This is the story of why we need to keep employing and retaining older workers as the boomers transition to retirement.
The authors of the Third Intergenerational Report (2010) argued that if the workforce participation rate of 55-64 year olds could be increased from its current level of about 60 per cent to 67 per cent by 2049-50, then GDP would be 2.4 per cent higher by that date.
During the 1970s and early 1980s, male early retirement — retiring before the pension eligibility age — became increasingly common. The participation rates of mature age men, particularly 55-64 year olds, steadily declined. At the same time, women’s employment rates steadily rose.
In the last 20 years the early retirement trend among males has reversed, which means the nation will probably reach its target of 67 per cent of older worker employment by 2050 — although a lot can happen in that time.
There are currently 2.6 million people aged over 45 working full-time and according to the ABS about 41 per cent of those said they will downsize to part-time work before they retire.
Employers such as Woolworths, Bunnings, the Commonwealth Bank, Westpac and Allianz have realised that older workers bring not only experience but also good peer-to-peer customer service skills. Their age is a marketable commodity.
However, there are still high levels of age discrimination in both the public and private sectors against older job-seekers. Thousands of people 45 and over are either under employed or unemployed and struggling to get a job simply because of their age. Australia would do well to address this issue head on.
As long as this rate of retaining work by the post-war generation continues — and there are greater efforts to end age discrimination as well as a provision for older people with a disability to work — Australia will probably escape having to raise taxes on younger generations to pay for the gap between Government revenue and expenditure on age pensions and healthcare.
There are three important caveats here. Australia will avoid a major fiscal gap if we continue to retain and hire older workers, create flexible employee workplaces and hire younger workers. It is pointless leaving young people out of the equation just because they have little or no work experience. Young people get experience by being hired on merit.
The fiscal gap will be reduced as long as the economy keeps growing steadily. Employers are most reluctant to hire anyone when risk runs riot over the balance sheets.
The last caveat is that productivity is measured in net hours worked. While mature age workers who work longer will ameliorate the fiscal gap, we don’t know how much longer they will work and as many will work part-time, there will still be a net fall in hours worked. This means productivity will slow and certainly not rise by an additional 2.4 per cent as predicted.
What we don’t know as yet is how new infrastructure projects such as the new broadband network will boost productivity and the productive boost due to skilled immigration. Work is a key driver of economic growth and productivity. While productivity isn’t everything, in the long run, it is — as US economist Paul Krugman said — almost everything.
While Australia may be able to fund its ageing population, the combination of government debt and rising numbers of aged persons in countries such as Greece, Ireland and Portugal, has reached a tipping point. The cumulative debt and the compounding interest payments on that debt, has spiralled out of control, much like feedback from an amplifier. Ireland’s gross domestic debt is the equivalent of 105 per cent of its GDP, Greece’s is 129.2 and Portugal’s is 92.9 of GDP. Italy’s debt is 132.7 per cent of GDP and Japan’s is 204.3 percent of GDP. The ageing population is not the cause of Europe’s current debt woes, but it is adding to the problem.
In 2011 gross Australian government debt as a proportion of GDP was 25.9 per cent. This is very low and on current economic projections, Government debt should be zeroed by 2018.
We have to go back to the 1950s (when there was war debt in play) and before that, to the 1930s to see debt levels in Europe as high as these. The last time debt burdens were this high, not a single country in the world had a median age higher than 36. Today, half of Europe has a median age over 40. The median age in Japan is 45, Italy and Germany 44, Greece 42.
According to Eurostat, in Western and Central Europe, the size of the working age population (about 325 million) will start to decline after the year 2015 reaching 302 million in 2025 and 261 million in 2050.
The number of younger Europeans entering the labour market in the 15-24 age cohort is shrinking and will decline over the next 40 years by about 25 per cent. The 55-65 age group is likely to grow until the year 2030 when the largest cohorts of the baby boom have reached today’s retirement age, a concept which is becoming increasingly tenuous. In Australia there is no mandated retirement age.
On the other hand, as a result of increasing life expectancy and the ageing of the baby boom generation, the age group 65+ will grow to 107 million in 2025 and to 133 million in 2050. There will be many more people over 80 years of age. We know that people 75 years and older draw down considerable government monies for healthcare.
These nations have ageing populations like Australia. But they have not implemented strategies such as compulsory superannuation or incentives to hire and retain mature age workers.
Those countries that have borrowed to service debt can expect massive tax hikes and dramatic spending cuts. How will they ever be able to fund the pensions and healthcare demands of there ageing populations? They can’t.
In Europe, those who will be really punished are those born now. They will be born debtors and that is no myth.