Delaying Retirement: What does it mean for younger workers?

Since the announcement that his government was considering raising the eligibility age for Old Age Security (OAS), Stephen Harper has backed off slightly, assuring the public that such reforms are years away. Nevertheless, media and experts of all kinds have fired into gear, speculating on the possible motivations for OAS reform, and exploring its potential implications.

One question that hasn’t received much attention – yet – is the impact of a higher eligibility age on the job prospects and economic well-being of younger workers just entering the labour force. In other words, we’ve yet to see much discussion of the intergenerational consequences and character of OAS and related social security reforms.

Raising the age of eligibility for OAS is not the same as raising the retirement age. OAS is just one small retirement incentive among several, at least for the most well-off workers (50% of Canadians and falling) who are fortunate enough to collect employer pensions and/or have personal retirement savings to see them through.

But OAS is part of a package of incentives that have a demonstrable impact on people’s decisions about when to retire. And if putting OAS just a bit further out of reach will induce more older workers to keep working an extra two years, it is worth asking what this means for young workers.

If the statistic Financial Times columnist Lucy Kellaway dug up on the Davos website proves accurate – that in the next 10 years, 1.2 billion young people will be looking for work in a world with only 3 million new jobs – tomorrow’s new labour market entrants are in for an abysmal start to their working lives already. Add in the possibility that existing jobs will take just a bit longer to open up, and the result is unfathomable.

The question of the relationship between retirement rates and youth (un)employment rates is not new. It’s not a simple question either. Some critics of interventions like the one proposed in Davos claim that every older worker who stays in a job is effectively hoarding that job from a younger one. Such critiques are made on the basis of a heavily-critiqued “young in, old out” or “lump of labour” model, which assumes that there are a finite number of jobs that must be dispersed among all contemporaneous cohorts in the workforce.

There is some fairly convincing evidence to suggest that the “lump of labour” model isn’t an accurate reflection of the way the economy works. In Italy, for example, data suggest that both youth unemployment and retirement ages respond more to bigger market fluctuations than retirement incentives or each other; as youth unemployment rises, so too does unemployment for older folks.

In Canada, longitudinal data analysed by Canadian economists paint a similar picture, leading the researchers to conclude that there is “no evidence” of older workers “crowding out” younger ones in the labour market. In Canada, as in other countries, one cohort’s fortunes tend to rise and fall with the others, all of them responding more to sweeping economic shifts than to the behaviour of their older or younger counterparts.

But in each of these analyses, the results are tempered by some noteworthy caveats about the reliability of the data, the possibility of gleaning accurate conclusions from it, and (this is my interpretation) the near-impossibility of ever arriving at a reliable conclusion on the basis of quantitative aggregate data, given the multitude of variables involved that cannot be (or at least are not) measured in national economic statistics.

Moreover, there are several even finer points that must be made.

First, in light of the significant (and yes, reliable) evidence of an increase in so-called “precarious employment” (e.g. short-term contracts, freelance jobs), it is probably more appropriate to ask about the impact of delayed retirement incentives on the kinds and quality of jobs available to young workers, particularly because younger workers are less likely to be covered by a union. As older workers retire, so too do the protections their jobs afforded them, as the same entitlements are increasingly withheld from new hires.

Second, all of this fear-mongering over population ageing and the sustainability of our social safety net might be leading us down the wrong path from the outset. That is, the controversy doesn’t begin with Harper’s solution. It begins with the framing of the problem. Beyond the fact that OAS isn’t facing a crisis anyhow, we have allowed the question to be about supporting the ageing end of the population, despite two important facts: first, that the bulge in retirement-age people is just that – a bulge, which will taper off eventually; and second, that people entering the labour force are going to create a bigger problem for us, socially, economically and politically, if we don’t take steps to ensure that the jobs we insist they train themselves for are available in reasonable supply when they come looking for them.

In effect, we’ve been so focused on the plight of workers at the end of their working lives that we haven’t noticed the catastrophe sneaking up on us from behind.

So what is to be done?

Lucy Kellaway, the Financial Times columnist mentioned earlier, surmised that the best thing she could do would be retire. But she won’t, because she’s feeling the pinch like everyone else; besides, economists disagree over whether her retirement would have any positive effect anyway.

Even more to the point, work is about more than money, even if it doesn’t always feel like it. Productive activity, even when it wears the body down and weighs heavy on the mind, has been shown by decades of sociological and psychological research to be at the core of our sense of self and purpose. Pushing people out of the workforce before they feel like they’ve made, as a recent participant in my research put it, their “contribution”, goes counter to what we should aim for if we want to be a society in which each of us benefits from the other’s flourishing.

And yet this is the place we seem to go first, in our blind grappling for solutions.

There is seemingly no openness to the idea of simply raising taxes on the richest cohort in history: middle-aged workers. Our political leaders, for all their efforts to compare the federal budget to a family’s budget, are not very quick to propose balancing it the way a family might, by axing spending in other areas, like the recently-outed Conservative-created agencies that spend millions doing nothing rather than slashing required spending on items that impact standard of living and quality of life. We are not presented with alternatives because budgeting is not a pragmatic or practical endeavour. It is a political one – it can’t not be – and it is incumbent upon us to make alternatives so obvious they can’t be ignored.

Karen Foster is a Toronto-based (by way of Nova Scotia) sociologist and writer. She researches and writes about generations, working and earning and social change, as well as marginalized young people and social assistance in Ontario. http://elementalpresent.wordpress.com.

2 comments

  1. “Such critiques are made on the basis of a heavily-critiqued ‘young in, old out’ or ‘lump of labour’ model, which assumes that there are a finite number of jobs that must be dispersed among all contemporaneous cohorts in the workforce.”

    No, they are not. The lump of labour is a reactionary canard. Those who make the fallacy claim consistently refuse to present evidence for the supposed belief in a fixed amount of work. The real story is that people believe, from experience, that demand for labour is relatively inelastic. This is not the same thing as “fixed” and it is not a “fallacy” even though it may be wrong. Whether it is wrong or right is an empirical question not an eternal principle of economic wisdom.

  2. Great post. Re the lump of labour thing, my take is that there is no such thing IF we live in a neo classical world where we get full employment due to flexible ie lower wages, or IF we were to live in a progressive post Keynesian world where governments were prepared to act to secure full employment with decent wages. But we live in neither. In a demand deficient world there is at least some impact on youth un and underemployment if older workers retire later. Not least because the former seem to be hit much harder by economic shocks like the last recession and current very slow recovery.

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