How can public policy harness the power of older workers?

14 June 2016

Between 2015 and 2030, the number of people aged 55 and above in high-income countries will grow by a quarter to around 500 million. While it is very good news that we are living longer, rapid population ageing is having a less positive impact on the public finances. In particular, significant financial pressure is being put on many publicly funded healthcare and pension systems.

To offset these higher costs, one solution is for older workers to be encouraged and enabled to remain in the workforce for longer. This would increase GDP, consumer spending power and tax revenues. But by how much?

To answer this question we have developed our Golden Age index to quantify how far different economies are harnessing the power of their older workers. The index captures a broad range of indicators relating to the participation of older people in employment and training. We first published this index last year, and have now updated the data and added estimates of how much each OECD economy could gain from raising employment rates for those aged over 55 to the levels of Sweden, the top performing EU country (Iceland and New Zealand being small island economies that seem less relevant as benchmarks for larger OECD economies like the US or the UK).

What we’ve found is that the OECD could add around $2.6 trillion to total GDP in the long run if countries with a lower full-time equivalent employment rate among their older workers increased their rates to Swedish levels.

Golden Age 2016

Of course, the potential GDP boost from increasing the employment rates of 55-64 year olds and people aged 65+ varies significantly across countries, from around 1% in Norway to over 10% in Italy and France and around 19% in Greece.

This reflects a wide variation in the labour market performance of older workers. The Nordic countries perform strongly on our Index, with Iceland coming in top again this year and Sweden and Norway at 3rd and 6th place respectively. These results are similar to those observed in our Women in Work Index.

Israel, Germany and New Zealand have shown the most significant improvement from 2003 to 2014, primarily driven by an increased employment rate for older workers, especially those over 65.

So what can governments learn from the different policies being pursued across the OECD? The top 3 performing countries in the index – Iceland, New Zealand and Sweden - have a common focus on facilitating later and flexible retirement. Other high ranking countries such as the US, Norway and Korea have adopted a holistic approach to public policy and introduced anti-discrimination legislation.

Meanwhile labour market policy for older workers in Japan, Germany and the UK aim to promote flexibility around the legal retirement age. Importantly, our analysis also suggests that policies to support older workers should not crowd out younger workers.

In our view, three priorities emerge strongly for government action. Firstly, governments should introduce policy measures to encourage or facilitate later retirement or flexible retirement (as is the case in Germany, for example). This could be achieved through pension reform or by creating other financial incentives that encourage workers to continue working beyond official retirement ages, which has been a feature of Swedish policy.

Secondly, governments could work with employers on schemes to provide training throughout people’s working lives which improves employability, upskilling older workers and potentially reducing unemployment of older workers.

Thirdly, governments could also reduce employment barriers for older workers by tightening regulation around labour market discrimination against older workers.

Only by acting on these priorities will older workers be motivated, and able, to stay in the workforce for longer, and enjoy living their longer lives.

John Hawksworth | Chief UK Economist
Profile | Email | +44 (0) 207 213 1650

 

Nick C Jones | Director of PwC's Public Sector Research Centre
Profile | Email | +44 (0) 207 213 1593

 

More articles by Nick C Jones

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