International Comparisons
Helping Older Americans to Carry on Working Requires a Comprehensive Approach
Opinion
May 2005
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OECD Director for Employment, Labour & Social Affairs
As a result of rapid population ageing, the United States faces a risk of slower economic growth, serious labour shortages and rising tax rates over the next few decades. These problems will be magnified unless there is a significant reversal in the long-term trend towards early retirement.
While these concerns are not new, few reports to date have taken a comprehensive approach to older worker issues. Therefore, to fill this gap, the OECD has recently released a report on Ageing and Employment Policies: United States, as part of its review of policies across OECD countries to improve employment opportunities for older workers.(1)
In some respects, the United States is better placed than many other OECD countries to cope with population ageing. First, its population is projected to age less rapidly than in most OECD countries. Second, public expenditure on old-age pensions is quite low by OECD standards and is expected to increase only modestly over the next half-century. Third, labour market outcomes for older people in the United States are generally better than in many OECD countries. Over two thirds of all Americans aged 50 64 are working, which places the United States in the top third of OECD countries.
However, there is no room for complacency. While not as endemic as in some European countries, early retirement is nevertheless a fairly frequent event in the United States. Moreover, the proportion of older Americans who are working varies widely by gender, ethnic background and level of educational attainment. Older job losers also face greater difficulties than younger ones in finding a new job and large earnings losses. At the same time they are under-represented in employment programmes to help them back into work.
Thus, there is scope to mobilise more fully the potential labour supply of older Americans. The OECD report recommends reforms in the following areas to achieve this objective:
Strengthen financial incentives to carry on working
- Speed up the transition from 65 to 67 for the full retirement age and raise the minimum age for social security.
- Ensure disability benefits do not become an alternative route to early retirement.
- Limit tax advantages in private pension schemes for taking early retirement.
Remove employment barriers on the side of employers
- Eliminate the “Medicare-as-secondary-payer” rule.
- Strengthen measures to combat age discrimination.
- Promote the business case for employing older workers.
Ensure better access to better jobs
- Strengthen and expand training opportunities for low-skilled workers.
- Improve the effectiveness of employment services for older jobseekers.
- Tackle barriers to phased retirement.
- Help employers to adapt working conditions to the needs of older workers.
These measures are likely to be more effective if taken in close co-operation between the Administration, employers, workers and organisations representing older people, and as part of a broad strategy to improve employment opportunities for older workers.
Note: Mr. Martin directed the Aging and Employment Policies: United States report referred to in this article.The views expressed in this article do not represent the views or policies of AARP.
John P. Martin is Director for Employment, Labour and Social Affairs at the OECD; his brief also covers OECD work on health and international migration. He is an Irish citizen. After studying Economics at University College Dublin, he worked as a research assistant at the Economic and Social Research Institute in Dublin from 1970 to 1972; during this period, he was also economics correspondent for the Sunday Independent. He did postgraduate studies at Nuffield College, Oxford. In 1975, he became research fellow at Nuffield College and lecturer in economics at Merton College, Oxford; he also lectured in economics at the University of Buckingham.
John P. Martin joined the OECD in 1977 and has held several posts in his current directorate and in the Economics Department. He was the founding editor of the OECD Employment Outlook from 1983 to 1986, and he also edited the OECD Economic Outlook in 1992-93. He was a member of the Editorial Board of OECD Economic Studies for many years and is an associate editor of Labour Economics. He is a member of the Council of the Institute for Employment Studies in the United Kingdom; a Policy Associate of the Leverhulme Centre for Research on Globalisation and Economic Policy at the University of Nottingham; and a Research Fellow of the Institute for the Study of Labour (IZA) in Bonn. He is a part-time Professor at the Institute of Political Studies (Sciences Po) in Paris. He has published many articles on topics in labour economics and international trade in professional journals and has also written and edited several books in these fields.
(1) 21 OECD countries are participating in this project and 14 country reports have been published to date in the Ageing and Employment Policies series.