aging with growth: implications for productivity and the ......positive net migration helps balance...

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

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

Concern: An aging population…

3

Dependency ratios not fixed: Size and

composition of the labor force can be altered by

higher participation

4

Projected changes in the size of the labor force under different labor force participation scenarios, by age

category, Central Europe and Baltics, 2010–60

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)

-12

-10

-8

-6

-4

-2

0

2

4

6

Constant participationprofile

Female to maleconvergence

Increase in worklife by10 years

Ch

an

ge

in

la

bo

r fo

rce

, %

15-39 40-64 65+

Dependency ratios can remain relatively stable

if labor market participation rises

5

Ratio of inactive over active people aged 15 and older, by scenario, Central Europe and the

Baltics, 1990-2060

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)

50

60

70

80

90

100

110

1990 2000 2010 2020 2030 2040 2050 2060

Ra

tio

of in

active

to

active

po

pu

latio

n

ag

ed

15

+

Constant participation

Increase work lives by 10 years

Female to male convergence

Potential for rise in stock of human capital, even

as working-age population falls, in some countries

6

Working-age population and stock of human capital

EU28, 1990-2060

Source: Calculations based on Lutz, Butz, and KC 2014.

60

70

80

90

100

110

120

130

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060

Ind

ex 1

99

0=

10

0

Working-age population

Stock of years of education

The aging brain can compensate

Source: Daselaar and Cabeza (2004)

Better-performing older participants compensated for age-related memory

decline by reorganizing the episodic retrieval network

7

Employers take advantage of new strengths

Source: Calculations based on data in Cai and Stoyanav 2014; UN Comtrade.

8

-0,25-0,2

-0,15-0,1

-0,050

0,050,1

0,150,2

0,25

Central Europe and the Baltics (Oldcountries)

Central Asia and Turkey (Young countries)

Age-appreciating cognitive skills Age-depreciating cognitive skills Physical ability

Change in the skill contents of exports, 2000-2010

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.: age-

diverse 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




3. A move to more balanced demographics


10

Determinants of labor supply in the EU:

regression-based evidence

Source: Estimates based on SHARE..

11

*

***

***

***

***

***

-0,6 -0,5 -0,4 -0,3 -0,2 -0,1 0 0,1 0,2 0,3

Household members under age 6, number

Household members aged 60–80, number

Household members above 80

ADL z-score (with difficulty)

IADL z-score (with difficulty)

High school and above

Eligible for old-age and early retirementpension

Other public support

Spouse working

Poland

Women

Men

***

***

***

***

***

***

***

***

***

**

-0,6 -0,5 -0,4 -0,3 -0,2 -0,1 0 0,1 0,2 0,3

Estonia

• The receipt of a pension or other public support is strongly

correlated with exit from work in CEB countries.

• Changes in the official retirement age or benefit structure have

potential to incentivize later retirement Examples: Austria and

Germany.12

0

.2

.4

.6

.8

1

rate

45 50 55 60 65 70 75 80 85age

Male

0

.2

.4

.6

.8

1

rate

45 50 55 60 65 70 75 80 85age

Female

Source: SHARE 2011

Receiving Other Pension Receiving Old Age and Early Retirement Pension

Working/Total

Determinants of labor supply in the EU: Benefit

eligibility plays a large role in reducing participation

• 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

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

Source: Eurobarometer 2012.

0% 20% 40% 60% 80% 100%

Family care obligation

Retire with partner

Lack of modern skills

Places are not adapted

Pensions/tax systems

Attitudes of employers

No gradual retirement

Excluded from training

Retire with partner

Family care obligation

Pensions/tax systems

Lack of modern skills

Places are not adapted

No gradual retirement

Excluded from training

Attitudes of employers

EU

15

EU

11

Very important Fairly important Not very important Not important at all

The importance of making older age healthier

0 10 20 30 40

Sweden

Norway

Iceland

Malta

Luxembourg

Denmark

United Kingdom

Ireland

Switzerland

Bulgaria

Greece

France

Belgium

Spain

Czech Republic

Netherlands

Cyprus

Finland

Poland

Austria

Lithuania

Germany

Croatia

Slovenia

Estonia

Hungary

Latvia

Portugal

Romania

Slovakia

Female life expectancy at age 50

Heathy Life Years at Age 50

Life Expectancy at Age 50

0 10 20 30 40

Sweden

Norway

Iceland

Malta

Switzerland

Denmark

Ireland

United Kingdom

Cyprus

Belgium

Luxembourg

Greece

Spain

Netherlands

France

Bulgaria

Czech Republic

Finland

Austria

Portugal

Germany

Poland

Lithuania

Croatia

Slovenia

Romania

Hungary

Estonia

Latvia

Slovakia

Male life expectancy at age 50

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

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

57

57

58

59

60

60

62

65

68

71

56 61 66 71Age

Males

France

Slovenia

Czech Republic

Poland

Slovakia

Bulgaria

Hungary

Lithuania

Latvia

Estonia

http://www.mortality.org/

Dependency measured as disability diverges

from chronological age definition

Japan

Japan

Hungary

Hungary

0

5

10

15

20

25

30

35

40

Old-age dependency ratio Adult disability dependency ratio

In p

erce

nt

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

17The World Bank—European Commission Joint Workshop on Active Ageing

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

Note: Working-age population here defined as 15 to 64 years old.

Source: Based on Lutz, Butz, and K. C. 2014.

60

70

80

90

100

110

120

130

140Central Europe and Baltics

WAP Total years of education in WAP

60

70

80

90

100

110

120

130

140 EU-15

WAP Total years of education in WAP






18

Aging from below due to shrinking younger

generations vs. aging from above due to longevity

19

Cumulative population change 1990-2010, in percent

Source: Based on United Nations (UN) Population Division (2013).

Natural increase Net migration

Larger imbalance in size of generations where

emigration high and fertility low

20

EU-15

Source: Eurostat.

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

Age Distribution of Population, 2012 vs. 2030 (in percent)

Males Females

0.0 1.5 3.0 4.5 6.0

2030

2012

0.01.53.04.56.0

Generations are set to be more equally sized in

the EU-15Young cohorts are expected to shrink further in

Estonia by 2030

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

Estonia: Age Distribution of Population, 2012 vs. 2030 (in percent)

Males Females

0.0 1.5 3.0 4.5 6.0

2030

2012

0.01.53.04.56.0

Central Europe and the Baltics aging differently:

Lives cut short

21

Life expectancy gains lag behind the EU-15

Italy gained 14 years of life expectancy since 1960 and Latvia just 4 years

60

65

70

75

80

85

Lif

e e

xp

ec

tan

cy a

t b

irth

, ye

ars

Life expectancy at birth 2012 Life expectancy at birth 1960

Source: Based on World Bank’s World Development Indicators.

Bulgaria’s labor force would be 13% bigger in 2010 if

mortality had declined as in France from 1950

Source: World Bank calculations using UN (2013).

400 200 0 200 400

00-04

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

90-94

100+

population (thousands)

22






23

Positive net migration helps balance demographics

now; fertility changes contribute (but longer term)

.

m. 24

Table 1. Changing Profile of EURES Clients in Latvia, 2004-2010

2004-2007 2008-2010

Planning to move alone Planning to move with family

Looking for temporary, low-skilled job Looking for permanent, skilled job

Minimal knowledge of foreign languages 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)

• 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

Achieve healthier aging by reducing inequality and

achieving the “cardiovascular revolution”

Source: Based on Eurostat.

m. 25

Gap in life expectancy at 50 years old between those

with high and low education, by gender, 2010

Notes: Data for 2010. EU-14 is Eu-15 group of countries excluding Luxembourg for which data is not available.Source: Based on the WHO Mortality Database.

Excess deaths due to diseases of the circulatory

system

0 5 10 15

Czech Rep.

Hungary

Estonia

Bulgaria

Slovenia

Poland

Romania

Croatia

Norway

Italy

Denmark

Finland

Sweden

Malta

Portugal

Women Men

0 200 400 600 800

ItalySpain

FranceSweden

NetherlandsIrelandAustria

United KingdomGreece

GermanyFinland

BelgiumPortugal

Denmark

SloveniaCzech Republic

PolandCroatiaEstonia

SlovakiaHungary

LatviaRomaniaLithuaniaBulgaria

Age-standardized death rates per 100 000 population

Total deaths if mortalityfrom diseases of thecirculatory system(DCS) equaled EU-14average

Gap in deaths due toexcess DCS

Focus on skills development across the life

cycle

Source: Bodewig, 2014.

OECD’s PIAAC reveals

younger adults perform

better than older adults

across all countries (with

large differences in

certain countries)

- increased educational

attainment of younger

cohorts

- But also probably skills

depreciation over life

cycle (need for better

and more adult training

and lifelong learning)

26The World Bank—European Commission Joint Workshop on Active Ageing

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$40,00028

Stepping up response to aging

29

Increase labor force

participation at all ages

Increase healthy life

expectancy and reduce

health inequalities

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

Thank you

World Bank Group

1818 H Street NW

Washington, DC 20433

aging with growth: implications for productivity and the ......positive net migration helps balance...

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