Working for longer could boost UK GDP by £105 billion

Published at 00:01 AM on 14 June 2016

  • UK ranks 18th out of 34 OECD[1] countries in PwC’s Golden Age Index
  • Iceland tops the table, followed by New Zealand and Sweden
  • Across the OECD, working for longer could boost GDP by around $2.6 trillion in the long run.

The UK could add around 5.8% to its GDP (around £105 billion) if the employment rate of workers over 55 could match the highest performing EU country of Sweden, according to new PwC analysis that compares employment of older workers across 34 OECD countries. This would translate to a 15 percentage point increase in the UK’s full-time equivalent employment rate for workers aged 55-64 and a 4 percentage point increase for people aged over 65.

PwC’s Golden Age Index is a weighted average of indicators – including employment, earnings and training – that reflect the labour market impact of workers aged over 55. The UK has remained middling in the rankings since 2003, rising by one place to 18th in 2014 from 19th in 2013. While the UK has increased its employment rate among 55-64 year olds broadly in line with Sweden since 2003, the gap between the two economies remains similar. For people aged over 65 the employment rates of the UK and Sweden are closer together, but there is still room for improvement.

The UK has a high incidence of part-time work for 55-64 year olds. While this may be preferable for some workers, it could also adversely affect earnings, pensions and job security and so enters into the index negatively. But the UK has made some progress since 2003 in closing the gender gap between male and female employment rates for 55-64 year olds.

John Hawksworth, PwC’s chief economist, said:

“In comparison to other EU countries the UK performs relatively well, ranking 6th out of 21 EU countries in our index in 2014. This reflects stronger employment growth in the UK than most other EU countries in recent years, including for older workers. But we do less well when compared to the other high income countries outside Europe, including New Zealand, the US, Japan and Australia.

“Between 2015 and 2030, the population of those aged 55 and above in high-income countries is projected to grow by more than a quarter to around 500 million. Rapid population ageing is putting significant pressure on healthcare and pension systems. The UK and many other countries could offset these higher costs by tapping into their older workforce and so increasing both GDP and tax revenues. We have made some progress on this front, but there is a lot more to do to match the best performers like Iceland, New Zealand and Sweden.”

GA1130616

Key results – Nordic countries lead the way

OECD countries could add $2.6 trillion to their total GDP if the employment rate for workers aged over 55 was equal to Sweden, the best-performing EU country in the index.

The Nordic countries perform strongly on the index, with Iceland topping the list and Sweden in third and Norway in sixth place.  

Israel, Germany and New Zealand have shown the most significant improvement since 2003, primarily driven by an increased employment rate for older workers, especially within the 65-69 age group. Greece and Turkey have fallen the most in the rankings since 2003, partly due to falling employment rates for older workers.

The US still has the highest ranking of the G7, but has fallen from second place in 2003 to seventh in 2014 as other countries have improved faster (please see a full table of rankings in the notes for editors).

Public policy and business implications

The PwC report also looks at what strong performing countries have in common and suggests three key labour market themes that governments should focus on:

  • Encouraging later retirement. This could be achieved through pension reform or by creating other financial incentives that encourage workers to continue working past the official retirement age, as seen in Sweden for example.
  • Improving employability. Policymakers should focus on promoting lifelong education and training, which could boost the skills of older workers.
  • Reducing employment barriers for older workers. Public policy should place an emphasis on tightening regulation around labour market discrimination against older workers.

There are also several opportunities and challenges posed by the Golden Age Index for business. John Hawksworth commented:

“Businesses should look to adopt flexible working policies, such as ‘phased retirement’, and to redesign their offices and factories to better suit older workers. They should also take steps to achieve age diversity, for example through opening up apprenticeship schemes to older workers so that they can capitalise on their experience. ‘Reverse mentoring’ schemes can also enable younger workers to pass their digital skills on to older colleagues.”

Ends.

[1] Organisation for Economic Co-operation and Development

Notes for editors.

  1. PwC Golden Age Index rankings: GA2130616
  1. Methodology: The PwC Golden Age Index combines national performance on the following labour market indicators (with relative weights shown in brackets): Employment rate 55-64 (40%), Employment rate 65-69 (20%), Gender gap in employment, 55-64: ratio women/men (10%), Incidence of part-time work 55-64 (10%), Full time earnings 55-64 relative to 25-54 (10%), Average effective exit age from the labour force (5%), Participation in training: ratio 55-64 to 25-54 (5%)

These indicators are normalised, weighted and aggregated to generate index scores for each country. The index scores are on a scale from 0 to 100, with the average OECD value in the base year of 2003 set to 50. However, the average index values for 2007, 2013 and 2014 can be higher or lower than this 2003 baseline.

All data are taken from the OECD. We focus mostly on the 55-64 age group for data reasons. We do, however, include total employment rates for 65-69 year olds in the index and look at all workers over 55 in calculating potential boosts to GDP from higher employment rates for older workers.

The latest data available across the broad range of countries covered are for 2014. This updates the previous year’s index, which was based on data up to 2013.

The full-time equivalent employment rates for Sweden and the UK are:

                                             55-64                                 65+

UK                        51%                                      7%

Sweden               66%                                     11%

These employment rates are based on the assumption that a part-time employee works half the hours on average of a full-time employee.

  • A copy of the PwC Golden Age Index will be available from Tuesday 14th June 2016 at pwc.co.uk/goldenage

Ends.

For further information please contact Tilly Parke: [email protected] / +44 20 7804 8761


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