How can public policy harness the power of older workers?

22 June 2017

Between 2015 and 2050, the number of people aged 55 and above in high-income (OECD) countries will grow by almost 50% to around 538 million. While it is very good news that we are living longer, rapidly ageing populations are putting significant financial pressures on many publicly funded health, social care and pension systems which will only increase over time.

To offset these higher costs, one solution is for older workers to be encouraged and enabled to remain in the workforce for longer. On the one hand, engaging older people in work can improve their physical and mental health, helping them to stay active and mentally stimulated and reduce the strain on health and care systems. On the other hand, it would also increase GDP, consumer spending power and tax revenues. But by how much? And through which policy interventions?

To answer these questions, we have developed our Golden Age index to quantify how far different economies are harnessing the power of their older workers. Now in its third year, the index captures a broad range of indicators relating to the participation of older people in employment and in training.

The bottom line to our analysis is that there continue to be large potential economic gains from keeping older people in work. Specifically, if all OECD countries could raise employment rates for those aged over 55 to the levels of Sweden, the top performing (large) EU country, the potential long term GDP gain could be around $2 trillion. Figure 1 illustrates the size of the gain by country.

Figure 1: Long run boost to GDP by country

Golden Age 2017 - blog figure

The distribution of the gains also shows how there is a wide variation in the current labour market performance of older workers. The Nordic countries perform strongly in our Index, with Iceland top again this year and Sweden and Norway at 4th and 6th place respectively. These results are similar to those observed in our Women in Work Index.

Germany has also shown the most significant improvement since 2003, due to reforms which have improved the flexibility of their labour market and increased employment rates for those aged 55–64.

So what can governments learn from the different policies being pursued across the OECD? The top performing countries in the index have a common focus on enhancing the incentives to remain in work for longer as well as raising state retirement ages. For instance, the ‘Hartz refoms’ in Germany have improved work incentives for those with low income potential while regional employment pacts have sought to provide better employment for older workers (though recent changes allowing early retirement from 63 could act the other way). In Australia, the pension system has been reformed to be more flexible including development of a Work Bonus for older people.

Importantly, our analysis also suggests that policies to support older workers should not crowd out younger workers at the economy-wide level since these older workers will spend much of their additional incomes, so creating new demand for labour elsewhere. We also find that employers can help by adopting flexible working and partial retirement options as well as redesigning roles and office/factory layout to meet the needs and preferences of older workers.

In our view, three priorities emerge for government action. Firstly, governments should introduce measures to improve employability, such as Iceland’s lifelong learning centres. Top performing countries support lifetime learning and training - particularly important in the face of rapid technological change - including reverse mentoring to upgrade digital skills and extending apprenticeships to older workers.

Secondly, reduce employment barriers for older workers by tightening regulation around labour market discrimination against older workers, as happens in New Zealand, and creating incentives for employers to hire and retain older workers, as happens as part of Sweden’s ‘New start jobs’ initiative.

Thirdly, encourage flexible working in both location and hours to suit changing working preferences and lifestyles, which might also happen alongside gradual or phased retirement. For instance, in Norway, early retirement is being discouraged by increasing the flexibility of partial pensions. Other countries, like Belgium and the Netherlands, incentivise older people to stay in work by offering working time reductions and more days off respectively.

By acting on these priorities, older workers should be motivated, and able, to stay in the workforce for longer, while also boosting their pension incomes when they do choose to retire.

Hannah Audino  
   +44 (0)7765 290554

 

George Mason   
   +44 (0)7710 033205

 

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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