The advantages are that they are helping to alleviate a global shortage of employees - especially skilled ones - while their knowledge is being transferred to younger colleagues, improving productivity and because so many new jobs require new skills, they are not competing for the same positions. In addition, postponing retirement means they are not putting anticipated pressure on social benefit systems.
The question is whether this is a one time generational event in social science terms, or the start of a secular change in workforce longevity. JL
Sarah Chaney reports in the Wall Street Journal:
As more of the population in advanced economies passes age 60, an increasing share have kept working. Participation by people age 65 and over began reaching a high of 15.3% across the developed world last year. The rise in labor-force participation of over-55 year olds in Italy, Japan, the U.S., the U.K., Germany and France equates to 18.8 million workers. The gray wave has been driven by pension changes, improved health and increased education, and could extend the business expansion by providing employers with more workers as unemployment reaches new lows.With more people working as they surpass retirement age, they pay taxes and don’t draw benefits, improving the solvency of public pension systems.
A slow-growing world is getting a boost from an unexpected source. As more of the population in advanced economies approaches or passes age 60, an increasing share have kept working rather than retire.
Labor-force participation—the share of people working or looking for work—for people aged 55 to 64 started climbing throughout advanced economies around the turn of the century, reversing decades of decline. Around 2010, participation by people age 65 and over began an upward march, reaching a near half-century high of 15.3% across the developed world last year.
The rise in labor-force participation of over-55 year olds in Italy, Japan, the U.S., the U.K., Germany and France since 2001 equates to a combined 18.8 million workers, or a 5.5% boost in their supply of labor, according to the Organization for Economic Cooperation and Development.
The gray wave has been driven by pension changes, improved health and increased education, and has several positive implications: It could extend the current business expansion by providing employers with more workers as unemployment reaches new lows. It offsets the drag on growth of aging populations; and it shores up public finances.
“You need more people, a greater share of the population to join the labor force, so you can produce the same amount of output,” said Petia Topalova, an International Monetary Fund economist. “It’s very much needed for most of these countries because populations are projected to decline in most of the advanced world over the next decade.”
Labor-force participation among older workers began a descent around the 1970s largely due to policies that encouraged early retirement, such as a lower retirement age and generous unemployment benefits.
Then, in the 1990s, several countries reversed course. Italy passed laws that gradually raised the early retirement age to 61 by 2011 from 52 in 1996. This appeared to help lift labor-force participation for men aged 55 to 59, which climbed steadily to 78% in 2014 from 54% in 2001, Courtney Coile, an economics professor at Wellesley College, and her co-authors found in a study.
In 1998, Germany began reducing pension benefits for early retirees. Near the turn of the century, it also cut the maximum duration of unemployment benefits for older workers. Participation by people age 55 to 64 has soared to 73.6% in 2018 from 43.1% in 2003.
Rising life expectancy also played a role. Some older workers may also have stayed on the job because of inadequate retirement savings, especially after the financial crisis depressed stock and home values.
While aging populations are slowing growth around the world, economic expansion would be even slower without workers’ rising participation. If the same share of Germans age 55 to 79 were in the labor force in 2018 as in 1991, Germany’s overall workforce would have contracted by 2.4%, or nearly 1 million people, over that period, according to an analysis by Mark Keese, an OECD employment economist. Instead, it expanded by 9.6%, or 3.8 million people. Italy’s labor force also would have contracted without growth in elderly participation.
The trend holds implications for public finances. With more people working as they approach or surpass retirement age, they continue to pay taxes and many don’t draw benefits, improving the solvency of public pension systems. Germany’s public pension system’s reserve, the amount in reserve to pay pensions, has increased to about €38 billion in 2018 ($43 billion in 2018) from about €2 billion in 2005.
Still, rising workforce participation by itself isn’t enough to offset the drag on growth from aging populations in coming decades, particularly in fast-aging countries like Japan and Germany.
Moreover, European populist movements threaten to derail policies aimed at keeping older workers employed longer, said Axel Börsch-Supan, economist at the Munich Center for the Economics of Aging. “You see what I call pension backlashes in several European countries,” he said. For example, Italy’s antiestablishment coalition took office last summer vowing to deliver more-generous pensions. Denmark’s Social Democrats won a general election on June 5 after promising, among other things, to enable earlier retirement by rolling back some recent pension changes.
Still, Mr. Keese points to Japan, which continues to defy economic odds despite its population’s advanced age. In 2018, 77% of Japanese aged 55 to 64 were in the labor force, up from 68.2% in 2011. “If other countries follow Japan’s pathway, then there’s still scope for employment rates to rise quite considerably, even from their current high levels,” he said.
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