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Symposium 2012

Proposal - Expanding Job Opportunities for Senior Citizens

The Challenge

Bureau of European Policy Advisers (BEPA) Session The key socioeconomic trend in many parts of the world—including China, Europe and the United States—is an ageing society. This trend is driven i ...

Bureau of European Policy Advisers (BEPA) Session

The key socioeconomic trend in many parts of the world—including China, Europe and the United States—is an ageing society. This trend is driven in part by lower fertility but mainly by higher longevity. This means that growing old age dependency—the ratio of older retired people to younger working people—will not disappear with the passing of the baby boom generation: indeed, it will keep increasing.

1. Improve employability of older workers by implementing lifelong learning and redesigning workplaces and work schedules.

In order to keep aging workers productive and, hence, attractive for firms to hire or retain, it is necessary to develop a corporate culture that promotes and protects the productivity of the senior worker. Such a culture consists of several dimensions, including supporting worker’s health, keeping human capital up to date, and maintaining motivation of the worker.

Increasing skills and competence of older workers calls for life-long learning, including learning toward the end of the career, in order to enable greater career mobility later in life. To remain productive and competitive in today’s labor markets, workers need to enhance and broaden their skills continuously. Firms should be aware of the prospect of tightening labor markets in an environment of aging populations and prepare their workforce for being productive for longer. Training may offer the possibility for older workers to shift across occupations within the firm. Workers’ incentives to enhance their skills and invest in their employability, possibly in a new occupation and a new firm, should be strengthened. And there may also be a role for governments to provide training programs for older workers, especially if structural adjustment leads to large scale redundancies.

Higher investment in human capital throughout the career will also facilitate and motivate workers to work longer. Entrenched expectations of early retirement can also be thwarted by providing older employees with development perspectives, such as by developing age-appropriate, career management geared to each phase of working life and providing flexible routes into final retirement. Expectation of staying longer at work in the reverse will encourage workers to invest in their skills, which will enhance the profitability of investments in training by the firm. However, to some extent a shorter pay-back period of training investments for older workers will remain an obstacle for higher take-up of continued training which may provide a rationale for the introduction of corporate training deductions at least for certain groups of older workers. At the same time, credible expectations that careers will extend (from effective 55 year old to say 60 year old,) will mitigate that.

Keeping workers healthy and physically able to work longer years will involve re-designing or avoiding activities which can only be performed for a limited period of time, avoiding longer-term repetitive stresses and strains on employees, and introducing measures which reduce or provide a break from arduous tasks. On an individual basis, a first step is to understand the nature and scope of the worker’s medical condition, how her work capacity is affected (temporarily or in the long term), and work out appropriate strategies that can be applied in a timely fashion to maintain that employee’s work capacity. In addition, more resources should be committed to preventive healthcare.

2. Allow wages to adjust to life-cycle productivity and refrain from overly restrictive employment protection legislation.

More flexibility in wage determination may improve the employability of workers where institutional rigidities prevent adjustment to changes in life-cycle productivity. If changes in the wage level during an individual’s working life are prevented to reflect age-related changes in productivity, employers are likely to be reluctant to retain old workers and will prefer to hire young workers. Cross-country empirical evidence shows a negative impact of high relative wages on employment opportunities of old workers. In some countries with particularly pronounced seniority wage systems, such as Japan and Korea, older workers are systematically forced to retire early from their career jobs to be employed in a different lower-paying job or start self-employment.

Strict employment protection is a double-edged sword as labor market outcomes are concerned. While retention of older workers may be increased, it is likely that the propensity of firms to hire older workers is reduced. Empirical evidence from OECD countries suggests that strict employment protection laws depress labor demand for older workers. In a similar vein, anti-age discrimination laws may provide a boon for older workers in jobs as they are more difficult to fire, but they harm those seeking employment and lower overall labor demand for older workers. Therefore employment protection legislation should pursue an age-neutral approach to collective dismissals which would lead to more uniform protection against redundancy for different groups of workers irrespective of their age and seniority.

3. Introduce more flexible working conditions and retirement schemes that facilitate partial retirement and downsizing.

To sustain the productivity of older workers, employers should be encouraged to create an appropriate working environment or use more flexible working conditions, including flexible rostering patterns, work schedules and part-time work, to react to potentially reduced physical or mental capacities. An important element to make work less demanding for older workers in the later stages of the work life would be the introduction of more flexible retirement schemes that enable employers to offer downshifting options, especially to low-skilled workers. Downshifting generally involves taking a position as retirement is approaching that involves fewer hours or less responsibility and may be a way to extend lifetime working time. Often there is, however, a strong disincentive to downsize in the latest stage of the career due to pension plans that connect the pension rights to the final salary (or salary in a small number of final years), which could be abolished by connecting pensions to the full lifetime income or contributions to the pension scheme.  Pension providers and others should also be aware that older workers may feel more comfortable moving to other employers if they are downshifting and should make their pension schemes flexible enough to accommodate this. People should be able to draw down pension entitlements (both from state pensions and from privately funded pension plans) in more flexible ways to enable gradual retirement. More flexible working time arrangements are also important in order to enable workers with caring responsibilities to remain in the workforce.

4. Establish a national or international clearinghouse for best practices.

An increasing number of predominantly large companies have started to design and implement programs that aim at retaining older workers and keeping them productive for longer. Establishing a platform for exchanging experiences – a clearing house at the national or international level – would help evaluating the programs and disseminating best practices, especially to smaller firms. There is also need for nonprofit organizations (NPOs) and NGOs that help workers in their retirement planning in an environment that would be more flexible but also potentially more complicated. The government could be a leader “by example” in developing a role model in how it engages and retains older workers. One element of policies to help senior workers remain in the labor market could be specializing part of employment agencies which should develop innovative strategies of getting older workers back into employment. The performance of these strategies should be monitored and information on good practices diffused widely.

5. Fight stigma and discrimination – correct popular misconceptions about ageing.

Impediments to employment of older workers are in part rooted in prejudices about the impact of age on employability of workers and the impact of working longer on the labor market. Informed discussions may help to combat widely held misconceptions about ageing. Researchers have an important role to play in translating results and giving policy advice to the general public as well as to politicians. Public agencies and employer’s associations as well as labor unions should engage in educating their clients / interlocutors to correct flawed views.

A notorious fallacy is to assume that keeping older workers for longer will squeeze out jobs for younger workers. Empirical evidence by contrast suggests that keeping older workers actually encourages the creation of more jobs for younger workers. There is also a concern by employers that older workers are less suitable for training and resistant to change. They thus tend to view investment to train older workers as unprofitable. It can, however, be expected that if workers undergo continued training throughout their working life a decline in their trainability in the old age will be limited. In addition, because retention rates of older workers are high, training older workers may be as profitable as training younger ones, especially if continued development perspectives increase the probability of the employee to work longer years.

As employability is concerned, while there is evidence of some decline in productivity of older workers relative to that of younger ones, experience and reliability are typical characteristics employers can benefit from when recruiting older workers. Recent research also finds that seniors are not more risk-averse, contrary to what is conventionally assumed. Moreover, older workers are typically found to be more cooperative than juniors in a team-production game. It is interesting to note that cooperation is highest in groups consisting of a mix of juniors and seniors, suggesting that there are indeed benefits in maintaining a work force with diversity in age. Promoting the benefits of an age-balanced workforce could be a focal point in information campaigns.


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