Finance & economics | Buttonwood

Work until you drop

Ageing societies create many employment challenges

THE developed world is heading into what Shakespeare described as “second childishness and mere oblivion, sans eyes, sans teeth, sans taste, sans everything”. The share of the population aged over 65 in rich countries will rise from 15% in 2010 to 27% by 2050, while those aged over 80 will increase from 4% to 9%. While this trend is well known, countries are only just starting to grapple with the implications. The issue was the subject of a conference held at the London School of Economics last month.

There are two main ageing-related problems. The first is how to achieve economic growth (and afford social benefits) in the face of a shrinking workforce. The second issue, given that shrinking workforce, is how to look after the very elderly, many of whom will need round-the-clock nursing.

In terms of growth, one obvious answer is to get people to work longer. Since 1970, the life expectancy of the average 65-year-old in the OECD, a club mostly of rich countries, has risen by four or five years, virtually all of which has been spent in retirement. The age at which governments start paying pensions is at last starting to edge higher, from 65 to 67 or 68.

However, it may well be that changes in private-sector pensions are more important in determining how long the elderly work. Generous final-salary pensions are dying out; they have been replaced with defined-contribution schemes, whereby the employee accumulates a pot to see him through his dotage. These pots may be too small to generate a decent income, as many people are discovering; they will need to keep working, whatever the official retirement age may be.

In Britain the proportion of men aged over 65 in employment has risen from less than 8% at the turn of the century to more than 13% today (for women, the increase has been from just over 3% to more than 7%). In addition, fewer people are taking early retirement, whether voluntary or involuntary. At the turn of the century, 54% of British women aged 50-64 were in work; now it is nearly 66% (for men, the rise has been from 72% to 78% over the same period). Since the recession, the biggest single gain in employment has been among women aged 60-64.

Similar trends have been seen in America. Since 2000, employment of those aged 65 and over has risen by 51%, while that of those aged 25-64 has fallen 3.5%.

An interesting question is whether this shift explains two big trends in the labour market: the weakness of wages and poor productivity. The growing ranks of older workers (particularly those working part-time) may be putting pressure on wages.

Could they also be less productive? It is hard to be certain. Whether, and how fast, workers’ productivity declines with age must depend on what they do; what is true for manual labour may not be true for consultancy. Economists assume that wages move in tandem with productivity, as employers reward workers for the value of their output (minus a profit margin). In practice, however, wages are set by a more complex process that is partly a matter of custom. Most workers are not paid “piece rates” for every item they produce, even in those industries where such things can be measured; few workers ever suffer a pay cut in the same job, unless they opt to go part-time. Many companies have pay scales that reward seniority.

One field in which the growing number of elderly workers may soon be needed is in looking after those who are even older and frailer. One paper, based on a survey of five countries, estimated that the number of people needing formal care could rise by 35% by 2025. In all five countries the demand for formal care is likely to outstrip the supply of care workers by a substantial margin.

In general, jobs in nursing are poorly paid and not very glamorous. Nor is this an area where productivity is likely to increase much: someone always needs to be on hand to help the incapacitated if they fall out of bed at night or if they need changing in the morning. At the moment around 80% of all employees in residential care and social work are women; around 16% are aged over 55.

Higher wages for those in nursing might help, but the cost of residential care is already high. In Britain, the average annual cost, where nursing is required, is £37,500 ($60,300). The answer may be to recruit workers from abroad (indeed, many old peoples’ homes already do so). Those elderly voters who are tempted to vote for anti-immigrant parties may want to pause; some day soon they may be dependent on the kindness of strangers.

Economist.com/blogs/buttonwood

This article appeared in the Finance & economics section of the print edition under the headline "Work until you drop"

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