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Symposium 2013

Proposal - Ageing, Skills and Demographics Issues in our Modern Societies

The Challenge

In 2020 the majority of baby boomers (age group born between 1956 and 1965) retires. Together with the retirees, 50 years of working experience will disappear. Furthermore, work related values like jo ...

In 2020 the majority of baby boomers (age group born between 1956 and 1965) retires. Together with the retirees, 50 years of working experience will disappear. Furthermore, work related values like job guarantee, high income and power will disappear as well. Whereas the age group born between 1965 and 1981, known as Generation X, started to question these classic values and to bring up the term “Work-Life-Balance”,

Today, our societies not only face economic challenges, but also some deeper issues related to what should be the basis of any public policy: the human being, an individual worker active in a complex and interconnected society. The Organisation for Economic Co-operation and Development (OECD) has made this approach hers, while looking at the development of "better policies for better lives".

In this respect, labour and social policies play a critical role, at a time where ageing, pensions, skills transmission and workforce management issues need to be comprehensively addressed.

 

Do older workers crowd out youth? Does encouraging older workers to withdraw from the labour market open up new opportunities for youth and reduces unemployment?

These are the type of questions that have arised during the past few years, and which are part of the issue we will be discussing today.

In line with most previous findings in the literature, the OECD estimates show no evidence that higher employment of older workers reduces job opportunities for youth, even in the crisis. The traditional argument (the so-called “lump-of-labour” argument) is based on two wrong assumptions:

  1. The number of jobs is fixed. Many economists consider this a fallacy since employment is a not a given quantity but an outcome. Whether or not a reduction in the supply of older workers will increase the demand for other labour force participants depends on many factors including how the labour force withdrawal of older workers will be financed and its implications for labour taxes.
  2. It assumes that younger and older workers are substitutes in employment. In general, younger and older workers are likely to be employed in very different jobs doing very different tasks. Older workers necessarily have more labour market experience and are likely to be over-represented in declining industries, whereas younger workers have little labour market experience and are more likely to be employed in expanding industries. Concerning skills, the very different job profiles of younger and older workers reduces the probability that they are substitutes in production and may even imply they are complements.

 

The OECD, as a laboratory of best practices, has identified 5 strategic areas where governments and policy makers should work in order to address the fears of the workforce.

1) Investing in strategies that promote better employment outcomes at all ages

Rather than reinforcing the public perception that older and younger workers compete for a fixed number of jobs, governments should pursue a strategy of improving job prospects at all ages. Moreover, governments should not resort to measures that encourage older workers to withdraw from the labour market. These measures would be both expensive for the public purse and ineffective in alleviating the problem of high and persistent youth unemployment.

In particular, in the context of rapid population ageing, resorting to early retirement schemes would undermine the sustainability of social security systems and increase the risk of having to reduce its generosity in the future.

Then, it is important that governments pursue mutually reinforcing strategies that will lead to better employment prospects for both younger and older people, in particular:

  1. Growth-enhancing structural reforms can potentially benefit the labour market outcomes of both youth and older workers. An important example in this regard are reforms that seek to make the system of employment protection more balanced across different types of contracts in countries with a dual labour markets characterised by strong job protection for regular workers and a high incidence of temporary work
  2. Targeted active labour market policies can help youth and older workers with specific problems of finding or staying in employment. Both youth and older workers have sometimes received less attention from employment agencies either because they do not qualify for unemployment benefits (youth) or because they have been exempted from job search (older workers). Training and work-experience programmes can play an important role in helping disadvantaged youth getting a foothold in the labour market, whereas the effective provision of job-search assistance may be especially important for helping unemployed older workers back into work.
  3. An innovative approach may be to invest in building effective intergenerational partnerships between young and older workers. Such measures typically seek to strengthen complementarities in employment between youth and older workers by promoting: i) the transfer of competences between older and younger workers (e.g. firm-specific knowledge of older workers, entrepreneurship of young workers); and ii) the creation of jobs for youth and the retention older workers in employment.

 

2) Building effective intergenerational partnerships

A number of OECD countries have recently introduced initiatives that seek to foster intergenerational partnerships. While little is known about the effectiveness of these schemes to create jobs for youth and retain older workers in employment, they are unlikely to have played a major role so far. However, the main value of such schemes may be to foster a culture of greater co-operation across age groups.

In practice, in the four countries below, measures to promote intergenerational partnerships tend to take the form of tailored hiring subsidies or work-sharing arrangements:

  • In 2005, the federal authorities in Belgium enacted the Pact on solidarity between generations. The Pact was initially intended to contain only end-of-career measures, but youth employment measures were added at the request of the unions. The Pact consists of three components: active ageing, social security arrangements and jobs for youth. For example, it contains measures that aim at facilitating the recruitment of unskilled youth and promoting continued work of older workers beyond the pensionable age. The Belgian Higher Labour Council recently evaluated a large number of the measures included in the Pact. Its main findings are that their effects on active ageing have been minimal and that 16 of the measures have not or have not yet been fully implemented (Conseil Supérieur de l’Emploi, 2012).
  • In 2013 in France, the government introduced the “contrat de génération” (generation contract). The key idea is that the employment of younger and older workers can be rendered more complementary by promoting knowledge transfers across generations within firms. The contrat de génération gives subsidies to small and medium-sized companies (with less than 300 employees) for signing permanent contracts with people under the age of 26, while maintaining a corresponding older employee aged 57 or over in work or hiring a worker older than 55. The subsidy amounts to EUR 4 000 a year for a period of three years. For medium-sized companies (50-300 employees) the subsidy is conditional on having a negotiated collective agreement with specific reference to the contrat de génération, while this is not required for small firms. While the subsidy does not specifically target the least qualified, the subsidy is relatively more important for low-paid workers since it is a lump-sum that does not depend on earnings. Large companies (300+ employees) are not entitled to any subsidies but have an obligation to negotiate a collective agreement in the context of the contrat de génération and elaborate an action plan.
  • In Italy, a programme is in place since 2007 that promotes solidarity agreements between generations. The programme aims atpromoting hires of unemployed youth aged 25 to 29, while maintaining older workers in employment. The solidarity agreement promotes work sharing by facilitating and encouraging the transformation of full-time contracts of workers over 55 into part-time jobs, while generating at the same time part-time jobs for unemployed young people under 25 or under 30 if they have a university degree.
  • In Spain, the Strategy for Entrepreneurship and Youth Employment for 2013-16 includes among its measures a subsidy for inter-generational partnerships. More specifically, the strategy introduces a new hiring subsidy for young entrepreneurs who recruit a long-term unemployed worker aged 45 or above on an open-ended or fixed-term contract with a duration of at least 18 months. The subsidy takes the form of a 100% reduction in social-security contributions during the first year of the contract.

 

3) Working better with age

Giving older people better work incentives and choices is crucial in the context of rapid population ageing and pressures on the sustainability of public social expenditures. Therefore, the OECD is carrying out a new review of policies to encourage greater labour market participation at an older age by fostering employability, job mobility and labour demand. This review builds upon the policy agenda that was presented in its major multi-country report,  Live Longer, Work Longer, published in 2006.

The review consists of several activities:

  • A comparative policy review of recent reforms and measures to stimulate  employment of older workers.
  • An empirical study of the labour market for older workers focussing on the role of demand-side factors in shaping their job opportunities, employability and job mobility.
  • A cross-national policy synthesis report of the findings of the policy review, the analytical study and the country case studies.

 

Country case studies are currently implemented to evaluate the impact of recent policy reforms and identify good-practice measures to Work Better with Age. Six ‌countries are reviewed: Norway, France, The Netherlands, Poland, Denmark and Switzerland.

 

  • The first report on Norway was released in June 2013. Even if most older workers in Norway are in stable and high-quality jobs, they experience a very low hiring rate, one-third of the OECD average. Negative stereotypes and even age discrimination still need to be actively tackled. Part-time work is more frequent among older workers in Norway than on average in OECD countries and, while it may give some workers more flexibility, it can also prove stressful and may represent an underutilisation of the labour force.

 

  • The reports on France and the Netherlands will be published at the end of 2013, those on Poland, Denmark and Switzerland in 2014.  The cross-national policy synthesis report will be prepared in 2015 to be discussed at a high-level Policy Forum.

 

4) Giving youth a better start in the labour market is also a key priority

The global financial crisis has reinforced the message that more must be done to provide youth with the skills and help they need to get a better start in the labour market and progress in their career. Sharp increases in youth unemployment and underemployment have built upon long-standing structural obstacles that are preventing many youth in both OECD countries and emerging economies from making a successful transition from school to work.

Not all youth face the same difficulties in gaining access to productive and rewarding jobs, and the extent of these difficulties varies across countries. Nevertheless, in all countries, there is a core group of youth facing various combinations of high and persistent unemployment, poor quality jobs when they do find work and a high risk of social exclusion. In the context of rapid population ageing, successful engagement of this group in the labour market is crucial not only for improving their own employment prospects and well-being, but also for strengthening overall economic growth, equality and social cohesion.

  • In many countries, the immediate short-term challenge is to tackle a sharp increase in youth unemployment. In April 2013, the youth unemployment rate was close to 60% in Greece and Spain. For the OECD as a whole it was stuck at 16.5%, up from 12.1% just prior to the crisis, and two-and-a-half times the unemployment rate for those aged 25 and over.

 

  • Policies must also tackle long-term challenges arising from poor education outcomes and a wide gap between the worlds of education and work. The proportion of school drop outs (i.e. youth who have not completed a high school education) remains high in many countries. This can lead to poor integration of youth into the labour market and to patchy careers of low-paid work, often in the informal sector in many emerging economies, interspersed with open unemployment. For example, for young people aged 25-34 in the OECD area, the unemployment rate of those who did not complete upper secondary school has persistently remained at two-and-a-half to three times higher than the rate for university graduates.

 

  • Of particular concern is joblessness encountered early in working lives which can have scarring effects that jeopardise youth long-term career paths and future earnings prospects. Youth not in employment, education or training (so-called “NEETs”) are most at risk of scarring effects. In the OECD area, this group accounted for 15.2% of the youth population in the fourth quarter of 2012. More than one-fifth of all youth are in this situation in Greece, Italy, Mexico and Turkey and more than one-third in South Africa.

 

5) OECD’s Youth Action Plan

OECD Ministers at their meeting on 29-30 May agreed to take a comprehensive range of measures as set out in the OECD Action Plan for Youth. The first objective of these measures is to tackle the current situation of high youth unemployment and underemployment. The second objective is to produce better outcomes for youth in the longer run by equipping them with relevant skills and removing barriers to their employment.

It was also recognised that particular attention should be paid to the most disadvantaged groups of youth, such as the low-skilled or those from migrant backgrounds, who face the greatest risk of becoming permanently marginalised from the labour market along with a range of social problems. In line with the OECD Skills Strategy, effective action requires coordinated measures across all relevant ministerial portfolios and at the national and local level to ensure that youth acquire the right skills, bring those skills to the labour market and are able to utilise them effectively.

The OECD Action Plan for Youth is intended to build on and support existing national and local initiatives as well as the ILO Resolution on “The youth employment crisis: a call for action”, the G20 commitments on youth employment and the EU Council's agreement on the Youth Guarantee.

 

The OECD is committed to working with countries and all stakeholders involved, in order to bring the most adequate answers to the questions posed by the evolution of our modern societies.

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