Raise the retirement age

Economic growth is a function of the size of the workforce, the amount of capital employed and the rise in productivity. If the workforce shrinks, as demography shows it will, all the growth will have to come from capital investment and productivity improvements. To counteract a shrinking labour force, the retirement age needs to be raised. Working longer has two obvious economic benefits: it boosts output and reduces the length of time for which pensions need to be paid, says The Economist.

A potential barrier to older people staying on in the workforce is the "lump-of-labour fallacy" – the belief that there is only so much work to go around. But it seems obvious that it is better for the economy if a 60-year-old does a productive job than if he is sitting idle, supported by the taxpayer.

But even if people in their 60s want to keep working to improve their pensions, will employers want to hire them or keep them on?

A study by AARP in 2002 found that two-thirds of older workers had witnessed or experienced discrimination on age grounds.

One problem is perceived productivity.

A study of human resources professionals indicates that older employees were valued for their loyalty and reliability but less highly rated in terms of flexibility, showing initiative and understanding technology.

Source: Hiring Grandpa, The Economist, April 7, 2011.

For text: http://www.economist.com/node/18474681

For more on Economic Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=17

First published by the National Center for Policy Analysis, United States

FMF Policy Bulletin/ 3 May 2011