What is the optimum retirement age for Europe?

IE Focus

21 March 2007

The more Europe’s population ages, the more necessary it is for mature workers to stay on the job.

Over the last 30 years, the number of gainfully employed workers over the age of 55 has dropped notably in more developed countries. These countries can be divided into four subgroups:

1. Sweden, USA, Portugal and Ireland - where more than 60% of the workers between the ages of 55 and 64 remain employed.

2. Canada, Great Britain and Denmark - where over 50% of this age group is employed.

3. Germany and Spain - where the percentage is around 50%.

4. France and Belgium- where it is below 40%.

Finland and the Netherlands—where until 1995 less than 40% of employed workers were over the age of 55--have both enjoyed a steady increase in this group thanks to innovative reforms. In just five years, these two countries have succeeded at reversing a trend in which the elderly increasingly dropped out of the workforce. In the other nations mentioned, however, the number of employed individuals over the age of 55 has fallen. In Japan, this group has decreased by only 9% over the last 30 years. But in other countries, the drop has been far more acute: Canada (-27%), the United Kingdom (-26%), Spain (-30%), Germany (-41%), France and Belgium (-43%).

[*D Northern Europe is more committed than southern Europe to reforming the labour market. *]

The average retirement age in Europe varies from 57 years in Luxembourg and Belgium to 58 years in France, 59 in Italy, Austria, Greece and the USA, 60 in Spain, Germany and the Netherlands, 61 in Denmark and Finland, 62 in Portugal, Sweden and the United Kingdom and 63 in Ireland. Some European countries are approaching the EU target, but not necessarily as the result of a well-oiled labour market. For example Portugal and Greece have high rates of employment in the older age brackets due to the precarious pensions systems in both countries. In Portugal, 30% of the male population and 18% of the female population remain active in the labour market after the age of 65, when they work mainly in small companies, on farms and in minor jobs.

Sweden is the European country that most employs workers over 55 years of age. In the 1950s, unions, government representatives and employers agreed on a series of measures aimed at bolstering the country´s economic performance and averting a fall in employment. No law against age discrimination was enacted. Instead, three entities with a two-pronged social and economic mission were created to deal with this issue—a strategy that has proven to be quite successful. In 1985, more than 75% of males between the ages of 55 and 64 years were employed. At that time, the average in the EU was below 55%. The figure for Sweden dropped in the 1990s, when the economy fell on hard times, but the differential with the EU remained more or less constant: Ten years ago, 64% of workers over the age of 55 were employed, in comparison with an average of 46% in Europe.

Today a gap still exists between the north and south of Europe. In general, northern Europe is more committed to labour market reforms than the south, which is more passive. Meanwhile, the Organisation for Economic Cooperation and Development (OECD) is doing its bit in an attempt to raise the retirement age. In a report entitled Employment Outlooks, the Paris group recommended that governments should redouble their efforts to improve the employment outlook for various collectives, including women and the elderly, disabled and unskilled workers. The report, published in September of 2006, predicts many OECD member countries will suffer slower growth as their population ages, unless measures are taken.

[*D The OECD recommends eliminating incentives for early retirement. *]

If current trends continue, the OECD estimates, workers over the age of 65 will account for 47% of the population in 2030, compared to only 27% in 2000. If the reforms currently under study in many countries fail to materialize, the annual growth of the working population in the 30 OECD member states will diminish significantly. The growth rates will fall from the annual average of 1.3% recorded over the last 30 years, to 0.3% over the next 30 years.

The forecast for job growth next year is slow in every member country of the OECD. Spain leads the way, with a growth forecast of 2.1%. Although this rate is by no means extraordinary, it is far higher than those of the other countries, none of which exceed the 1.4% threshold recorded by the USA. The OECD predicts employment in Italy will grow by 1.2%, in France by 0.7%, in the United Kingdom by 0.5% and in the Netherlands by 0.1%. Japan is the only country expected to suffer negative growth, with an estimated fall of 0.2%.

Most of these countries are studying reforms aimed at benefiting collectives with limited access to the job market, such as women, early retirees, single parents and the disabled. According to the OECD, establishing policies aimed primarily at the jobless doesn’t go far enough to address the problem because the economic incentives are insufficient. There are other effective measures such as subsidising day care services for younger children, promoting more flexible office hours for workers with families and encouraging part-time employment. Another of the OECD´s recommendations for deferring the retirement age includes eliminating incentives for early retirement.

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