHE DEU FRA JPN NLD AUT BEL LUX 5 4 3 2 1 1.2

1.3

1.4

1.5

1.6

1.7

1.8

Ratio of male earnings 55-59/25-29** 0 1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

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

** Full-time workers only.

Changing employer practices

 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

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 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?

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

3. Weak employability

Inadequate employment services  Obsolete skills  Training declines sharply with age Percentage of employees in age group who received job-related training over the previous year 15 10 5 40 35 30 25 20 50-64 25-49 0 Sw eden Sw itz erlandFin land D U enm nit ark ed KingdomN orw ay N et herlan ds Aus tria Belgium F ran ce em bourg Lux Italy C zec h R ep Ire land Slov ak R ep Germ any PolandHunga ry Port ugal Spain Greece

3. Weak employability

 Many older workers report poor working conditions

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60 Percentage of employees with unpleasant working conditions* 50-64 25-49 50 40 30 20 10 0 Greec e Spain Port ugal Ire land Fin land Lux em bourg Italy U nit ed Kingdom Belgium Aus tria Fran ce ny Sw eden Germa N et herlands Denm ark * 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.

Strengthening employability

 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

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 Improve the work environment   Greater flexibility in work hours Adapting working conditions

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Strengthening employability

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?

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THE BOTTOM LINE

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