At a recent ageing conference economists were accused of being pessimists. Spreading gloom and despondency wherever they go. At the heart of this argument was the old age dependency ratio. This is generally taken as a ratio of the number of people over 65 versus the 16-64 year olds. The former are the "dependents" who need support from the "working population". I have used such ratios as a shorthand in these Newsletters. In particular when talking about China, I used it as a source of future problems. With global trends, extrapolating this ratio produces a catastrophic scenario of economic collapse. One of the greatest achievements of mankind is therefore converted to a disaster. Increasing global life expectancy by 30 years in a century is not to be celebrated but feared.
The arguments against the ratio are strong. The definition has been held constant and does not recognize increasing longevity. The data shows that (pre-COVID) the number of people working over 65 has been dramatically growing. Perversely the definition leads to the argument that fertility is the real problem. We need to encourage fertility. This will ensure a large enough workforce to support the expanding group of dependents.
I have been looking at the alternative views of the economic impact of an ageing population. These see it as an economic opportunity. This week I am looking at employment. I will then come to consumption in future Newsletters.
Like all negative stereotypes the data does not support them. The stereotype comes from an outdated view of work. The majority of jobs do not need physical strength. Farm workers and labourers are now a tiny part of the workforce. The days when the young have college degrees and the old were “un-educated” are long gone. The explosion in further education happened at the time of the baby boomers. Older people are living healthier longer, so health is not a barrier.
Productivity depends on how you measure it. Mercer has looked at “Age Diverse Teams” across many sectors. They have shown that they are more productive. There are many reasons for this. Experience does have a value. One of the most important is that older workers do not leave. Turnover can cost anything from 30% of a years salary to 300%. Each person leaving means recruitment and training costs. It also means a period to get up to “competency” in the job. Also, teams managed by older workers have lower levels of turnover. The older person seems to provide the glue holding the group together. Older workers are not unproductive. More in employment would boost economic productivity.
Mercer also has a massive database of pay running to millions of data points. For unskilled and administrative jobs a 25 year old has the same average salary as a 55 year old. For Professional and middle managers the average 35 year old has the same salary as a 60 year old. From the age of 50 pay begins to decline. The older workers are not more expensive.
In a recent survey of over 50's half said that they were looking for new challenges. As one CEO of a technology company put it:
“Baby boomers should not be seen as a bunch of old people stuck in the past, who can’t figure out the internet. NEWS FLASH – Baby boomers invented the internet”
John Legere, CEO T Mobile.
Before COVID the internet usage of older people was increasing dramatically. Usage in the UK by men had jumped from 57% in 2015 to 82% only four years later. Usage by the men over 75 had grown from 29% to 52%. Women aged 65-74 had reached the same level as the men. It seems COVID may have accelerated the trends.
The Savings Gap
The savings gap is used as some kind of ghostly Halloween figure to frighten us all. There are many estimates of the size of this gap. It is the difference between the money individuals have saved and the amount needed to support their lifestyle until the end of their lives. Mercer forecast it to be $400Tn by 2050 globally. This represents multitudes of people running out of money. Anywhere from 8 to 20 years before they die. This of course is based on the same assumptions that underpin the old age dependency ratio. There are alternative assumptions.
The UK government issued a thought piece. It suggested that instead of the retirement age being fixed at 66 it should be based on life expectancy. Their suggestion was that we should stop working fifteen years before our expected life expectancy. With a UK life expectancy of 83 for women this suggests a state retirement age of 68. These are medians, and half of these cohorts would live longer. Three to five years’ worth of extra earnings will narrow the savings gap. Three to five years less to live on those savings would significantly narrow the gap. This is without the health benefits that come to people who stay actively engaged.
What is needed is a better integration of pension planning and flexible working. Half of the over 50's surveyed were looking for some flexible way to wind down. As Laura Carstensen of Stanford University put it when talking about how healthy life expectancy has increased by 20 years.
“We tacked all these extra years on at the end and only old age got longer”
The three stage model of life: education, work; retirement, does not work if you are to live for 100 years. Many, but not all, people do not want to retire at the age of 65. They want to work but perhaps not as they did. They want flexibility. This both boosts savings and reduces the time when those savings are the only means of support. It reduces the shortage of workforces and will increase national productivity.
The roadmap of life is a social construction. WE invented childhood and adolescence. WE invented retirement and what it meant. WE even invented birthdays. All within the last 150 years. If we can leave behind those constructs there is a longevity dividend within employment.