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Symposium 2012

Solution for 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.

Allow wages to adjust to lifecycle productivity and refrain from restrictive employment protection legislation that prevents such adjustment.

More flexibility in wage determination may improve the employability of workers where institutional rigidities prevent adjustment to changes in lifecycle 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 older workers and will prefer to hire young workers.

Cross-country empirical evidence shows a negative impact of high relative wages on employment opportunities for older 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 either reemployed by the same employer for a deeply reduced wage, employed in a different lower-paying job or start self-employment. Alternatively, providing a legal framework that eases the rehiring of retired workers temporarily in times of high labor demand would offer an attractive alternative to hiring new staff.

Strict employment protection is a double-edged sword for labor market outcomes. While the 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, laws against age discrimination may benefit older workers in jobs as they are more difficult to fire but harm those seeking employment and reduce overall labor demand for older workers. In the short term, such laws may help to correct wrongful perceptions of senior workers. In the medium term, 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.

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