These shares are set to increase even further due to the already agreed upon increases in the retirement age above 65. In Germany, for example, the increase of the retirement age to 67 years is set to add 2mn people aged 65 and 66 to the working age population in 2050, thus pushing the share of those aged 50 and older in the workforce population above 40%.
Against the background of these demographic developments there is an urgent need to (re)activate and retain the older workers in the labor market, to cushion the effect of demographic change on labor supply. This holds especially true for the EU member countries, where the population in the age group 20 to 64 is set to shrink markedly. If the labor force participation rate in the age group 60 to 64 in all EU countries were to rise to today’s level in Sweden, the number of people available on the labor market in this age group would increase from 15.3mn today to 20.3mn in 2050. For comparison: if today’s labor force participation rates in this age group remained constant in each of the EU 27 countries, their number would decrease to 14.2mn.
What does this mean for policymakers?
Governments and companies both need to make efforts to overcome stereotypes about older workers and adapt labor markets and workplaces to the needs of an aging population. This holds especially true against the background that many companies still do not seem to have a structured approach to deal with workforce aging and only a minority of employers has implemented policies to support a multigenerational workforce so far. However, efforts in this respect are not only needed to cushion the impact of demographic change; building and supporting multigenerational work environments can also help to improve job satisfaction across all age groups. In a recent global AARP study, 70% of older workers who worked in a multigenerational environment said they are satisfied or extremely satisfied with their job compared to 63%, who did not. The same holds true for 73% for workers in the group 25 to 44 compared to 67%, respectively.
Reasons for the slow adaption of the companies might be on the one hand that until recently the impact of demographic change was hardly felt on the labor markets on the one hand and persisting stereotypes about older workers on the other. According to the latest global AARP survey, 55% of older workers had completed job-related training in the past five years and among those who did not 41% said they would be interested in future trainings. However, many employers are reluctant to offer trainings to older employees assuming that investments in the qualification of older employees do not pay off due to a relatively shorter future tenure. Besides the fact, that thus the productivity of the workforce declines in the long run, this means mixing up tenure with age. Statistics show that younger workers tend to change their jobs more frequently and tend to stay a shorter time with an employer than older workers.
Measures to adapt workplaces to the needs of an aging workforce population include not only fostering lifelong learning, but also more flexibility with respect to working hours and place of work, as well as promoting healthy aging in the workplace. Measures such as offering part-time or remote work, health management or ergonomically friendly workplaces are often primarily aimed at improving the age-friendless of a company. But in fact, they also benefit younger workers and make a company more attractive for other population groups as well. According to the findings of a recent study, age-friendly jobs have not only benefited older workers, but also women and college graduates, who take these jobs in equal numbers as they obviously have the same occupational preferences as older workers.
However, the single most important measure might be a new approach to retirement. Arbitrarily set mandatory retirement ages neither reflect the diversity in the health status of individual workers nor the differences in job requirements. Shifting away from the chronological age of workers and employees for retirement would go a long way to increase employment among old workers. In fact, in many of the countries with the highest labor force participation rates in higher ages currently, the mandatory retirement age has already been increased above 65 years or there is no mandatory retirement age in the narrower sense. This means workers implicitly have the right to work longer and to retire at a higher age. Prominent examples are Sweden, which reports one of the highest employment rates in higher ages within the EU, and Singapore, where 47.5% of population aged between 65 and 69 is still active on the labor market. In both countries, the earliest retirement age is currently 63, but workers have the right to work until age of 68 in Singapore and 69 in Sweden. In Sweden, they can also work for longer if the employer agrees and, furthermore, there is no upper age limit with regard to earning pension rights. In Singapore, the retirement age is 63, while the re-employment age is 68. That means employers are not allowed to dismiss any employee below the retirement age of 63 because of the employee’s age and they must offer re-employment to eligible employees who turn 63 up to the re-employment age of 68. In Japan, reforms implemented in 2021 aimed at encouraging companies to increase the employment of workers aged between 65 and 70 years. In Germany, the gradual increase of the retirement age as well as the introduction of the so called Flexi Pension, which incentivizes later retirement by granting an additional 0.5% increase of pension benefits for every month retirement is postponed, and the abolition of additional earning limits aim at increasing the participation of older workers in the labor market.
Pension system reforms need to be accompanied by labor market policies to support the increase of labor market participation rates in higher ages. The government of Singapore, for example, also takes an active role by offering financial incentives such as the Senior Employment Credit, which provides wage offsets to employers that hire senior workers to adjust to the higher retirement age and re-employment age, as well as a part-time re-employment grant to employers who offer part-time re-employment. There are also other flexible work arrangements and structured career planning available to senior workers or a so-called Senior Worker Early Adopter Grant to incentivize companies to adopt a higher internal retirement and re-employment age above the statutory requirements.
However, there is no one-size-fits-all approach with regard to the labor market policies to foster the (re)employment of older workers. In many European countries, it is not only pension system reforms that seem to have had a marked impact on the increase of labor force participation rates in higher ages. To some extent, “less stringent employment protection legislation and more wage flexibility for the labor markets as a whole” might have also contributed to this development.[14] Granting employment subsidies did not prove to be a successful measure in every country, given the potential deadweight losses and substitution effects. Offering public work programs showed only some positive short-term effects, while mandatory job search activities proofed to be successful but with a time lag. Thus, the key for improving the employability of older workers and retaining them in the labor market are measures taken at the company level: the offer of training, part-time work, addressing age discrimination and fostering an age-diverse environment.
