Older and Older

I think this is no longer news, but the OECD held a press conference yesterday to inform us that we are all living longer, but we still aren’t working longer, and that somehow these two facts don’t fit with our existing pension arrangements. Well perhaps it isn’t exactly news, but it still needs to sink-in somewhere. So I guess this is why yesterday the OECD were drawing everyone’s attention to a new report they have prepared on the basis of 21 separate country reports compiled as part of a thematic review of policies to improve labour market prospects for older workers initiated in 2001. The whole thing will get icing and a cherry at what is being called a High-Level Policy Forum to be held next Tuesday (18 October) at Palais d’Egmont. More details on the reports and the accompanying older workers forum can be found here).

At present, many public policies and workplace practices discourage older people from carrying on working. On average in OECD countries, fewer than 60% of people aged between 50 and 64 have a job, compared with 75% of people in the 25-49 age group (see Chart 1).

Such policies and practices are relics of a bygone age and unsustainable at a time when population ageing is straining public finances and holding back higher living standards. If there is no change in work patterns, the ratio of older inactive persons per worker will almost double in the OECD area over the next decades, from around 38% in 2000 to just over 70% in 2050.

This, in turn, would lead to higher taxes and/or lower benefits, coupled with slower economic growth. On the basis of unchanged patterns, OECD analysis shows, GDP growth per capita in the OECD area could shrink to around 1.7 % per year over the next three decades, about 30% below the average annual rates witnessed between 1970 and 2000.

Incidentally, I think this figure for sustained *per capita* growth of 1.7% across the OECD over the next decades is extraordinarily optimistic. If you strip out some of the large economies where the ageing problems are considerably more moderate – US, UK, France – I juts can’t see how the rest are going to sustain any per capita increase at all. What they will be into is damage containment. Unfortunately, as we can see, they seem to be in no special hurry to get on with even this.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

3 thoughts on “Older and Older

  1. “I juts can’t see how the rest are going to sustain any per capita increase at all.”

    Perhaps by providing incentives and opportunities for healthy, wealthy old people to spend their money? And if they’re not healthy, I’d have thought there’d be potential in healthcare.

    On a related note, you might be interested in this comparison of UK/DE policies on increasing workforce participation among 55-65 year olds.

    “In Germany and the UK, the issue of the employment of older workers has moved up the policy agenda in recent years. After decades of early retirement, concerns about the sustainability of public pension systems and future labour shortages have resulted in a new policy consensus around the need to integrate older workers. Policies are now emerging which are aimed at extending the end of working lives, closing of early retirement pathways and making continued employment more attractive, and educating employers and encouraging them to recruit older workers.”

    Regards, DVH

  2. “Perhaps by providing incentives and opportunities for healthy, wealthy old people to spend their money? And if they’re not healthy, I’d have thought there’d be potential in healthcare.”

    Clearly Dave there is a going to be a shift in the composition of demand, so there will be plenty of opportunities for some. The global imbalances debate is about whether the ‘saving as you are ageing’ effect outweighs the ‘I need to spend to be healthy’ one. Also there are a lot of issues on just how reform of the pensions systems impacts on saving and consumption across the age ranges.

    In Oecd terms ex US, UK, Spain, (and perhaps France) the savers seem to be winning hands down right now.

    “Policies are now emerging which are aimed at extending the end of working lives,”

    The real problem is exactly this: policies are only *now* emerging. The procrastination on the Lisbon agenda (see In No Hurry post) is symptomatic. Since a hell of a lot of people are going round saying that this is no big deal people are reluctant to readily accept what at the end of the day are rather painful reforms.

    If you were 55 and had been working 40 years already, maybe you wouldn’t warm too quickly to the idea of working another 10 or – lets be realistic 15 or maybe even 20 (the Japanese often work to 75) – years more. It depends on your job and the quality of your working life I suppose. And remember the big generations are in the 50-65 age group, so they pack political clout.

    It’s easy to do numbers on the back of an envelope, it’s another thing turning these into a reality. I still think some of the strongly ageing societies – Germany, Italy, Japan – will see a slow but steady contraction in their economies.

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