Old glory

Ageing and Employment Policies: United States
OECD Observer

One of the most striking paradoxes of today’s OECD societies is that, although people live longer and healthier, they also tend to retire earlier and younger. The trend in the US is not as marked as in some countries, but it is there nonetheless. By 2030, almost a fifth of the American population is projected to be aged 65 and over, compared with around an eighth only five years ago.

On the basis of current employment rates, the ratio of workers to retirees will decline from over 3 to 1 in 2000 to around 2 to 1 in 2030, putting pressure on pension budgets.

Ageing and Employment Policies warns that simply reforming oldage pensions and early-retirement schemes may not be enough to ease that pressure. It reports that while the US budget is less vulnerable than many OECD countries to population ageing, thanks to lower public spending on pensions and a workforce that includes an above-average number of older workers, the government can do more to keep older workers on the payroll.

Willingness to work is one challenge, readiness to hire another. Bosses see older workers as more experienced, but they are also less flexible in learning new tasks. They are also more likely to lose work days to illness than are younger workers. Add to that insurance costs, and employers have good reason to hire young.

The problem could worsen in the years ahead, as poorer than average scores from PISA, the OECD’s education test of 15-year-olds compared across countries, do not augur well for future older generations out on the job market.

The incentives for government to address this are large, since if older people worked longer, this would not only reduce the burden on future pension, social security and healthcare bills, but boost growth, too. Ageing and Employment Policies recommends that the US increase the minimum retirement age from 62 to 64 years, and rein in tax advantages in some private pensions that encourage early retirement. The government should also combat age discrimination and encourage age-friendly employment practices.

Will these measures deliver? After all, the US faces a tougher challenge than some OECD countries in that its older activity rate is already quite high. Persuading a 55-year-old to work another five years may be easier than asking, say, a 63 year-old to stay on two more. Providing the right incentives will be the key.

©OECD Observer No 249, May 2005

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