Ageing Populations and Changing Labour Markets

Social and Economic Impacts of the Demographic Time Bomb

Stella Vettori

• Publisher: Routledge
• Year: 2016
• Print ISBN: 9781138378124
• eBook ISBN: 9781317183693
• Topic: Business
• Subtopic: Business General
• Index: Business

Talk of a demographic time bomb is not new. The notion first entered public consciousness some time ago, but there is a lack of clarity about what such talk is really all about. Ageing populations are seen both as a threat and an opportunity. There is concern about discrimination against older workers, at the same time as there is concern about a shortage of labour. Migration of labour from places with young populations to places with ageing populations is sometimes seen in a positive light and sometimes quite differently. With chapters reflecting different perspectives from around the world, this book constitutes a major contribution to serious, informed debate on issues that all too often have been the subject of sensationalised media treatment. Professor Stella Vettori has assembled a collection of expert writers on the social, cultural, political and economic factors that have implications both for labour markets and the well being of older people both in developed and developing countries. As a result, anyone involved with workplace and employment policy and practice, and issues of diversity and discrimination, either at a corporate or societal level, will want to read this book. Policy implications are considered and possible solutions to seemingly intractable problems are offered in a remarkable book that embraces serious academic debate and a practical focus on real issues.

1 Introduction

Stella Vettori

A Shrinking Workforce

Ageing is a global phenomenon. Although more pronounced and dramatic in the developed world, the developing world is also ageing. Global ageing has had and will increasingly have tremendous social, economic, political, cultural and other repercussions. The effects of global ageing are so profound and immense that global ageing has been described as a revolution. As one commentator put it: “The world stands on the threshold of a social transformation – even a revolution – with few parallels in humanity’s past. Indeed, this revolution has already begun¹ Perhaps two-thirds of all people who have reached the age of 65 are alive today. It’s time we take an unflinching look at things to come.”²

Unprecedented advances in technology and healthcare, improved nutrition and higher standards of living (especially in developed countries) have all contributed to a worldwide increase in longevity. Although compared to developed countries developing countries still have young populations, their populations are ageing at a faster rate than those of developed countries. According to a United Nations report,³ the older population in developing countries is expected to increase fourfold in less than 50 years. In developed countries the phenomenon of longevity and ageing populations has been accompanied by a huge decrease in fertility rates. This trend was fuelled by urbanisation, birth control technologies, higher female participation in the workforce, legalised abortion and even government policy. Some developing countries have also experienced decreases in fertility rates. The total fertility rate has been reported to be at or below the replacement rate in 44 less developed countries.⁴ Not all states in the developing world on the other hand, especially states in Africa, have experienced a decrease in fertility rates. However, many African states, especially those in sub-Saharan Africa, have been plagued by an HIV/AIDS pandemic. This pandemic combined with other diseases such as malaria, in addition to extreme poverty, droughts and other natural disasters with resultant widespread famine have all contributed to extremely high infant mortality rates. The HIV/AIDS pandemic has also resulted in high mortality rates amongst those of working age. In South Africa, for instance, there has been a marked increase in the mortality rate of those in their 20s, 30s and 40s as a result of HIV/AIDS.⁵ This obviously has had a huge impact on the working population.

The trend of mandatory and reduced ages of retirement that were so popular in the 80s and 90s in many developed countries also contributes to the decline of the working-age population. Financial incentives to early retirement such as laws which forbid remunerated work if in receipt of an old age pension also contribute to an early exodus from the labour market. Generous social transfer incomes such as state pensions in many industrialised countries such as Italy, Germany and France make early retirement very appealing. The baby boomers,⁶ who have had relatively few children, are now beginning to exit the world of work. Obviously this has exacerbated the situation especially in developed countries.

Simply stated, the overall combined effect on labour markets of these two phenomena of increased longevity and a decrease in the number of people of working age (be it a result of decreased fertility rates in the more developed states, or high infant mortality rates and the toll of HIV/AIDS on those of working age in the case of some developing countries), is that world-wide, the working-age population will start shrinking: in some states this process has already begun and there are already more employees exiting the labour market than those entering it. For example in Italy and Japan the number of employees exiting the labour market exceed those entering it. In other countries this will probably occur in the future.

The degree and timing of the shrinkage of the working age population will differ from state to state. Generally the more developed countries, if they are not already experiencing this shrinkage in the workforce, will do so in the not too distant future. On the other hand many developing countries will only face these challenges some time in the future, and perhaps to a lesser degree than the developed world. However, since their populations are ageing at a faster pace than those in developed countries, developing countries will have less time to adjust to the changes. In addition, developing countries generally have less access to economic and other resources. On a positive note, on the other hand, since developing countries will experience the effects of ageing populations at a later stage they can learn from the experiences built up by developed countries that will already have faced similar dilemmas.

In summary, the proportion of workers to non-workers (the dependency ratio) is a matter of concern for economists. All developed countries and an increasing number of developing countries are facing the same challenge.⁷

Economic Effects of a Shrinking Workforce

Many economists are of the view that the combination of increases in longevity and declining birth rates will have dire economic consequences for developed countries as the growth rates of these economies will be diminished. This, they argue is the direct result of the decrease in growth of capital stock⁸ combined with a reduction of labour force productivity. In turn, the slower growth rate of GDP will culminate in a smaller tax base and the consequent decrease in tax revenues.⁹ As explained above, the same may apply to developing countries since their workforce also may shrink in the future. In a nutshell, the general consensus seems to be that ageing populations combined with a decrease in fertility rate or alternatively, high mortality rates amongst the younger generation, result in a drop in private savings since the elderly spend more, in addition to a concomitant decrease in productivity, since the workforce is smaller. In conclusion, unless productivity increases, real economies will contract.¹⁰

Since it is a shrinkage of the workforce that results in decreased productivity and decreased savings, most suggested solutions logically involve means to expand labour supply. The next section will briefly discuss some solutions to the challenges brought about by global ageing.

Solutions

Given the differences in extent and timing of the phenomenon of ageing populations in different countries and socio-economic, cultural, political and other differences amongst different countries, it should come as no surprise that not all countries have adopted or will adopt the same strategies and policies to address the challenges brought about as a result of increasing numbers of elderly people vis-à-vis young people. Most of the strategies aim at prolonging the working lives of individuals. In other words: “A country that is more willing to invest in human capital and has more effective investment in human capital will exhibit faster economic growth in the future. This establishes the importance of labour input in determining economic growth. The ageing labour force through their re-participation into the labour force can contribute significantly to economic growth, particularly in labour shortage countries....”¹¹

There are various ways of achieving this goal. Usually, however, the strategies proposed should ideally be used together so as to complement each other. They include training older persons in order to make them more productive and to enhance their employability; doing away with mandatory retirement ages, or at least increasing the age of mandatory retirement; enacting laws that prohibit discrimination on the basis of age (including old age) in the workplace and, the use of human resource management practices and policies to eliminate discrimination in the workplace and to make work more attractive for the elderly. Another possible solution is the use ofmigrant labour to enhance the workforce population. I will briefly discuss some of these strategies in turn.

TRAINING

In less developed countries the employability of older workers is negatively affected by generally lower literacy and numeracy skills compared to their younger counterparts.¹² Although illiteracy amongst the older generation has been declining in the last two decades in developing countries, it is still relatively high when compared with literacy rates of the older generation in developed countries.¹³ Since literacy is often a foundational basis for the acquisition of other skills, illiterate people are often denied the opportunity to undergo further training.

Another factor contributing to employer reluctance to invest money in the training of older workers is the fact that the training and skills they acquired in their younger working lives is often obsolete. This results in their younger counterparts having a head-start over them rendering their training quicker and cheaper. With older workers, on the other hand, training for the elderly will have to start from scratch, or from a point of inferior knowledge compared to younger employees. Another factor militating against the training of older workers is that they will utilise their newly acquired skills for a shorter time than younger workers thus rendering training expensive. Finally, older people are often stereotyped and many employers are of the view that they are less productive than younger people. This is based on the assumption that older people are less innovative and adaptable than younger people.¹⁴ The result is that employers are not willing to spend money training older workers or to hire them or to continue employing them once they have reached a certain age.

However, most of these obstacles are not insurmountable:

The problem of illiteracy amongst the older generation will decrease with time. Empirical research has predicted that in the future, older workers will be better educated than today’s generation of older workers. However, there are likely to be differences in education levels amongst different countries as a result of differences in access to economic and other resources.¹⁵

Systems of life long learning will alleviate the problem of older workers’ previous training being obsolete. Lifelong learning is a long term strategy that is key to the employability and productivity of older workers. One major obstacle to universal implementation of such policy and strategies are entrenched stereotypes of older people that encourage the belief that older people are less productive. These stereotypes include that older people are slow to learn, they have inferior physical capacities, they are less innovative,¹⁶ they are averse to risk taking¹⁷ and unable or unwilling to adapt to new technologies. These negative beliefs about older people must be eliminated so that employers will be more willing to invest money in lifelong learning schemes and specifically in training and educating older workers. Another obstacle is the common belief that older workers cost more than their younger counterparts not only because they are believed to be less productive, but also because of direct employer costs. Employer costs for older employees are often perceived as being higher because of fringe benefits, higher remuneration (as a result of seniority status and longer years of service) and social contributions.¹⁸ Another disincentive for employer investment in older workers is the fact that they generally have a shorter period of service remaining.

The best incentive to encourage employers to invest in older workers’ training and education is to convince them that it makes business sense. This should not be too difficult as there is empirical evidence to prove that stereotypes are incorrect and that older workers are not necessarily more expensive than younger ones. Researchers have concluded: “Age has been reported to account for a small percentage of the variance in workers’ cognitive, perceptual and psychomotor abilities, when experience, education and type of occupation were controlled for. It has also been argued that older workers compensate for declines in various information processing and physical abilities by means of experience and mental and physical load reducing strategies.”¹⁹ Furthermore researchers have empirical evidence to prove that “older workers demonstrate less absenteeism, lower turnover, fewer accidents, higher job satisfaction and more positive work values than younger workers.²⁰

In addition to evidence to support the contention that older workers are not necessarily less productive, there is also reason to believe that older workers do not necessarily cost more in terms of direct employer costs of remuneration, fringe benefits and costs in social contributions. In fact older workers often cost less. As explained in an ILO employment paper: “earnings do not necessarily continue to rise until the end of the working life. In hierarchical systems, such as the civil service, salaries do peak at the end of workers’ careers. In technical professions, more linked to output, peak in earnings may be reached in the middle of the career. In Japanese firms earnings generally peak at around the age of 60, which is the mandatory retirement age in many companies. Under the re-employment system, the firm retires workers who have reached the mandatory retirement age, giving them a lump-sum retirement payment. The firm then rehires these workers, usually in a lower position in the hierarchy of the firm and with a cut in their wages of 20 to 25 per cent. Similarly, in the United States, about half of the older workers still in the labour force have already left their career jobs and moved into part-time or other less well remunerated jobs to bridge the gap until they are entitled to full pension.”²¹

Employer reluctance to invest in older employers because of the belief that they will remain in service for a shorter period of time compared to younger employers is not always well founded. Clearly older employers are more likely to get ill and even die. On the other hand, younger people tend to change jobs more often than older people.

ELIMINATION OF DISCRIMINATION

One of the most blatant areas of discrimination against the elderly in the workplace is access to training. According to research undertaken in 11 developed countries those aged between 25 and 34 are almost twice as likely to undergo training as those aged between 55 and 64.²² Such discrimination has the effect of rendering older persons less employable, thus exacerbating the beliefs in myths about characteristics of older people and encouraging the stereotyping of older people. Consequently older people are also less likely to be employed.

The ILO has always been active with regard to the issue of equality at the workplace.²³ The most important instrument of the ILO regarding the rights of older workers is the Older Workers Recommendation, 1980 (no. 162). It was adopted at the 66th Session of the International Labour Conference on 4 June 1980. “older workers” are defined in terms of this recommendation as those who are liable to encounter difficulties in employment and occupation because of advancement in age. It suggests that there should be a well-balanced overall strategy for full employment in order to deal with employment problem...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• List of Figures
• List of Tables
• Foreword
• List of Contributors
• 1 Introduction
• 2 Effects of Labour Mobilization on Ageing Populations and the Regional Discrepancies of the EU
• 3 Digital Divide Among the 50-56 Year-old Workforce in Malaysia – Preparations for the Elderly Workforce: Case Study of Selangor, Malacca and Negeri Sembilan
• 4 The Weakest Link in Greying China’s Social Security System, Private Sector Policy and Corporate Social Responsibility
• 5 Accountability, Sustainability and Social Responsibility: The Context of the Labour Market Versus the Ageing Population in Portugal
• 6 The Ageing Population and the Labour Market in India
• 7 Challenging the Ageing Future: The Impact of Ageing in Working Life in Turkey
• 8 Challenges Faced by an Ageing South Africa
• 9 The Ageing Population in Botswana and the Labour Market
• 10 An Explication of the Legal and Moral Obligation to Eradicate Workplace Ageism
• 11 Conclusion
• Index