16 September 2019

A quiet revolution is underway in Britain’s workforce

By Ian Stewart

Jobs markets are barometers of social change. In the last 30 years much of the growth in employment in the West has been driven by women and foreign-born workers. Employment rates for men have declined.

In the US in the early 1950s around 90% of men of working age were in work or searching for a job; today, with America’s unemployment rate close to record lows, just over 70% of men are working. Explanations range from the loss of traditionally ‘male’ jobs to diminishing returns to unskilled labour, the competing appeal of computer gaming and the role of women, parents and the government in supporting male incomes.

Arguably the most profound trend in jobs markets in recent years has been the rising numbers of over-55s who carry on working. (In this note we describe over-55s as older workers; this is, of course, an arbitrary and subjective benchmark.)

Since 2012 most of the growth in employment in the West has been driven by older workers, a majority of them women. In the UK the proportion of 55 to 64-year-olds who work has risen from 58% in 2008 to over 65% today. The same trend has been seen across the industrialised world.

Money is, of course, a key motivation. The shift from generous defined benefit to patchier coverage of defined contribution pensions is starting to be felt among those aged over 50. Worries about social care costs, asset returns and benefit levels have created new uncertainties. Some parents stay on at work to help their children cover the rising cost of university and housing. Others, with irregular earnings or few savings, have no choice but to carry on working.

There are also positives reasons for the growing representation of older people in the workforce.

Many older workers say they want to remain active and enjoy the sense of purpose a job can bring. People who work later tend to be healthier than those who don’t, though it is unclear which way the causation works. A fixed retirement age is anachronistic in a world where people live longer, healthier, lives. The decline of physical labour, and the growth of ‘people focussed’ and cognitive work, has lowered one barrier to later working; age discrimination legislation has reduced another. Meanwhile, growth in flexible and part-time work and in self-employment makes it easier for older people to combine work with other interests and responsibilities.

The trend to working later has wider benefits. It offers part of the solution to the burgeoning cost of state pensions, social care and health care. Later working counters the depressant effect on GDP growth of lower birth rates and a shrinking younger workforce.

People are retiring later across the West, but at very different ages. Retirement comes earliest in France and Spain, where just 52% of 55 to 64-year-olds work. At the opposite end are Sweden and New Zealand, where 78% of 55 to 64-year-olds carry on working. The idea that extending working lives reduces the amount of work available to young people is not born out by experience; young people are, for instance, far more likely to be in work in Sweden and New Zealand than in France and Spain. Flexible, open job markets help younger and older people.

Academic studies disagree on whether productivity declines with age. A recent UK government report found “no consistent evidence that older workers are generally less productive than younger ones” noting that, “knowledge and experience…compensate for age-related declines” in many aspects of performance. A 2010 study of productivity in Dutch manufacturing found, “little evidence of an age-related pay-productivity gap”.  Yet far more compelling is the simple fact that businesses are employing increasing numbers of older workers; they do so because it makes business sense.

Despite recent increases in workforce participation, older workers remain an underexploited resource. For instance, raising UK employment rates for 55 to 64-year-olds to Swedish or New Zealand levels would increase the UK workforce by over 3%, an increase of 1 million people.

To achieve this requires a greater focus on training and education for older workers (employment rates among less skilled older people are far lower for those with qualifications). The structure of work also needs to evolve. In Germany Porsche is re-designing factories to enable older people to continue working. The pharmacy chain CVS allows its older workers in northern states to move and work in branches in warmer southern states in the winter months.

A quiet revolution is underway in the workforce. Ageing populations mean longer working lives. A brief era of multi-decade retirement is drawing to a close. Business, government and individuals need to prepare for it.

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Ian Stewart is chief economist at Deloitte