Keeping older workers in jobs for longer could increase OECD GDP by $2.6 trillion, says PwC

John Hawksworth, Chief Economist at PwC.

Golden Age Index measures how well countries are harnessing the economic power of older workers.

• Iceland tops the table, followed by New Zealand and Sweden
• Israel, Germany and New Zealand move up the ranking the most, while Greece and Turkey fall the furthest
• The UK remains in the middle of the table
• Report looks at what this means for government and business

OECD countries could add $2.6 trillion to their total GDP if the employment rate for workers aged over 55 was equal to best-performing EU country Sweden, according to PwC economists.

The PwC Golden Age Index is a weighted average of indicators – including employment, earnings and training – that reflect the labour market impact of workers aged over 55 in 34 OECD countries.

The potential GDP boost varies significantly across countries, from around 1% in Norway to around 19% in Greece. Other countries lagging behind in the index could also experience large gains, such as Belgium (15%) and Slovenia (14%). Given its size, the US has the largest potential absolute gain of around $0.5 trillion (around 3% of GDP).

John Hawksworth, PwC Chief Economist and author of the report, says: “Between 2015 and 2030, the population of those aged 55 and above in high-income countries is projected to grow by more than a quarter to over 500 million. Rapid population ageing is putting significant pressure on health and social care systems and threatening the financial sustainability of some public and corporate pension arrangements. Countries could offset these higher costs by tapping into their older workforce and so increasing both GDP and tax revenues.”

PwC Golden Age Index – key results

The Nordic countries once again perform strongly on the index, with Iceland topping the list and Sweden in third and Norway in sixth place. Denmark (12th) and Finland (14th) don’t perform quite as well as their peers, but still make it into the top half.

Israel, Germany and New Zealand have shown the most significant improvement since 2003, primarily driven by an increased employment rate for older workers, especially within the 65-69 age group. Greece and Turkey have fallen the most in the rankings since 2003, partly due to falling employment rates for older workers.

Despite falling one place in the rankings since 2003 and remaining in the middle of the overall OECD table, the UK performs relatively well when compared to the other EU countries (ranking sixth out of 21). The US still has the highest ranking of the G7, but has fallen from second place in 2003 to seventh in 2014 as other countries have improved faster.

Public policy and business implications

The PwC report also looks at what strong performing countries have in common and suggests three key labour market themes that governments should focus on:

• Encouraging later retirement. This could be achieved through pension reform or by creating other financial incentives that encourage workers to continue working past the official retirement age.
• Improving employability. Policymakers could focus on promoting lifelong education and training, which could upskill older workers and thus potentially reduce unemployment of older workers.
• Reducing employment barriers for older workers. Public policy could place an emphasis on tightening regulation around labour market discrimination against older workers.

There are also several opportunities and challenges posed by the Golden Age Index for business. Says John Hawksworth: “Businesses should look to adopt flexible working policies, such as ‘phased retirement’, or expand training programmes to encourage and support their older workforce. They should also take steps to achieve age diversity, for example through opening up apprenticeship schemes to older workers so that they can capitalise on their experience.”

To achieve the gains set out in the report, governments and businesses will need to work together, drawing on best practice examples from other countries and companies.

Older workers: South Africa

When considering the methodology utilised for calculating the PwC Golden Age Index, it is evident that the employment rate of persons in the age bracket 55-69 plays a major role.
Although the latter age bracket only comprises 17.3% of South Africa’s population (according to data compiled by consultancy Quantec Research), the proportion of people in this age bracket earning some form of income is more than 20% of the total.

Due, inter alia, to the relatively young age profile of South Africa (compared to the OECD countries), the average income of people in the 25 to 54 age bracket is substantially higher than for the 55 to 69 age bracket, namely R91, 300 per annum, compared to R57, 500 (figures based on Quantec Research data, adjusted for inflation), says Dr Roelof Botha, Economic Advisor to PwC, South Africa.

Two other reasons for this difference is the fact that many people above the age of 55 stop working full-time and their cost of living profiles are much lower than younger people, who usually have dependents and higher debt levels.

Dr Botha points out that in South Africa, the ratio of income derived from other sources than salaries, business profits and pensions/grants for the age group above 55 years is 11.8% of total income, compared to only 3.7% for the 25 to 54 age group.

“Expanding the employment rate of older people in South Africa has the obvious advantage of relieving pressure on the financial system, by postponing the decision to cash in on previous savings.

“Another advantage is an element of fiscal relief, as it would serve to broaden the tax base. A third advantage is related to the wealth of experience that comes with older aged people and utilising this to a fuller extent via training and mentorship programmes,” says Dr Botha.

The latter point is highly relevant to many of South Africa’s local governments, as it is well documented that inefficiency at this level is often caused by a lack of skills.

An infusion of task teams of people older than 55 with relevant experience in public administration, project management, accounting & engineering could assist in transferring appropriate skills to municipal employees and also assist in restoring functionality at some municipalities.

1. Methodology: The PwC Golden Age Index combines national performance on the following labour market indicators (with relative weights shown in brackets): Employment rate 55-64 (40%), Employment rate 65-69 (20%), Gender gap in employment, 55-64: ratio women/men (10%), Incidence of part-time work 55-64 (10%), Full time earnings 55-64 relative to 25-54 (10%), Average effective exit age from the labour force (5%), Participation in training: ratio 55-64 to 25-54 (5%)
These indicators are normalised, weighted and aggregated to generate index scores for each country. The index scores are on a scale from 0 to 100, with the average OECD value in the base year of 2003 set to 50. However, the average index values for 2007, 2013 and 2014 can be higher or lower than this 2003 baseline.

All data are taken from the OECD. We focus mostly on the 55-64 age group for data reasons. We do, however, include total employment rates for 65-69 year olds in the index and look at all workers over 55 in calculating potential boosts to GDP from higher employment rates for older workers. The latest data available across the broad range of countries covered are for 2014.