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LIVE LONGER, WORK LONGER: MAKING IT HAPPEN IN THE LABOR MARKET

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Implicit tax rates on continued work for males (at av. age of retirement, OECD) ... Few workers after 55 (60 in Japan) are retained in their existing jobs. ... – PowerPoint PPT presentation

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Title: LIVE LONGER, WORK LONGER: MAKING IT HAPPEN IN THE LABOR MARKET


1
LIVE LONGER, WORK LONGER MAKING IT HAPPEN IN THE
LABOR MARKET
  • Milan Vodopivec
  • The World Bank
  • International Forum on Pension Reform
  • Exploring the Link to Labor and Financial Market
    Reforms
  • June 7 9, 2007
  • Bled, Slovenia

2
Road map and summary
  • Why should people work longer?
  • Because they live longer.
  • Why is it difficult to make this happen?
  • Because workers do not want to work longer, and
    because employers are lukewarm about old workers.
  • 3. Why do (some) people work longer?
  • Mostly because they are forced to do so. Even in
    US, financial need is the single most important
    incentive to work longer.
  • 4. So what should be done so that people could
    work longer?
  • Improve choices to attract workers, and remove
    obstacles that prevent employers from offering
    more jobs to old workers

3
Why should people work longer?
  • Ageing of population falling fertility, rising
    life expectancy
  • Share of old people predicted to rise sharply
  • ?Slowdown of growth/reduction of labor supply
    will become a drag on economic growth, and it is
    not clear whether this can be offset by the rise
    in productivity

4
Demographic ageing, share of aged 60 and more,
2000-2050
5
Changes in age structure, Sri Lanka, 2007-2075
6
In near future, many countries will face labor
force reductions
7
And we spend fewer years in work than in non-work
8
Why would it help if people work longer?
  • In the US, if people continue to retire at 63,
    they are going to face a severe decline in living
    standards
  • Working longer
  • directly increases persons current income,
  • allows a person to accumulate more savings and
    investment earnings on savings and/or increase
    pension benefits, and
  • shortens the period over which people have to
    support themselves with their retirement assets.

9
2. Why is it difficult to make working longer
happen?
  • Because many people do not want to work longer --
    are happier in retirement than before, and
  • because employers are lukewarm about employment
    old workers.

10
Falling average retirement age of men, USA,
1910-2001
Source Burtless and Quinn (2002). Is Working
Longer The Answer for an Aging Workforce?,
Center for Retirement Research, Boston College.
11
How happy are retirees? (US)
Source Bender and Jivan (2005). What Makes
Retirees Happy?, Center for Retirement Research,
Boston College.
12
Employers perceptions about old workers
  • Old workers are viewed as
  • more reliable, and having better skills and work
    ethic,
  • but less suitable for training, and resistant to
    change and to learning new technologies.

13
Why are employers reluctant to hire old workers
(US survey)?
  • Shorter career potential
  • Lack energy
  • Costs of health and life insurance and pensions
  • Less flexible/adaptable
  • Higher salary expectations
  • Health risks absences
  • Knowledge and skills obsolescence
  • Block career paths of younger workers
  • Suspicion about competence (why leave job?)
  • Fear of discrimination suit

14
Evidence about labor mobility of old workers
  • Older workers
  • do not face greater risk of displacement
    (permanent, involuntary job loss), but
  • they are much less likely to get a job after
    losing one, and
  • they face much larger post-displacement wage
    losses (in Slovenia, about 30 percent)

15
Are old workers less productive than young ones?
  • Evidence suggests so but the relationship is
    non-linear, with large differences across
    individuals and tasks.
  • After age of 50, physical and mental ability
    start to decline
  • Old workers also lack the ability to adjust to
    changes evidence from productivity studies based
    on matched employer-employee data
  • In contrast, some verbal abilities remain
    virtually unchanged also late in the life cycle.

16
Slovenia Differences in productivity and
relative wages by age, 1992-2001
Matija Vodopivec (2007). Equal Pay for Equal
Work? Wage and Productivity Differentials During
Slovenias Transition
17
3. Why do (some) people work longer?
  • Because they have to (inadequate incomes when
    they are older).
  • But also due to new trends
  • More flexible forms of employment
  • Old workers are becoming healthier
  • Satisfaction from work

18
Having to work longer -- evidence from US
  • 1 out of 4 workers in the US would like to
    continue working after the age at which similar
    workers retired earlier because they do not have
    sufficient resources
  • Collapse of the stock market in 2001 caused the
    increase of LFP rate of workers aged 55-64 by 2
    percentage points (from 60 to 62)

19
Having to work longer Sri Lanka - retirement
status, by prime-age employment type and age
20
Reversal of LFP rates for old men since early
1990s, US
21
What explains the reversal in retirement trends
in US?
  • Not favoring early retirement any more --
    reversal of incentives reduction of benefits
    upon retirement, keeping (part of) pension income
    if working
  • New trends appearing in the last twenty years
  • more flexible jobs for older workers (more
    part-time and bridge jobs), particularly among
    educated and well-off workers
  • erosion of mandatory retirement provisions
  • older workers are healthier

22
Older Americans with any kind of disability, by
age, 1984-2005 ()
23
What explains the reversal in retirement trends
in US?
  • What makes retirees happy?
  • Being economically well off (income and wealth)
  • Ability to choose those who are forced to retire
    are much less happy
  • Good health
  • Having a job!!
  • Source Bender and Jivan (2005). What Makes
    Retirees Happy?, Center for Retirement Research,
    Boston College.

24
4. So what should be done so that people could
work longer?
  • What will make people work longer? Improving
    choices
  • What will make employers offer more jobs to old
    workers? Removing obstacles

25
What will make people work longer? Improving
choices
  • More money making retirement incentives right
  • Flexible work arrangements
  • Better health

26
Implicit tax rates on continued work for males
(at av. age of retirement, OECD)
27
Flexible work arrangements part-time work is
higher for old workers, OECD, 2004
28
Ill-health is the main reason for retirement for
casual workers in Sri Lanka (2006)
29
What will make employers offer more jobs to old
workers? Removing obstacles
  • Adjusting wage setting mechanism
  • Getting employment protection legislation right
  • Preventing age discrimination
  • Increasing mandatory retirement
  • Changing employer attitudes
  • Improving employability of old workers
    introducing lifelong learning

30
Adjusting wage setting mechanism relative wages
of old workers exceed relative productivity,
Slovenia (1992-2001)
31
Consequences of seniority wages Korea and Japan
  • A relatively low age of mandatory retirement.
  • Few workers after 55 (60 in Japan) are retained
    in their existing jobs.
  • To get a job, many have to shift to part-time or
    temporary work, with considerable reduction in
    earnings.

32
Strict employment protection legislation hurts
hiring of old workers
33
Preventing age discrimination
  • By antidiscrimination law?
  • In US, a law prohibits age-based discrimination
    through hiring, firing, layoffs, compensation.
  • In practice, the law may have only limited
    benefits and significant costs. Although the laws
    provide a boon for older men who remain in their
    jobs and are more difficult to fire, they harm
    those seeking new employment.
  • Information campaigns to promote age diversity

34
Improving employability of old workers lifelong
learning
  • Among barriers to employability, every OECD
    country stated low incidence of adult training,
    especially after 50.
  • But employers may be reluctant in Slovenia in
    2004, 45 of workers participated in skill
    development (11 pp more than in 1987) but few
    workers aged 50 and above, because employers did
    not pay for their training.

35
Training of older workers and expected pay-back
period, OECD (1999-2004)
36
Improving training for old workers
  • The larger the expected pay-back period, the
    higher the willingness of employers to pay for
    training
  • Promote lifelong learning training of young
    workers will increase the likelihood of training
    later in their careers
  • Adjust training courses to the needs of older
    workers (way of training, short courses, strong
    links to workplace)
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