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AGE CAN WORK: The Case for Older Australians Staying in the Workforce

A Report to the Australian Council of Trade Unions and the Business Council of Australia

Emeritus Professor S. Encel

Honorary Research Associate

Social Policy Research Centre

University of NSW

April 2003
TABLE OF CONTENTS

EXECUTIVE SUMMARY

1. INTRODUCTION

1.1 EXTENSION OF WORKING LIFE

1.2 PUBLIC POLICY RESPONSE

2. LABOUR FORCE PARTICIPATION TRENDS

3. TRENDS AND POLICY DEVELOPMENTS IN AUSTRALIA

3.1 LABOUR FOCE PARTICIPATION

3.2 COMMONWEALTH GOVERNMENT ASSISTANCE TO MATURE-AGE WORKERS

3.3 WELFARE REFORM AND MATURE-AGE EMPLOYMENT

3.4 STATE-BASED PROGRAMS FOR MATURE-AGE WORKERS

3.5 RECENT DEVELOPMENTS AT THE COMMONWEALTH LEVEL

4. OVERSEAS EXPERIENCE

4.1 FINLAND

4.2 GERMANY

4.3 JAPAN

4.4 NETERLANDS

4.5 UNITED KINGDOM

4.6 UNITED STATES

5. CONCLUDING COMMENTS

6. REFERENCES

EXECUTIVE SUMMARY


All advanced industrialised countries are confronted with the challenges associated with ageing populations. Increased life expectancy and declining birth rates have meant that the average age of the population in these countries, and in Australia, is rising. Within the next ten years the Australian Bureau of Statistics predicts that the population aged over 65 years will be growing at an annual rate of 4 per cent, considerably faster than total population growth. As a result, by 2021 over 20 per cent of the population will be older than 65.

The implications of the ageing of the Australian population are being widely discussed and increasingly take centre stage in policy discussions. The fiscal challenges of providing high quality health and aged care for a growing share of older Australians were highlighted in the Federal Government’s Intergenerational Report released as part of last year’s Budget. Debates about the sufficiency of superannuation savings and potential strains on public pensions are increasingly common place. And greater attention is being paid to the labour supply and economic growth implications of population ageing.


Against this background, the issue of labour force participation by mature-age workers is also attracting increasing attention. Particularly as those born in the peak year of the baby boom have just turned 55. The impact of population ageing is being compounded by relatively low levels of labour force participation among older workers and early exit from the labour market. If this continues as the ‘baby boomers’ age, the implications for labour supply in particular, will be much more severe.

Australia is not unique in this regard, but our mature-age labour force participation rates tend to be at the lower end of the spectrum when compared with other industrialised economies – particularly for women.

While the labour force participation rate for mature-age women in Australia has increased dramatically in recent decades it remains well below rates recorded in other advanced industrialised countries. Participation rates among mature-age men in Australia match up better with our economic peers although they have fallen sharply over recent decades and only now look to be stabilising.

While the proportion of mature Australians employed is relatively high, and conversely the aggregate unemployment rate for mature-age workers is low it is still the case that around 1 in 3 Australians aged 45-64 is not employed. The low aggregate unemployment rate for mature Australians also masks the fact that older workers without jobs face significant difficulties gaining and re-gaining employment.

The duration of unemployment steadily rises with age, and around 1 in 4 mature job seekers is out of work for over two years compared with around 1 in 10 job seekers under 45. A wide range of factors have been identified as contributing to the barriers to employment for older workers, including employer attitudes, community attitudes, and the behaviour of older workers themselves.
From the perspective of older job seekers, there is evidence to suggest that age is seen as a major impediment to gaining employment. The persistence of age discrimination despite the existence of anti-discrimination legislation in all States and Territories is also backed up by analysis from the Human Rights and Equal Opportunity Commission and State authorities.

It is common to ignore these factors and to attribute relatively low levels of labour force participation among older workers to ‘early retirement’. The implication is clearly that individuals are making entirely voluntary decisions to exit the labour force. However, as noted above, older individuals face barriers to employment and re-employment that may discourage them from continuing to seek employment. In addition, older workers, particularly males, have been vulnerable to downsizing and restructuring. These trends suggests that reference to early retirement can be misleading and can distort our understanding of the important issues underpinning labour force participation and retirement decisions among mature-age Australians.

Nonetheless, it is clear that there is still a widespread ‘culture’ of early retirement in Australia. Surveys indicate that over 75 per cent of males and around 95 per cent of females intend to retire from full-time work before reaching age 65. Over 50 per cent of women indicate that they intend to retire from full-time work before age 45. Against the backdrop of increasing longevity, the realism of these intentions, both at the level of the individual and from the perspective of the broader community, is open to significant doubt.

While obviously it is for individuals to decide when it is right for them to retire, there is a growing recognition in Australia and overseas that some policies and attitudes have encouraged and reinforced a trend towards early exit from the labour force – voluntary or otherwise. It is important to ensure that policies that are balanced and support older workers choosing to remain in the labour force. Most countries are now addressing these challenges.

There are differences in the approaches being adopted in different countries, although in general most include:



  • restructuring benefit, tax arrangements and retirement income policies to enhance flexibility and better balance incentives that have encouraged exit from the labour force before retirement age;



  • the development of active labour market policies that provide more intensive assistance to support effective labour market participation by older job seekers; and



  • age discrimination legislation.

A theme which is also emerging from comprehensive policy approaches overseas is the importance of addressing public attitudes and perceptions about the benefits of ongoing mature-age workforce participation and increasing awareness of age discrimination legislation and its implications.

This message is reinforced by Australian research with some of the general conclusions drawn from a joint study by the State Equal Opportunity Commissions of Victoria, South Australia and Western Australia including that:




  • older workers and employers are uncertain about the operation of anti-discrimination legislation;



  • age discrimination was commonly covert and evasive and easily masked; and



  • community attitudes do not reflect the legal situation – pressures exist towards induced early retirement, commonly justified by ageist stereotypes.

Achieving widespread changes in community attitudes and perceptions is not something that governments can do on their own. This underscores the importance of developing comprehensive strategies that encompass and involve all levels of government, employer organisations and unions – a message that is also emerging from experiences in other countries. In Australia, the Commonwealth Government is addressing concerns regarding mature-age workers and early retirement across a number of fronts including among others:

  • changes to retirement income policies including pensions and superannuation arrangements to redress incentives to early retirement;



  • changes to superannuation arrangements to make it easier to contribute at an older age and easier for individuals who decide to re-enter the workforce;



  • job search and placement assistance has been enhanced for older job seekers; and



  • improved coordination among job placement agencies.

While recognising the changes already undertaken in regard to superannuation arrangements, it is likely that more may need to be done to simplify current arrangements and to increase the flexibility of the system to better support ongoing participation and phased retirement.

The Commonwealth Government has also established:

a National Advisory Council on Ageing;


  • an Inquiry into the reasons for the fall in labour force participation of older Australians; and

  • an inter-departmental Task Force to address the implications of demographic trends.

Comprehensive initiatives are also being undertaken at the State level and consideration may need to be given to the scope for, and benefits of, greater integration across State and Federal levels.

Among other areas that can be identified for further action are:



  • addressing community, business and individuals’ attitudes to workforce participation by mature-age people;




  • ensuring that individuals keep skills and competencies relevant, so that they can better handle transitions during their working lives;



  • working with employers and their organisations on assessing the impact of the ageing of the workforce and developing strategies and practice guidance designed to retain and support older employees, including action in such areas as: greater workplace flexibility through family-friendly policies, employer support for re-training and preventive steps to reduce the incidence of workers’ compensation claims;



  • raising wider community awareness of the importance of financial planning and retirement planning (with a view to starting early with younger workers);



  • consolidating and more actively promoting information about the range of programs and services available to mature-age people;



  • providing up-to-date information for mature-age people about the changing nature of employment – for example, what kind of jobs can be secured, and growth industries;



  • creating additional incentives to assist mature-age people on income support, or who have been made redundant; and



  • improving services and support for mature-age people, based on their varying needs, including enhanced employment services.

1. INTRODUCTION

The issue of labour force participation by mature-age workers is attracting increasing attention throughout the advanced industrial countries, as shown by a stream of academic studies and official reports, both national and international. In Australia alone, there have been at least six substantial official reports since 1999, and a further comprehensive inquiry is currently under way by the House of Representatives Standing Committee on Ageing. Published reports include:



  • Employment for Mature-Age Workers—Issues Paper. Published by the Commonwealth Minister for Aged Care (1999)

  • Age Matters, report by the Human Rights and Equal Opportunity Commission (2000)

  • Age Limits, report by the Equal Opportunity Commissions of Victoria, South Australia and Western Australia (2001)

  • Population Ageing and the Economy, report prepared by Access Economics for the Commonwealth Minister for Aged Care (2001)

  • Too Young to Go, report prepared for the NSW Committee on Ageing (2002)

These reports are unanimous in stressing the difficulties encountered by older workers in the labour market, despite the fact that the number of younger people entering the work force is already falling and will fall more sharply as the effects of declining fertility make themselves felt. The recent Intergenerational Report (IGR) issued by the Commonwealth Treasurer (Budget Paper 19) emphasises the need for policies designed to increase labour force participation by older workers. The report estimates that higher rates of full-time labour force participation by older workers would reduce projected government spending on health care and age pensions by 0.25 per cent of GDP by the year 2041. Access Economics, in their report Population Ageing and the Economy, estimated that the benefits of increasing labour force participation among older workers could be of the magnitude of those delivered by tax reform and competition policy. Ongoing labour force participation also allows people to accumulate greater superannuation, thus enhancing their health and lifestyle in retirement.

The Intergenerational Report notes that the labour force participation rate (LFPR) for women, particularly in the older age groups, remains well below that of men, although it has risen in the past 20 years. The proportion of women aged 55-64 who were in the labour force rose from 20 per cent in 1979 to 36 per cent in 2000. While among men aged 55-64, the LFPR in 2000 was 61 per cent, and in the age group 55-59 the LFPR for men was 72 per cent, compared with 50 per cent for females. The IGR assumes that the LFPR for women over 55 will rise steadily until it approximates the male rate by 2040, but critics of the report point out that such a rise will not be automatic and will depend on policies to encourage greater participation.


It should also be noted that ‘early retirement’, or more correctly, ‘early exit’ from the work force has increased. Between 1960 and 1995, the average age of work force exit for both men and women fell by 4 years for men and 5 years for women. Much of this early exit is involuntary and the term ‘retirement’ can be very misleading. Research on downsizing by Dawkins and Littler at the University of Melbourne has shown how vulnerability to downsizing increases progressively with age. Older workers who lose their jobs also tend to face greater difficulties regaining employment. Correspondingly, the rate of long-term unemployment among older persons, especially men, has risen significantly faster than the general increase in long term unemployment. Apart from early exit, governments are also concerned about the forthcoming decline of entrants to the labour force. The Retirement Income Modelling group in the Australian Federal Treasury has estimated that whereas the working age population currently grows by approximately 170,000 persons per year, the estimated growth for the entire decade 2020-2030 will be no more than 125,000.

1.1 EXTENSION OF WORKING LIFE

Emphasis on the extension of working life has grown in most industrialised countries, as reflected in numerous reports by the OECD, the European Union, the ILO, the World Bank and other national and international agencies. This increase in concern arises partly because of high levels of unemployment among older workers (defined variously as 40 plus, 45 plus, 50 plus, and 55 plus). More important, perhaps, is concern about the impact of an ageing population on the availability of labour and pressure on established pension systems.

More specifically, contributing factors include the following:


  • an ageing population and increased life expectancy;

  • pressure on public pension systems;

  • a shift of responsibility for pension coverage from public schemes to individual saving;

  • the popularity of early retirement;

  • a general shift from passive to active labour market policies;

  • increases in long-term unemployment among older workers;

  • a growing view that employment problems require co-operation between government, employers and unions;

  • recognition of age discrimination in the labour market; and

  • concern about labour shortages.

Together, these pressures are underpinning policies designed to extend working life and to improve employment opportunities for older people before they reach pensionable age.

1.2 PUBLIC POLICY RESPONSE

In this report, I examine trends in labour force participation and the range of public policy responses in seven countries:



  • Australia

  • Finland

  • Germany

  • Japan

  • Netherlands

  • UK

  • USA

All of these countries have introduced a range of policies to address the issues mentioned above, including measures to reduce age discrimination, to increase job opportunities, and to reduce pressure on pension systems.

The introduction of age discrimination legislation has been one approach undertaken in a number of countries. Experience in countries with well-established legislation banning age discrimination and mandatory retirement - USA, Canada, and Australia - indicates that it has had little effect on patterns of retirement. Early retirement is still popular, and employers can find other ways of terminating employment for older workers.

Employment subsidies represent another direction of public policy. They have also not been notably successful, although the recent innovation in Britain of employment credits paid directly to workers rather than employers appears to be moderately popular. Arguments against such schemes maintain that they run the risk of deepening age prejudices and of institutionalising discrimination against older workers. Likewise, proposals for schemes aimed at encouraging employers to hire older workers on temporary or part-time contracts may simply disadvantage those seeking permanent full-time positions.

Whatever the desirability of stimulating mature-age employment, it is unlikely to be possible without some costs. While encouraging the employment of older workers will result in savings in terms of pensions, unemployment benefits and increased tax revenues, training and placement costs will likely rise. Employers may be reluctant to carry the cost of retraining older workers and redesigning workplaces.

It could also be argued that treating the issue as one that focuses on ‘older workers’ is a misplaced approach. There would be value in integrating policies regarding older workers with employment and training policies in general. An approach based on the promotion of age diversity might be more valuable. The definition of ‘older worker’ is arbitrary and applying it could be regarded as discrimination. Governments are clearly hesitant to single out older workers when there are large problems of youth unemployment, which attracts much more public sympathy. On occasions, specific support for a particular age cohort may be warranted, but consideration needs to be given to preventing stigmatisation and gaining support for ‘age-aware’ employment policies.

Philip Taylor, of Cambridge University’s Interdisciplinary Research Centre on Ageing, has recently completed a comparative analysis of policies in six of the seven countries listed above (excluding only the UK) on behalf of the Joseph Rowntree Foundation as part of its series of reports on ‘Transitions after 50’ (New Policies for Older Workers, Policy Press, 2002). A useful classification of policy settings in these six countries is shown in Table 1 (the UK is dealt with elsewhere in this report).

While providing a useful snapshot of the range of policies in play, as Taylor himself admits, the table does not indicate the extent to which policies are developed in particular countries. To mitigate this shortcoming each country is discussed in detail later in the report.

Table 1

Main Public Policies Related to Older Workers

1. Comprehensive approach to the employment and retirement of older workers

Australia, Finland, Japan

2. Removal of incentives to early retirement, plus encouragement of later retirement

Australia, Finland, Germany, Japan, Netherlands, USA

10. Employment subsidy and other employment incentive schemes



Australia, Finland, Germany, Japan, Netherlands

Source: Philip Taylor, New Policies for Older Workers, 2002 (adapted).

*All members of the European Union are required to introduce legislation to ban age discrimination, not later than 2006. The directive issued by the European Commission in November 2000 stipulates that all forms of age discrimination in employment must be prohibited, but is less clear whether this also entails the abolition of compulsory retirement.





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