Living Longer, Working Longer

By: Angel Gurria, Secretary General, Organization for Economic Cooperation and Development (OECD)

Publish Date: November  01,  2008

In an era of rapid population aging, we can no longer afford policies, employment practices and attitudes that discourage work at an older age. They not only deny older workers the choice of when and how they should retire, but are costly for business, the economy and society.

The key message that emerges from the OECD's work on population aging is that it is both a challenge and an opportunity. If nothing is done, population aging poses serious economic and social challenges. But it is also raises the prospect of longer, more prosperous lives, if increases in longevity are matched by longer working lives.

We are living longer and healthier lives on average than previous generations. If we have the courage to change our outdated policies, attitudes and employment practices with respect to work at an older age, we should be able to enter a virtuous circle where longevity promotes activity, and activity, in turn, promotes wealth and well-being.

But if nothing is done to promote better employment prospects for older workers, the number of retirees per worker will double over the next 50 years in OECD countries. This will place severe strains on the financing of social protection systems. Labor force growth has been an important contributor to economic growth in the past; but this will slow considerably over the next 50 years and in some OECD countries the labor force could even shrink. We have projected that Japan's total labor force could shrink by over one-third between now and 2050. Recruitment difficulties will also increase. In Europe, the number of workers retiring each year is likely to exceed the number of younger people entering the workforce by more than one million from around 2020 onwards. Employers may face even greater recruitment difficulties in the future in specific sectors such as health care.

To help meet these daunting challenges, work needs to be made a more attractive and rewarding proposition compared with the siren songs of early retirement. But how can this be achieved? The OECD's 2006 report, Live Longer, Work Longer, offers some answers based on its 4-year study of aging and employment policies in 21 OECD countries. It shows that there are three key factors discouraging older people from work, which need to be tackled urgently.

First, in some countries social-protection systems, including old-age pensions, disability and unemployment benefits, often function in ways that encourage older people to leave work at a relatively early age. As shown in the OECD's regular report Pensions at a Glance, pension schemes in many countries impose a large effective tax on working beyond the official retirement age. Some governments, especially in Europe, promoted early retirement in the past as a response to high and persistent unemployment in the mistaken belief that it would free up jobs for the young. This proved not to be the case - for example, even though France has one of the lowest effective retirement ages in the OECD, it has one of the highest rates of youth unemployment. Disability benefits have also become a de facto early retirement scheme in countries such as Australia, Austria, Finland, Poland and the United Kingdom. Indeed, the OECD's study on Sickness, Disability and Work, shows there has been a disturbing trend of increased reliance on sickness and disability benefits among the working-age population in many English-speaking and Nordic countries. Once a person of working age goes on these benefits, the probability of them working again before reaching retirement age is almost zero.

Second, employer attitudes and practices can make it difficult for older workers to keep their jobs or to find new ones. This partly reflects ageist attitudes but there are also objective factors driving employer behavior. In the face of overly-strict employment protection rules employers may also encourage older workers to take early retirement through schemes that are often publicly subsidized.

Third, older workers may be pushed into premature retirement by poor working conditions or because their skills have become obsolete. In all countries, older workers receive less training than younger workers. The older unemployed also often receive less help from the public employment service to find a new job; in several countries they are exempt from job-search requirements and they are less likely than the young to participate in active labor-market programs. Inflexible working patterns mean that many older workers face a stark choice between full-time work and full-time retirement.

The OECD has called for a new agenda of age-friendly policies and practices to tackle these disincentives to work at an older age. Governments, employers, trade unions and civil society all have a role to play in this agenda.

Governments must reduce the financial disincentives to carry on working by closing pathways to early retirement, raising the pension age or adjusting pension benefits in line with longevity trends, rewarding work at older ages and allowing flexibility in combining work income and pensions.

Dismantling employer barriers to hiring and retaining older workers requires action by government, employers and trade unions. Some countries have sought to deal with negative employer attitudes through age-discrimination legislation. Others have preferred to rely on public information campaigns and guidelines. However, both approaches should be pursued. And the appropriate balance needs to be found between protecting older workers' jobs and enhancing their labor mobility.

One area where much progress remains to be made concerns age-management practices in the workplace. There is great diversity both between and within countries in how employers are reacting to ageing workforces. Some model employers have recognized that older workers are a valuable source of talent, skills and knowledge and they are implementing innovative human resource policies to attract and retain them beyond standard retirement ages. But others, especially many small and medium-sized enterprises, do not see a strong business case yet for an age-diverse workforce. The challenge is how to get them to recognize the business case and to adopt the types of policies favored by the model employers.

Action to improve the employability of older workers is required on three fronts: skills, job search and better working conditions. The rewards for improved skills through training can be lower for older workers and their firms than for younger workers simply because there is less time to amortize the costs of training. It is crucial that lifelong learning policies encourage constant upgrading of skills over the entire working life. For these policies to be effective, unemployed workers of all ages must be subject to the same job-search requirements. Public employment services may need extra resources to provide tailored help to the over-50s. Improving occupational health and safety for workers of all ages will also help future generations of older workers to remain in employment longer.