Working Later in Life

Working Later in Life

Timothy Taylor 21/12/2020 4
Working Later in Life

When President Franklin Roosevelt signed the Social Security act into law in 1935, with the goal of providing old-age benefits to those over age 65, average life expectancy in the United States was about 62 years: that is, the average person wouldn't live long enough to qualify for the program.

Now, US life expectancy is about 79 years, and the average age of retirement is 60. It's no wonder programs to support the elderly are so politically powerful, nor that they have experienced rising costs. 

It's far from clear that all retirees want to retire as soon as they do. Sometimes people near the end of their working lives are caught in macroeconomic turmoil, like the Great Recession or the pandemic recession, and they end up losing out on a few years when they might have preferred to be remain attached to the workforce, earning some additional income. In other cases, older workers would be open to part-time or more flexible work arrangements, but when these don't seem to be available to them, they end up retiring instead. In still other cases, potential older workers get the message that employers are looking for someone younger.

In addition, as many people go to school longer, marry and have children at older ages, and keep good health until older ages, it seems plausible that working to older ages may become more common, too. There are more and more jobs that involve offering a service or doing digital work that are not physically taxing. 

In thinking about this report, it's perhaps a useful starting point to remember that we are not debating whether populations around the world and the potential working-age population will continue to age. Those changes are happening. The historical experience in the US is that many workplaces had a relatively larger number of younger workers in lower-level jobs, led by a relatively smaller number of older workers in high-level jobs. That pattern seems likely to shift to a more genuinely multigenerational workplace, with people of all ages at all levels.  The question is how to react: for individuals thinking about their life plans, for employers thinking about hiring and retention policies, and for countries thinking about solvency for their old-age support programs and economic growth more broadly.  With this vision in mind, the OECD has published Promoting an Age-Inclusive Workforce: Living, Learning and Earning Longer. 

Here are a few thoughts based on that report: 

"The ratio of working-age population to total population is headed for decline in many countries, including the US. This pattern means that a smaller share of working-age people are going to be supporting a larger share of those outside their working age, like the elderly and children. The OECD calculates that in the United States, a rise in working age of four years, spread over the period from 2015-2050, would keep the ratio of working-age population to total population from falling. Indeed, since about 2000, labor force participation among those over 65 has been edging upward

Employers who are aware of this demographic shift to aging might want to keep some patterns in mind. One is that older workers tend to stay with a firm longer, and thus reduce costs of hiring and retention: "Worker turnover is lower for older workers than for prime-age and for younger workers and the presence of older workers makes fewer young colleagues leave as well. ... Employee turnover is 4% lower at a firm that has a 10% higher share of older workers than the average firm." 

Another is that older workers often have better skills when it comes to teamwork:

"Teamwork is among the most frequently used skills at work, in particular in Anglo-Saxon countries ... Networked ways of working foster collaboration between co-workers from disparate parts of the organisation, both in terms of content and geographical location. Effectively, this sets up undefined work groups next to the traditional team structure, so-called “hidden teams”. Older workers that exhibit good moderation skills based on their long-standing experience play a vital role here. Yet, older workers may not be getting the credit they deserve for improving team performance ..." 

A multigenerational workforce may understand the market better: "Moreover, an age-diverse workforce may lead to better business-to-consumer and business-to-business relationships, as representing the age groups of the firm’s clients in the own workforce makes it easier to know what customers need. In fact, human resource professionals stress that enhanced customer service is one of the key benefits of age-diverse teams."

There are likely to be complementarities between younger and older workers:

"Research on these kinds of co-worker complementarities between workers of different ages has been scarce, even though human resource professionals and workers themselves name knowledge sharing and having different perspectives the key benefits of age-diverse teams ... A key takeaway is that workers are more productive when they work with others who are of a different age, thanks to the complementarities between them."

A firm that is serious about facing the looming reality of a multigenerational workforce would need to make various changes. For example, it might think about how whether its recruiting for new workers is explicitly or implicitly aimed at the young, or if, for example, it is also appealing to "returners" who have been out of the workforce and are now rejoining it. It might think about phased retirement plans for older workers. 

Currently, however, few employers have policies in place that support a multigenerational workforce. This applies in all policy dimensions: from supporting mobilisation and management of a multigenerational workforce to making jobs attractive at all life stages and keeping skills up-to-date for a long and productive career. According to the AARP Global Employer Survey 2020, in no policy area have more than 6% of employers implemented policies that are targeted at supporting a multigenerational workforce, such as unbiased recruiting processes and return-to-work or phased retirement programmes ... 

Employers often talk about the need for continual retraining of workers, but they do not take advantage of how a multigenerational workforce may help with that process. The obvious example is when older employers mentor younger ones. But a less obvious example is that in a technology-driven world, younger employees may often be able to offer "reverse mentoring" to those who are older (citations omitted from quotation): 

Reverse mentoring, is inherently related to coaching and mentoring, and is of growing in prominence. Where mentoring and coaching open up learning opportunities for junior employees, reverse mentoring revolves around the transfer of knowledge and competences from junior employees to more senior ones. In the United States, a range of large organisations have implemented reverse mentoring including, e.g. General Motors, Unilever, Deloitte & Touche, Procter & Gamble, and IBM. Various stakeholders have discussed the advantages of this practice within the context of multigenerational teams. Reverse mentoring contributes to knowledge transmission between junior and senior employees, resulting in intergenerational learning. The many examples of this practice across a wide range of enterprises shows that companies recognise the importance and effectiveness of this approach. ... According to the OECD’s PIAAC data on adult skills, younger individuals score higher on average than older individuals on technological dexterity. In this context, reverse mentoring is a means for skills transfer between generations or different experiences. However, academics argue that the use of reverse mentoring can, and should, go beyond learning about technology; reverse mentoring can also be a means to learn about current issues related to diversity, and breakdown age-stereotypes. Higher levels of understanding, and better coordination of work processes all lead to higher commitment levels amongst employees, which benefits organisations.

Finally, one sometimes hears the complaint that older workers need to get out of the workforce so that younger workers can have their opportunity. There may be some situations where this hold true, but in a broad sense, there doesn't seem to be evidence for a social tradeoff that countries with fewer elderly people working see a pattern of benefits for younger workers. The OECD report notes: 

A conventional wisdom is that demand for labour is fixed so that older and younger workers compete for jobs. This is often referred to as the lump-of-labour argument. 30% of respondents to the 2015 ISSP survey said that employed people aged 60 or older take jobs away from the young. ... Such perceptions are nurtured by short-term crisis situations in which companies need to reduce or at least not expand their workforce while workers seek to remain in their jobs as the future seems uncertain. ... In general, the wisdom of the young and the old being substitutes rather than complements is a fallacy. The empirical literature that specifically analyses for many different countries the relationship between younger workers’ employment and that of older workers does not find a crowding-out effect (OECD, 2013[14]). One indicator is the positive correlation between the employment rates of older and younger workers among OECD countries ... The reason is simple; younger and older workers differ in skills and experience, the closest substitute for an older worker is another older worker rather than a younger worker.  ...  As a consequence, past policies to promote early retirement in the hope of lifting youth employment in OECD countries have proven ineffective.

Of course, governments also have a role to play, in thinking about  how the rules for programs like Social Security or Medicare may discourage work. But my sense is that a lot of resistance to the idea of a multigenerational workforce is based in attitudes that reflect the demographics that used to be, not the demographics to come. 

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  • Thomas Abbatt

    Millions of people around the world over 60 years old are either full or part-time.

  • Simon C

    Universal income could make workers above 60 enjoy their retirements in addition to their pension.

  • Eugene Kenny

    Brilliant analysis

  • Philip Rees

    You can't stop working otherwise who will pay medical bills?

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Timothy Taylor

Global Economy Expert

Timothy Taylor is an American economist. He is managing editor of the Journal of Economic Perspectives, a quarterly academic journal produced at Macalester College and published by the American Economic Association. Taylor received his Bachelor of Arts degree from Haverford College and a master's degree in economics from Stanford University. At Stanford, he was winner of the award for excellent teaching in a large class (more than 30 students) given by the Associated Students of Stanford University. At Minnesota, he was named a Distinguished Lecturer by the Department of Economics and voted Teacher of the Year by the master's degree students at the Hubert H. Humphrey Institute of Public Affairs. Taylor has been a guest speaker for groups of teachers of high school economics, visiting diplomats from eastern Europe, talk-radio shows, and community groups. From 1989 to 1997, Professor Taylor wrote an economics opinion column for the San Jose Mercury-News. He has published multiple lectures on economics through The Teaching Company. With Rudolph Penner and Isabel Sawhill, he is co-author of Updating America's Social Contract (2000), whose first chapter provided an early radical centrist perspective, "An Agenda for the Radical Middle". Taylor is also the author of The Instant Economist: Everything You Need to Know About How the Economy Works, published by the Penguin Group in 2012. The fourth edition of Taylor's Principles of Economics textbook was published by Textbook Media in 2017.

   

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