Heath and Aging

Why Population Aging Matters: A Global Perspective

Trend 7: Shifting Patterns of Work and Retirement

No set of issues has stimulated public discourse about population aging more than work, retirement, and economic security in old age. In Western democracies, in Eastern Europe’s transitional economies, and in much of the less developed world, policymakers struggle with the balance between public and private income security systems.

The precariousness of security in old age can be seen in stagnant and declining real pensions in transitional economies, in the fate of pensioners during the collapse of Argentina’s economy in 2001, in the high poverty rates among Japanese elderly, and perhaps most vividly in the lack of formal social safety nets for most older people in Africa and Asia.

A prominent economic concern in our aging world is the shrinking of the workforce relative to the number of pensioners. Typically, this ratio declines as people live longer and as their participation in the workforce falls. From the 1950s to the mid-1980s, workforce participation rates for older men declined in most of the more developed countries. But beginning in the 1990s, this trend reversed. Among women in more developed countries, there has been a steady increase in workforce participation at older ages for the past two decades (Figure 10). Although data on less developed countries are inconsistent, the most common picture shows workforce participation rates decreasing for older men and increasing for older women. The latter trend will have important implications for the ability of women to accumulate and control economic resources in older age.

One central issue for policymakers in regard to pension funds is the relationship between the official (statutory) retirement age and actual retirement age (the average age at which retirement benefits are awarded). Over several decades in the latter 20th century, many of the more developed nations lowered the official age at which people become fully entitled to public pension benefits. This was propelled by general economic conditions, changes in welfare philosophy, and private pension trends. Despite the recent trend toward increased workforce participation at older ages, a significant gap between official and actual ages of retirement persists. This trend is emerging in rapidly aging developing countries as well. In Taiwan, for example, the average actual retirement age dropped below 55 in 2004, the lowest level on record.

Just as the tendency to work at older ages varies from country to country, so do the routes workers take to retirement. These routes may involve working part time, leaving career jobs for transition jobs, or leaving the workforce because of disability. In South Korea, the average worker leaves company employment at age 54 but then engages in part-time or low-wage employment for another 14 years before retiring completely at age 68.

As life expectancy has increased through the 20th century, retirement ages have decreased. Consequently, people are spending more time in retirement. The OECD, using data from 15 member countries, divided the lifespan into four periods:

  • Years before entry into the workforce (primarily spent in school)
  • Years not working due to unemployment or economic inactivity
  • Years in the workforce
  • Years in retirement

In 1960, men on average could expect to spend 46 years in the workforce and a little more than one year in retirement. By 1995, the number of years in the workforce had decreased to 37 while the number of years in retirement had jumped to 12. Estimates for Italian men in the year 2000 suggest a median retirement age of less than 59 years and a retirement duration of nearly 21 years.

If official retirement ages are increased, considerable attention will focus on the productivity of older workers. As a result, continuing education, workplace design, and part-time employment opportunities for older workers will become more important. Rising retirement ages also will spur reconsideration of early retirement provisions. Studies of retirement rules around the globe suggest that increasing workforce participation at older ages will require policy changes in national social security systems. A major ongoing NIA-funded series of studies in 11 industrialized countries (Belgium, Canada, France, Germany, Italy, Japan, The Netherlands, Spain, Sweden, the United Kingdom, and the United States) documents that in most countries public pensions provide enormous disincentives for continued work at older ages and encourage early retirement (Figure 11). This ongoing research shows that in spite of cultural differences across countries, there is an important relationship between the incentives for workforce participation of older workers and the provisions of social security programs. The study highlights the analytical power of focusing on the design of national retirement systems and the importance of incentives.

 

FIGURE 10: EUROPEAN UNION EMPLOYMENT RATE, AGES 55-64: 1994-2005 (15-COUNTRY AGGREGATE) (line graph)
YEAR MEN WOMEN
1994 47.5 24.7
1995 47.2 25.3
1996 47.3 25.8
1997 47.2 26.1
1998 47.3 26.3
1999 47.5 27.1
2000 48.0 28.0
2001 48.9 29.1
2002 50.1 30.7
2003 51.6 32.2
2004 52.2 33.2
2005 53.1 35.4

Source: European Statistical System (EUROSTAT). Available at: http://epp.eurostat.ec.europa.eu. Accessed January 8, 2007.

 

FIGURE 11: PUBLIC PENSION INCENTIVES TO LEAVE THE LABOR FORCE FOR MEN IN 11 COUNTRIES: Percent of men age 55 to 65 not working (line graph)
COUNTRY Public pension incentive to retire early Percent not working
US 1.52 37%
Japan 1.63 20%
Sweden 2.19 35%
Canada 2.37 45%
Spain 2.47 46%
Germany 3.46 47%
UK 3.78 55%
France 7.28 60%
Netherlands 8.32 58%
Belgium 8.84 67%
Italy 9.18 59%

Source: Gruber J, Wise DA, eds. Social Security and Retirement around the World. Chicago, IL: University of Chicago Press, 1999.

Publication Date: September 2011
Page Last Updated: October 7, 2011