Aging with Growth: Implications for Productivity and the Labor Force Emily Sinnott Emily Sinnott, Senior Economist, The World Bank Tallinn, June 18, 2015
Presentation structure 1. Growth, productivity and aging 2. Barriers to employment at older ages 3. Supporting more balanced demographics 4. Turning aging into an opportunity 2
Concern: An aging population 1. decreases the share of the labor force in the total population (growth concern) Shrinking labor force Expanding inactive older population 2. alters the structure of labor force (productivity concern) Out-dated skills Less dynamism: less job reallocation across occupations, sectors, and places 3
Change in labor force, % Dependency ratios not fixed: Size and composition of the labor force can be altered by higher participation Projected changes in the size of the labor force under different labor force participation scenarios, by age category, Central Europe and Baltics, 2010 60 6 4 2 0-2 -4-6 -8-10 -12 Constant participation profile Female to male convergence 15-39 40-64 65+ Increase in worklife by 10 years Note: Data are based on past estimates of participation rates in 1990 2010, projections of the International Labour Organization (ILO) for 2015 30 based on past trends, and scenarios for 2035 60 developed by the World Bank for this report (female participation convergence to male participation rates and working life gradually increases by ten years) Sources: Based on ILO (2013) and UN Population Division (2013) 4
Ratio of inactive to active population aged 15+ Dependency ratios can remain relatively stable if labor market participation rises Ratio of inactive over active people aged 15 and older, by scenario, Central Europe and the 110 Baltics, 1990-2060 100 Constant participation 90 Female to male convergence 80 70 Increase work lives by 10 years 60 50 1990 2000 2010 2020 2030 2040 2050 2060 Note: Data are based on past estimates of participation rates in 1990 2010, projections of the International Labour Organization (ILO) for 2015 30 based on past trends, and scenarios for 2035 60 developed by the World Bank for this report (female participation convergence to male participation rates and working life gradually increases by ten years) Sources: Based on ILO (2011) and UN Population Division (2013) 5
Index 1990=100 Potential for rise in stock of human capital, even as working-age population falls, in some countries Working-age population and stock of human capital EU28, 1990-2060 130 120 Stock of years of education 110 100 90 80 Working-age population 70 60 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 Source: Calculations based on Lutz, Butz, and KC 2014. 6
The aging brain can compensate Better-performing older participants compensated for age-related memory decline by reorganizing the episodic retrieval network Source: Daselaar and Cabeza (2004) 7
Employers take advantage of new strengths 0,25 0,2 0,15 0,1 0,05 0-0,05-0,1-0,15-0,2-0,25 Change in the skill contents of exports, 2000-2010 Central Europe and the Baltics (Old countries) Central Asia and Turkey (Young countries) Age-appreciating cognitive skills Age-depreciating cognitive skills Physical ability Source: Calculations based on data in Cai and Stoyanav 2014; UN Comtrade. 8
Confronting three myths about work at older ages... 1. Myth 1: Older workers do not want to work and prefer retirement Fact: 2/3 prefer options of gradual retirement and part time work (Evidence for 27 EU countries) 2. Myth 2: Older workers are less productive, more difficult hires Mixed evidence, but policies can be put in place to alleviate lower productivity or even increase it (e.g.: agediverse teams) 3. Myth 3: Lump of labor fallacy; older workers take jobs from young Well, it s a fallacy But older workers do face some barriers when looking for work and in the workplace 9
Presentation structure 1. Growth, productivity and aging 2. Barriers to employment at older ages 3. A move to more balanced demographics 4. Turning aging into an opportunity 10
Determinants of labor supply in the EU: regression-based evidence Poland Estonia Spouse working ** *** Other public support Eligible for old-age and early retirement pension *** *** *** *** *** *** *** *** High school and above IADL z-score (with difficulty) ADL z-score (with difficulty) * *** *** *** Household members above 80 Women *** Household members aged 60 80, number Men *** Household members under age 6, number -0,6-0,5-0,4-0,3-0,2-0,1 0 0,1 0,2 0,3-0,6-0,5-0,4-0,3-0,2-0,1 0 0,1 0,2 0,3 Source: Estimates based on SHARE.. 11
Determinants of labor supply in the EU: Benefit eligibility plays a large role in reducing participation The receipt of a pension or other public support is strongly correlated with exit from work in CEB countries. 1 Male 1 Female.8.8.6.6 rate rate.4.4.2.2 0 0 45 50 55 60 65 70 75 80 85 age 45 50 55 60 65 70 75 80 85 age Receiving Other Pension Receiving Old Age and Early Retirement Pension Working/Total Source: SHARE 2011 Changes in the official retirement age or benefit structure have potential to incentivize later retirement Examples: Austria and Germany. 12
EU15 EU11 Barriers to Employment: Attitudes of Employers, Health status and household structure Perceived barriers for employment after 55: % reporting each reason as very, fairly, not very, not at all important, 2011 Attitudes of employers Excluded from training No gradual retirement Places are not adapted Lack of modern skills Pensions/tax systems Family care obligation Retire with partner Excluded from training No gradual retirement Attitudes of employers Pensions/tax systems Places are not adapted Lack of modern skills Retire with partner Family care obligation 0% 20% 40% 60% 80% 100% Very important Fairly important Not very important Not important at all Source: Eurobarometer 2012. Deterioration in health and the ability to live independently is associated with exit from work. Care responsibilities interact with older worker s labor supply. Higher likelihood to work if the spouse is working: preference for joint retirement. 13
The importance of making older age healthier Female life expectancy at age 50 Male life expectancy at age 50 Slovakia Romania Portugal Latvia Hungary Estonia Slovenia Croatia Germany Lithuania Austria Poland Finland Cyprus Netherlands Czech Republic Spain Belgium France Greece Bulgaria Switzerland Ireland United Kingdom Denmark Luxembourg Malta Iceland Norway Sweden Slovakia Latvia Estonia Hungary Romania Slovenia Croatia Lithuania Poland Germany Portugal Austria Finland Czech Republic Bulgaria France Netherlands Spain Greece Luxembourg Belgium Cyprus United Kingdom Ireland Denmark Switzerland Malta Iceland Norway Sweden 0 10 20 30 40 Heathy Life Years at Age 50 Life Expectancy at Age 50 0 10 20 30 40 Heathy Life Years at Age 50 Life Expectancy at Age 50 Source: Eurostat 14
Age not a concept fixed over time: 60 as the new 70 but not everywhere How old you have to be today to have the same mortality as a person of 60 in 1959 71 France 68 Slovenia Czech Republic Poland Slovakia Bulgaria Hungary Lithuania Latvia 57 Estonia 57 58 59 60 60 62 65 Males 56 61 66 71 Age Source: World Bank staff calculations for all ECA countries with data available using Human Mortality Database. University of California, Berkeley (USA), and Max Planck Institute for Demographic Research (Germany), www.mortality.org 15
In percent Dependency measured as disability diverges from chronological age definition 40 35 Japan 30 25 20 Hungary Hungary 15 10 Japan 5 0 Old-age dependency ratio Adult disability dependency ratio Notes: Adult disability dependency ratio (ADDR) defined as the number of adults at least 20 years old with disabilities, divided by the number of adults at least 20 years without them. Source: Sanderson and Scherbov (2010). 16
Stock of human capital has room to increase Index of the Size of the Working-Age Population and Its Stock of Years of Schooling, Central Europe and Baltics and EU-15 (1990-100), 1990 2060 140 130 120 110 100 90 80 70 60 Central Europe and Baltics 140 EU-15 130 120 110 100 90 80 70 60 WAP Total years of education in WAP WAP Total years of education in WAP Note: Working-age population here defined as 15 to 64 years old. Source: Based on Lutz, Butz, and K. C. 2014. The World Bank European Commission Joint Workshop on Active Ageing 17
Presentation structure 1. Growth, productivity and aging 2. Barriers to employment at older ages 3. A move to more balanced demographics 4. Turning aging into an opportunity 18
Aging from below due to shrinking younger generations vs. aging from above due to longevity Cumulative population change 1990-2010, in percent Natural increase Net migration Source: Based on United Nations (UN) Population Division (2013). 19
Larger imbalance in size of generations where emigration high and fertility low Young cohorts are expected to shrink further in Estonia by 2030 Generations are set to be more equally sized in the EU-15 Estonia: Age Distribution of Population, 2012 vs. 2030 (in percent) Age Distribution of Population, 2012 vs. 2030 (in percent) Males 85+ 80-84 75-79 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4 Females 2030 2012 Males EU-15 85+ 80-84 75-79 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4 Females 2030 2012 6.0 4.5 3.0 1.5 0.0 0.0 1.5 3.0 4.5 6.0 6.0 4.5 3.0 1.5 0.0 0.0 1.5 3.0 4.5 6.0 Source: Eurostat. 20
Life expectancy at birth, years Central Europe and the Baltics aging differently: Lives cut short Italy gained 14 years of life expectancy since 1960 and Latvia just 4 years 85 Life expectancy gains lag behind the EU-15 80 75 70 65 60 Life expectancy at birth 2012 Life expectancy at birth 1960 Source: Based on World Bank s World Development Indicators. 21
Bulgaria s labor force would be 13% bigger in 2010 if mortality had declined as in France from 1950 100+ 90-94 80-84 70-74 60-64 50-54 40-44 30-34 20-24 10-14 00-04 400 200 0 200 400 population (thousands) Source: World Bank calculations using UN (2013). 22
Presentation structure 1. Growth, productivity and aging 2. Barriers to employment at older ages 3. A move to more balanced demographics 4. Turning aging into an opportunity 23
Positive net migration helps balance demographics now; fertility changes contribute (but longer term) Macro and micro econometric evidence suggests families in less rich EU countries don t have the critical second child due partly to not having adequate incomes Some evidence of a re-increase in fertility occurring at high country income threshold and that stable employment for mothers may play a role Supporting families can also play a role in stemming out-migration Planning to move alone Table 1. Changing Profile of EURES Clients in Latvia, 2004-2010 2004-2007 2008-2010 Looking for temporary, low-skilled job Minimal knowledge of foreign languages Planning to move with family Looking for permanent, skilled job Better knowledge of foreign languages, higher qualifications Planning to return Interested in legal employment and social security Note: Based on the daily records of European Employment Services (EURES) consultants in Latvia. Source: Hazans (2013: Table 4.6). m. 24
Achieve healthier aging by reducing inequality and achieving the cardiovascular revolution Gap in life expectancy at 50 years old between those with high and low education, by gender, 2010 Portugal Malta Sweden Finland Denmark Italy Norway Croatia Romania Italy Spain France Sweden Netherlands Ireland Austria United Kingdom Greece Germany Finland Belgium Portugal Denmark Excess deaths due to diseases of the circulatory system 0 200 400 600 800 Total deaths if mortality from diseases of the circulatory system (DCS) equaled EU-14 average Gap in deaths due to excess DCS Poland Slovenia Slovenia Czech Republic Poland Bulgaria Croatia Estonia Estonia Slovakia Hungary Hungary Latvia Czech Rep. Romania Lithuania 0 5 10 15 Bulgaria Women Men Age-standardized death rates per 100 000 population Source: Based on Eurostat. Notes: Data for 2010. EU-14 is Eu-15 group of countries excluding Luxembourg for which data is not available. m. Source: Based on the WHO Mortality Database. 25
Focus on skills development across the life cycle OECD s PIAAC reveals younger adults perform better than older adults across all countries (with large differences in certain countries) Source: Bodewig, 2014. - increased educational attainment of younger cohorts - But also probably skills depreciation over life cycle (need for better and more adult training and lifelong learning) The World Bank European Commission Joint Workshop on Active Ageing 26
Employer interventions: Age-specific staffing strategies can help Firms have tried many approaches: Age-specific equipment or work place adaptation Age-specific tasks for old workers Mixed-age working teams Working time reductions/flexibility Age-specific training/human resource management strategies Evidence that some do work (in red) Adoption rates are unknown Scope for dissemination 27
Productivity: BMW 2017 production line pilot in Bavaria Help Older Workers be as Productive as Younger Staff Initial condition: Aging assembly line workforce Result 7% productivity improvement in 1 year, similar to that of lines staffed by younger workers How? 70 changes to workplace equipment reduced physical strain Job rotation across workstations during a shift in order to balance the load Physiotherapist developed exercises for workers to do every day Cost-effective: US$40,000 28
Stepping up response to aging Increase healthy life expectancy and reduce health inequalities Increase labor force participation at all ages Invest in skills and adapt to older labor force Plan now for public spending trade-offs Target those who will be vulnerable to elderly poverty early on Support immigration; support families and female integration in the labor market 29
World Bank Group 1818 H Street NW Washington, DC 20433 Thank you