It is not sufficient to improve the incentives for older people to continue working longer; they must also have better opportunities to do so. Thus, a key issue for more inclusive ageing and employment policies is to encourage employers to hire and retain older workers in better jobs. This in turn depends on how well firms manage age diversity and ensure the most productive use of all workers irrespective of their age and according to their capacities. Governments’ policies can influence the employment policies of employers with respect to hiring and retention of older workers by striking the right balance between employment flexibility and stability via labour market regulations.
Working Better with Age
Ageing and Employment Policies
4. Encouraging employers to retain and hire older workers
Abstract
The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.
Infographic 4.1. Ensuring better employment opportunities for older workers
Key policy recommendations
Address discrimination in employment on the basis of age by taking measures, such as legislation preventing age discrimination and public-awareness campaigns, to eliminate discrimination in the recruitment, promotion and training process, and in employment retention.
Take a balanced approach to employment protection by ensuring that age is not a criterion in determining the level of employment protection while promoting better access to quality jobs for older workers.
Seek to discourage or further restrict mandatory retirement by employers in close consultation and collaboration with employers’ and workers’ representatives, while respecting in a limited number of instances that such practices may be necessary.
Encourage employer and worker representatives to identify mechanisms to facilitate the retention and hiring of all older workers, even those in vulnerable situations, including reviewing their practices in setting pay to reflect productivity and competences, not age.
Encourage good practice by employers in managing an age-diverse workforce:
Through public and private initiatives that provide guidance on issues such as promoting a sharing of knowledge and experience across different age groups.
Adjusting work responsibilities and working-time arrangements to the changing capacities of workers and their family responsibilities over their life course as well as to take account of improvements in the education, health and physical capacities of older workers.
Employers play a key role on promoting longer working lives by offering older workers good employment opportunities. However, they may be hesitant to retain or hire older workers because of an actual or perceived gap between the costs of employing older workers and their productivity. They may also have stereotypical views about the lack of adaptability and flexibility of older workers. Public policy in OECD countries have addressed these challenges in three main ways: action to tackle or ban age‑discrimination; measures to facilitate retention and hiring by lowering labour costs and finding the right balance on employment protection rules; and encouraging the use of age management practices to enhance the employability and productivity of older workers.
Older workers are staying longer with firms but have fewer opportunities to find new jobs
Job mobility and job retention among older workers are key to prolonging careers and increasing employment of older workers. The good news is that employer across the OECD have shown an increased willingness to retain older workers. According to OECD scoreboard on older workers retention rates increased in all except seven countries between 2008 and 2016 (Figure 4.1). In Iceland, Ireland, Greece and the United States retention rates rose between 2012 and 2016, when labour markets recovered following the global financial crisis, but remain below their pre-crisis levels.
Figure 4.1. Labour-demand for older workers remains weak in the majority of the OECD
Note: OECD is an unweighted average (excluding Israel). In Panel A, 2008 refers to: 2007 for Japan, 2009 for Australia, Greece, Korea and the United States, 2010 for Estonia, Mexico, Slovak Republic and Slovenia and 2011 for the Netherlands; and 2016 refers to: 2015 for Lithuania and Japan. For the United States, the data refer to all employees aged 55-59 4-years previously. In Panel B, 2008 refers to: 2006 for Japan; and 2018 to: 2017 for Australia, Iceland, Japan and New Zealand.
Source: OECD Job tenure database, http://stats.oecd.org//Index.aspx?QueryId=9590
Notwithstanding these improvements, a major challenge facing all OECD countries is to enhance job mobility of older workers who lose their jobs or wish to change jobs. On average across OECD countries, less than 12% of workers aged 55-64 had been recently hired in 2018 (i.e. within the past 12 months). Hiring rates of older workers are typically between one-third and half of the hiring rates of prime-age workers, and far below youth.
Between 2008 and 2018, hiring rates of older workers increased in barely half of all OECD countries. The sharp decrease in hiring rates in Korea reflects specific characteristics of its labour market where there is still a large share of older workers in temporary employment.
There are several reasons why firms may be reluctant to retain or hire older workers. The productivity of older workers might be one concern. Furthermore, if firms rely on seniority or efficiency wages as an incentive device, the cost of retaining workers at an older age or hiring them may be too high relative to their productivity. Employers might also have negative perceptions about the adaptability of older workers. Such attitudes may be based on more or less objective factors (e.g. lack of IT skills) or on stereotypes about the weakness (and strengths) of older workers.
Age discrimination is still a challenge
Age discrimination and negative employer attitudes towards older workers remain major obstacles to longer working lives in all OECD countries. By restricting the available pool of experience and talent in the production process, discrimination also acts as a break on productivity and economic growth and reduces well-being for younger and older generations alike. Perceived discrimination may influence employment outcomes not only through hiring decisions but also because discriminatory barriers can lead older workers to restrict their job search (e.g. by focussing on poor-quality jobs only) or to stop searching for employment altogether. Young people may also suffer obstacles in finding jobs or obtaining promotions because they are perceived as inexperienced or unreliable irrespective of their actual talents.
Age discrimination is banned by legislation in virtually all OECD countries. Yet, perceptions of age discrimination remain very common. In the European Union, a 2015 survey showed that 60% of respondents, including managers (Figure 4.2), think that an older age is a factor that puts job applicants at a disadvantage (Eurobarometer, 2015[1]). In the same year, 27% of Australian employees aged 49 and above reported having actually experienced age discrimination in the workplace within the last two years, and 11% of managers reported taking age into account when deciding whether to offer employees access to training opportunities (Australian Human Right Commission, 2015[2]). A US survey in late 2017 reported that nearly 2 out of 3 workers aged 45 and older have seen or experienced age discrimination on the job (AARP Value of Experience survey).
There is also evidence in emerging economies of ageism in hiring decisions. A study of managers in Brazil shows that a significant share of them prefer hiring a younger worker even when an older worker was described as more productive (Rego et al., 2018[3]). Implicit biases against hiring older workers are also likely to be pervasive among other emerging G20 countries, such as India and Indonesia, where legislation to address age discrimination explicitly is lacking. Indeed, in Indonesia, almost all job vacancies specify upper age limits (Awaliyah et al., 2017[4]).
Most OECD countries have launched a number of ad hoc pro-active initiatives to change employer attitudes towards older workers. These include legislation, awareness campaigns, development of “tool kits”, promotion of best practices, and consultation and co-operation with the social partners (Sonnet et al., 2014[5]). Nevertheless, in general in OECD countries, the effectiveness of laws against age discrimination in the workplace is hampered by difficulties in proving that discrimination takes place, as well as cost and procedural barriers to bringing a case before courts.
Figure 4.2. Older age, a factor that puts job applicants at a disadvantage
Note: Percentage of all respondents and of managers answering “Being over 55 years old “ to this question: “When a company wants to hire someone and has the choice between two candidates with equal skills and qualifications, which of the following criteria may, in your opinion, put one candidate at a disadvantage?” The following criteria are: Ethnic origin, Gender, Sexual orientation, Being over 55 years old, Being under 30 years old, Religion or beliefs and Disability or Gender identity. Multiple answers are possible.
Source: Eurobarometer (2015), Discrimination in the EU in 2015.
Better enforcement, paired with concrete measures to tackle age discrimination in hiring, can help to reduce ageism biases
Although legislation cannot eradicate all forms of age discrimination, a strong and a well-enforced anti‑discrimination framework can put a stop to the more overt forms of discrimination such as age limits in job‑vacancy announcements. Such a pattern has been documented in the United States, for instance (Neumark and Song, 2011[6]).
Beyond anti-discrimination legislation, a handful of countries have implemented targeted measures that might help lower the barriers to hiring older workers. For instance, in the Netherlands, through the initiative “Vacancies for all ages” classified ads for job vacancies placed in newspapers and on the Internet are screened for age discrimination. At the same time, employers responsible for placing offending classifieds receive a letter explaining why that particular notice is discriminatory, and receive information about equal treatment legislation. According to the Equal Treatment Commission, the number of unlawful ads has declined since its inception in 2005 (OECD, 2014[7]). In Poland, some firms use the logo “50+ friendly” in their job offers to attract older workers.
Recent evidence suggests that data analytics and machine learning might help overcome the ageism bias in hiring. For example, under the “skills-based” recruitment method used by the French Public Employment Service (Pôle emploi) candidates are selected for employer interviews based on aptitude tests and without regard to age or previously held employment (Sonnet et al., 2014[5]). Indeed, placing more weight on test scores reduces the influence of human bias or mistakes, but it may also mean forgoing valuable private information from a job seeker’s former manager. This illustrates that trade-offs can arise, that solutions are unlikely to be simple, and that tackling discrimination requires sustained and multi-pronged efforts (Hoffman, Kahn and Li, 2015[8]; Cowgill et al., 2017[9]).
A careful review of age-specific labour-market regulations or social policy legislation is also required. For instance, several countries have either abolished mandatory retirement ages as a valid reason for terminating labour contracts (Australia, Canada, the United Kingdom and the United States along with two EU countries, Denmark and Poland), or have raised the applicable age limits.
Getting rid of mandatory retirement altogether is not without controversy. In particular, employers often argue that their businesses could not be run as efficiently without mandatory retirement practices. As it is difficult to objectively measure the performance of older workers, mandatory retirement provides an easy mechanism to dismiss less productive workers. Ultimately, it comes down to a point of fairness. Why should someone still performing well be forcibly retired just because of age?
Measures to better align age profiles of wage and productivity in collective bargaining agreements would increase demand for older workers
Ageism in hiring decisions can arise from a perceived or actual gap between the cost of employing older workers and their productivity. In many OECD countries, there are concerns that seniority-based pay schemes (where wages rise as a function of seniority rather than actual performance) create a barrier to continuing to work at an older age (Frimmel et al., 2015[10]). Across OECD countries, there is a negative relationship between the age‑wage premium and the job retention rate of older workers (Figure 4.3).
Employment practices should be more age-neutral and negotiations between the social partners over pay and working conditions should seek to make links with age or length of service less automatic and place more emphasis on actual skills and productivity.
In many OECD countries, the importance of seniority in formal wage‑setting processes has diminished significantly in recent decades. For example, collective bargaining agreements in Germany no longer feature binding clauses on seniority-based wage progression. Yet, seniority wages remain deeply embedded in firms’ wage-setting practices in Korea and Japan. Low mandatory retirement ages are therefore attractive for employers in both countries and few older workers are retained in their existing jobs beyond ages 55 or 60 (OECD, 2018[11]; OECD, 2018[12]). Many older Koreans and Japanese workers experience a sharp decline in their earnings and job quality following transitions out of their career jobs, with negative implications for their job satisfaction and productivity.
Levers for action available to public authorities in terms of fixing wages that better match the costs of employing (older) workers with their productivity are however limited, as wage policy is determined primarily by the social partners. Nevertheless, public authorities can give an example in public-sector wage-setting arrangements by introducing performance pay and limiting automatic rises in salary with tenure and therefore encourage the social partners in the private sector to follow their example. In Hungary, for example, even though in the public sector the principle of seniority continues to exist, newly established career schemes emphasise personal competencies and efficiency rather than age, time served or wage progression. In Japan, the Japanese Ministry of Health, Labour and Welfare (MHLW) seeks to influence wage setting more directly in the private sector by providing subsidies to help Small and Medium-sized Enterprises (SMEs) incorporate worker performance and ability into their wage and personnel systems.
Figure 4.3. Seniority wages may harm retention
Note: The wage premium indicates the effects of age and tenure on wages. The retention rate is defined as the number of employees aged 60‑64 with job tenure of 5-years or more as a percentage of all employees aged 55 59 5-years previously (and 4-years previously for the United States). The age-wage premium is wage growth between the ages of 40‑49 and 50-59.
Source: OECD (2018[12]), Working Better with Age: Japan, Figure 2.3, https://doi.org/10.1787/9789264201996-en.
Employment protection legislation is another area that, while intended to safeguard the interests of workers, can harm the labour-market prospects of under-represented groups in particular, including of older workers (OECD, 2013[13]). Overly strict labour-market regulations can undermine employers’ willingness to hire older workers and encourage them to make use of mandatory retirement and early‑retirement provisions as a means for ending longer-term employment contracts that may be legally difficult to terminate, especially in large firms where unions have stronger presence. Almost no OECD country has explicit age-specific employment protection measures, except Poland, Netherlands and Sweden1. In Poland, special employment protection rules are intended to limit the layoff of older workers with less than four years remaining until retirement age. According to (Krynska, 2013[14]) employers refrain from recruiting people who are about to be “protected” by this regulation.
However, in almost half of the OECD countries, laying off older workers can be administratively more complex (e.g. because notice periods increase with tenure) or create significant additional costs for employers in the form of higher severance pay. Generous entitlements to severance pay for long-tenure workers can reduce mobility and prevent transitions to better jobs at all career stages (OECD, 2006[15]). In turn, locking workers into jobs with reduced mobility is incompatible with multi-stage working-life models that would be well suited for aligning employment patterns to the labour-market opportunities brought about by longer life expectancy. In addition, employers may face additional implicit costs for employing older workers because labour market regulations or collective agreements may place constraints on the types of jobs they can do (e.g. limits on the amount of overtime or types of shift work).
Several OECD countries have eased employment protection legislation for permanent contracts (e.g. France, Italy, Portugal and Spain) while seeking to strengthen income and (re-)employment support for workers who do become unemployed. Strengthening unemployment benefits and related support is also a prerequisite for successful reforms of severance payments in emerging economies, where they typically represent the main, and sometimes only, form of protection against job loss. Some OECD countries have sought to reform severance payments for instance by: i) reducing their amount (e.g. Italy and Portugal)2; or ii) turning them into so-called “transition allowances” with a specific focus on supporting job mobility (e.g. the Netherlands). It is also important that workers receiving severance pay are encouraged to register with public (and private) employment services as soon as possible following job loss in order to receive prompt help in finding a new job.
Did you know?
On average in the OECD, ten additional years of job tenure (i.e. length of time spent in the job with the same employer) increase wages by nearly 6%. Tenure effects are particularly large in countries such as Korea, Turkey and Japan. Indeed, the strong tenure pay policies in these countries have been blamed on firm’s policies or re-hiring workers by their previous employer when they reach mandatory retirement age to reduce labour costs.
Figure 4.4. Seniority wages remain dominant in many OECD countries
Note: Estimates were obtained from a cross-sectional regression of wages on tenure, squared tenure and controls for: gender, experience, years of education, literacy and numeracy skills, occupation, skill use at work, and educational status of the parents. The OECD is a weighted average and excludes Hungary, Iceland, Latvia, Lithuania, Luxembourg, Mexico, Portugal and Switzerland. Data for the United Kingdom refer to England and Northern Ireland and Belgium to Flanders.
Source: OECD (2018[12]) Working Better with Age: Japan, Figure 2.2, https://doi.org/10.1787/9789264201996-en.
Pro-active age management policies can make older workers more productive and support their retention
It is not sufficient to ban discrimination on the basis of age, employers should be given guidance and greater encouragement to manage an age-diverse workforce in in an efficient way that allows all workers to stay longer in employment and maintain or increase their productivity. Studies carried out in past decades show that holistic age-management approaches, including work organisation, training, health measures, working time policies and other measures are particularly promising (Duell, 2015[16]). An example from the German car producer BMW is illustrative of the benefits of adopting such approaches. To address potential productivity declines due to the ageing structure of the firm, BMW heavily promoted health care and skill development alongside improvements in the workplace environment and more access to part-time. As a result, productivity increased by 7% in one year, erasing productivity differences with other plants with younger staff (Christoph L, F. Sting, 2010[17])
In spite of the well-documented benefits of age-management strategies, the level of implementation of these strategies varies greatly between OECD countries and the “knowing-doing gap” remains large. In particular, implementation of age-management strategies in SMEs remains weak. Even in large firms, where age-promotion policies are more dominant; the measures that are implemented are rather selective (Muller-Carmen, 2009[18]).
A promising way to promote the implementation of age management in companies is to include it as a collective bargaining issue. In this way, employee and employer concerns can be tackled at the same time. Furthermore, it may oblige more companies to consider appropriate age-management strategies. For instance, in France, companies are required to develop an age-management action plan or to conclude collective agreements at the sector or enterprise level in order to keep older workers in employment. The action plans cover recruitment, career development, working conditions, training, knowledge‑transfer and mentoring. However, the implementation of age-management measures remains weak (OECD, 2014[19]). Experience suggests that many of these initiatives require a well-functioning collaboration between firms, social partners and the Government to reap their full benefits (See Box 4.1 for details).
Box 4.1. Promoting age management strategies in collective agreements to keep older workers productive
Norway’s Inclusive Workplace Agreement (IA Agreement) which was introduced in 2001, is a central framework for tripartite co‑operation between social partners and the government on age management (OECD, 2013[20]), encouraging companies to develop a more senior‑friendly policy and implement special measures to retain older workers. The agreement has three goals: i) a 20% reduction in sick leave; ii) increased employment of people with reduced functional ability; and iii) extending the effective labour force exit age for an employee aged 50 by six months compared with 2009. Research, however, has found that the senior initiatives most commonly offered by Norwegian firms fail to produce the desired effects, as they provide benefits to workers who would continue working anyway. To be effective, it has been suggested that such initiatives need to be differentiated among occupations, sectors and industries (OECD, 2013[20]).
In 2008, the social partners in the German chemical industry, signed a collective agreement “lifelong working time and demography”. The agreement covered training, skill development, work organisation and lifelong working-time models. The agreement obliged all companies to analyse their age structure as a starting point for company-specific age-management strategies. To finance measures such as gradual retirement schemes, health, training programmes and other schemes promoting a good work‑life balance, demography funds were also set up, financed by firms with EUR 300 per staff member per year. The use of the funds is negotiated at the firm and workplace level with the works councils (Duell, 2015[16]).
Infographic 4.2. Innovative examples of age management approaches
In order to raise awareness of age management issues at the local and sector levels, social partners and Ministries have issued guidelines on dealing with age-related issues and developing age-management approaches in a number of countries. A common way of raising awareness at national, regional and local levels is the granting of awards or prizes for the implementation of age-management strategies. For example, in the United States, AARP, which is concerned with the living situation of Americans over 50, for several years granted the AARP Best Employers for Workers over 50 award, co-sponsored by the Society for Human Resource Management, a biennial programme that recognises employers with exemplary practices for recruiting and retaining mature workers. Today, AARP continues this work with its AARP Employer Pledge Program. The Pledge Program is a nationwide group of over 1 000 employers that stand with AARP in affirming the value of experienced workers and are committed to developing diverse organisations.
Some countries have also implemented programmes, such as the Consultative Forum on Mature Age Participation in Australia, and its more recent Collaborative Partnership on Mature Age Employment, to facilitate the sharing of information on good practices to support the development of age management strategies. An important component of these initiatives is representation from diverse social partners ‒ that share best practices and recommendations for supporting older workers in the workforce. In the United Kingdom, the Department and Work and Pensions has developed the so-called Age Action Alliance employer toolkit which provides guidance for managers of older worker and how they can better manage their workforce.
Finally, policy approaches need to consider the diversity of the workforce and taking a life-cycle approach instead of focusing only on the integration of older workers. For instance, in Finland, social partners have long advocated the need for age and diversity action plans at firms. Such approaches have been identified as a key success factor for age-management programmes (see Box 4.2).
Box 4.2. Facilitating longer careers: The Finnish Job Life Cycle Model
Based on the social partners’ agreement on the importance of extending working careers, the Finnish Social Partners have developed a guide to designing an age plan for employers that takes into consideration all age groups (not only older employees).
The plan emphasises seven key areas in a workplace age plan:
Age management.
Career-planning and extending careers.
Managing competence and professional skills.
Flexible working hours.
Re-defining a job.
Health assessment in the workplace.
Promoting Healthy habits and life management.
Wage subsidies can promote re-employment if well targeted and carefully implemented
In many countries, wage subsidies continue to be a common instrument for offsetting any gaps between pay and productivity of older workers. For example, in the Netherlands, social security contributions can be reduced up to EUR 7 000 per year when recruiting a worker aged 50 or above (OECD, 2018[21]). In Poland, social security contributions can be reimbursed and wages subsidised up to 80% of the minimum wage for employing older workers (over 50 years old) who are eligible to early retirement, and up to 50% for older workers who are not eligible for early retirement.
A number of empirical studies have investigated how wage subsidies influence employers’ hiring and employment decisions and whether the subsidies are likely to be efficient. Surveys and meta-analyses find that wage subsidies are generally effective in bringing the unemployed back to work (Card, Kluve and Weber, 2015[22]). However, these studies often do not consider older workers or only examine the situation of “pre‑seniors” in the 45-54 age group.
In addition, most evaluations confirm that budgetary costs and deadweight effects can be large, suggesting that these programmes are frequently not cost-effective (Boockmann and Brändle, 2015[23]). To be effective, wage/hiring subsidies need to be well targeted at disadvantaged older workers, such as low‑wage earners and jobseekers who have been unemployed for a long time, e.g. more than six months for the least skilled and more than a year for the others. For instance, the strict eligibility criteria and clear targeting of the Austria “Come Back” hiring subsidy (2/3 of wages) targets unemployed men aged 50 and over and unemployed women aged 45 and over. Evaluations confirm that this measure had the best effects for those from older age categories (45–54), in terms of funding period, unemployment time and income (European Union, 2014[24]). Nevertheless, it is likely to be even more cost effective if measures are in place to prevent older workers from becoming long-term unemployed after job loss (OECD, 2018[25]).
Some governmental measures are focused on preventing people from retiring early with in-work benefits or taxation systems which encourage individuals to work longer through financial gain. For example, in 2007, Sweden introduced two tax reductions for workers over 65 year olds with the aim of increasing incentives to work longer. Firstly, an employment-conditional tax credit was introduced for all workers, and this was made especially generous for people over 65. Secondly, employer´s social contributions for workers over 65 were reduced with roughly 16 percentage points. Due to its positive impact on the subsequent length of job retention, the credit has been extended several times (OECD, 2018[26]).
Start-up subsidies for the older unemployed may also be effective
In some OECD countries, counselling is provided for the older unemployed to make use of start-up incentives. For example, the Irish Senior Enterprise Initiative promotes entrepreneurship among 50+. This may be through starting a business, alone or with others, acquiring or investing in a business, advising an entrepreneur or supporting innovation within a business owned by another.
While few evaluations exist on the effectiveness of start-up incentives for older workers, this may be an effective measure. The “OECD older workers scoreboard” indicates that self-employment among older workers is quite high in a number of countries. There are several reasons for this. First, liberal professions and company owners may have a higher motivation to remain in employment. They are in general also not subject to (de facto) mandatory retirement. Second, former managers may be offered a consultant contract. More generally, self-employment may represent a possibility for the older unemployed to get a job, as many employers may prefer to engage older workers as contractors rather than as employees.
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