Extending working lives

Extending working lives

James Banks and Gemma Tetlow

Institute for Fiscal Studies and University College London

© Institute for Fiscal Studies, 2008

Background

• Rapidly growing aged population in the UK• Potentially increases the pressure on public resources

– But economic, rather than old-age, dependency ratio is what matters

• Individuals working for longer will reduce the economic dependency ratio, so has become an important policy issue

• Determinants of work at older ages are complex– Current participation rates still below levels seen in late 1960s

– Labour demand

– Labour supply

• Pensions incentives (state and private)

• Health and work disability

• Family circumstances


What can three waves of ELSA tell us?

• Changes in employment rates between 2002 and 2006

• How have initial characteristics been correlated with employment outcomes?

• Work and disability– Self-reported status and vignettes

• What can we expect in the future?– Correlation of expectations with outcomes

– Evidence on knowledge of female SPA changes


Employment rates below SPA have increased

0

10

20

30

40

50

60

70

80

90

100

Wave 1 Wave 3 Wave 1 Wave 3 Wave 1 Wave 3 Wave 1 Wave 3 Wave 1 Wave 3

Pe

rce

nta

ge

in p

aid

wo

rk

Part-time

Full-time

Men 50–54 Men 55–59 Men 60–64 Women 50–54 Women 55–59


Transitions into and out of work

• A number of factors are associated with exiting full-time work, retiring gradually and also returning to work at older ages

– Family circumstances • Much more likely to remain in work / return to work if partner also working

– Health• Onset of major health conditions associated with greater likely of leaving full-

time work and of not retiring gradually– Financial incentives

• For men at least, membership of defined benefit pension scheme associated with greater likelihood of leaving work

– Previous work experience• Less likely to return to work if have been out of work for a long time• Less likely to phase retirement if have been in same job for a long time

• There is still more to be done to understand the complex relationship between all these factors


Work and disability

• Self-reported work disability much more common amongst, for example, low wealth groups than high wealth groups– Evidence from wave 2 (Emmerson and Tetlow, 2006)

– Does this entirely reflect differences in reporting styles (in other words, that individuals have different response scales)?

• Evidence from vignettes shows that differences in response scales play a part, but do not explain all of the differences in self-reports


Perceptions of work disability by wealth quintile

0

10

20

30

40

50

60

70

80

90

100

Poorest 2 3 4 Richest

Pe

rce

nta

ge

in p

aid

wo

rk Extremely limited

Severely limited

Moderately limited

Mildly limited

Not limited

Geoffrey suffers from back pain that causes stiffness in his back especially at work, but it is relieved with low doses of medication. He does not have any pains other than this general discomfort. How much is Geoffrey limited in the kind or amount of work he could do?

Quintile of total non-pension wealth


Work and disability

• Self-reported work disability much more common amongst, for example, low wealth groups than high wealth groups

• Evidence from vignettes suggests differences in response scales play a part, but do not explain all of the differences in self-reports

• Work disability is not a permanent state of affairs– 28.9% of those with a work disability no longer reported one 2 years later– 15.7% of those without had developed one

• Onset of work disability: the differences between workers and non-workers are greater than the differences across age groups– Reflects the degree of heterogeneity in the population, of which ‘work’ is

an indicator regardless of age– Onset amongst workers more likely for men, part-time workers and those

with lowest wealth


Probability of work disability onset varies more by work status than by age

0

2

4

6

8

10

12

14

16

18

20

Working Not working

Pe

rce

nta

ge

exp

eri

en

cin

g o

nse

t of w

ork

dis

ab

ility 52–54 55–59 60–64 65–69

Percentage who experience the onset of a work disability between waves 2 and 3


Work and disability

• Self-reported work disability much more common amongst, for example, low wealth groups than high wealth groups

• Evidence from vignettes suggests differences in response scales play a part, but do not explain all of the differences in self-reports

• Work disability is not a permanent state of affairs• Onset of work disability: the differences between workers and non-

workers are greater than the differences across age groups• ‘Recovery’ from work disability is quite common

– ‘recovery’ most likely for those who were working, wealthiest, had no pre-existing major health conditions

• But, of those who were out of work, only very few return to work when they ‘recover’


Most non-workers who ‘recover’ from a work disability do not return to work

0

5

10

15

20

25

30

35

52–54 55–59 60–64 65–69 70+

Pe

rce

nta

ge

're

cove

rin

g' f

rom

wo

rk d

isa

bili

ty Not working

Working

Percentage not reporting a work disability in wave 3, of those work disabled and not working in wave 2


What can we expect in the future?

• Respondents to wave 3 reported higher expectations of working in the future than respondents to wave 1


Expectations of being in work at older ages have increased

0

10

20

30

40

50

60

70

80

Women 50–54 Women 55–59 Men 50–54 Men 55–59 Men 60–64

Mea

n ex

pect

ed c

hanc

e (%

)

Wave 1 Wave 3

Expectations of being in paid work after age X

X = 55 60 65




• Will this translate into higher employment rates in the future?– Future work expectations reported in wave 1 were strongly correlated with

subsequent outcomes

– So the higher average reported expectations in wave 3 may well translate into higher employment rates in years to come


Expectations of future working from wave 1 were correlated with subsequent outcomes

0

10

20

30

40

50

60

70

80

90

100

Women 51–54 Women 56–59 Men 56–59 Men 61–64

Pe

rce

nta

ge

in p

aid

wo

rk

0% 1–39% 40–60% 61–99% 100%

Percentage in work in wave 3, by reported work expectations at wave 1




• Will this translate into higher employment rates in the future?

• Increasing the female SPA may also lead to higher employment rates


Future changes to State Pension Age in UK

50

55

60

65

70

1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990

Year of birth

Sta

te P

ensi

on

Ag

e

Women

Men

ELSACohorts



50

55

60

65

70

1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990

Year of birth

Sta

te P

ensi

on

Ag

e

Women

Men

ELSACohorts

2010-2020(announced 1995)



50

55

60

65

70

1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990

Year of birth

Sta

te P

ensi

on

Ag

e

Women

Men

ELSACohorts

2024-2026announced 2006

2034-2036announced 2006

2044-2046announced 2006




• Will this translate into higher employment rates in the future?

• Increasing the female SPA may also lead to higher employment rates– Changing social norms

– Increasing financial incentives to remain in work

– Effect on partners’ participation decisions

• But… knowledge of the changes amongst those who will be affected is low


Knowledge of changes to female SPA is low…

0

10

20

30

40

50

60

70

80

90

100

Per

cent

age

in p

aid

wor

k

Don't know

Incorrectly think 65

Incorrectly thinkbetween 60 and 65Incorrectly think 60

Correct

Actual SPA: 60 Between 60 and 65 65

Age at which women think they will reach State Pension Age


…but it is somewhat higher amongst workers

0

10

20

30

40

50

60

70

80

90

100

Working Notworking

Working Notworking

Working Notworking

Pe

rce

nta

ge

in p

aid

wo

rk

Don't know

Incorrectly think 65

Incorrectly thinkbetween 60 and 65Incorrectly think 60

Correct

Actual SPA: 60 Between 60 and 65 65

Age at which women think they will reach State Pension Age


Conclusions

• Evidence on the dynamic patterns of employment, work disability and other factors– Systematic patterns of movement out of full-time work

– These seem to be anticipated by individuals

– Socio-economic differences in the degree to which individuals can and do use part-time working to ease the transition out of full-time work

– Strong relationship between wealth, employment and (the permanence of) self-reported work disability, which is not primarily driven by differences in reporting style

• What will happen in the future?– Expectations strongly correlated with subsequent outcomes

– How will women respond to the change in State Pension Age? Will their current levels of knowledge affect how they respond?

Extending working lives

James Banks and Gemma Tetlow

Institute for Fiscal Studies and University College London

Documents

Extending working lives