Productivity of seniors

in a global perspective

Daniela Weber and Vegard SkirbekkAge and Cohort Change Project

Berlin, May 9, 2012

Key points

• Population ageing inevitable and universal

• Governments fear that demographic change can lower economic growth and raise fiscal pressure

• The burden of age depends on the productivity potential of tomorrow’s workforce which depends on cognitive function

1980

1985

1990

1995

2000

2005

2010

2015

2020

2025

2030

2035

2040

2045

2050

2055

2060

10

15

20

25

30

35

40

45

50

55

Sub-Saharan Africa

China

India

Indonesia

Western Europe

USA

Latin America

Japan

Me

dia

n A

ge

(Source: UN 2011, medium variation population projections)

Global Ageing

GDP per capita

GDP per worker

workerspopulation

Human Capitalproductivity potential

Capital,technology,…

Populationageing

Policyresponses

Well-being

Productivity Age structure

Outline

Ageing has no demographic solution

”A substantial degree of population ageing is expected over the next few decades in all regions of the world

[...] unlikely that policy interventions intended to encourage childbearing in low-fertility countries could substantially alter this expectation.

[...] no plausible assumption about international migration levels would have more than a moderate impact on the expected degree of population ageing that will be experienced in future decades by countries all over the world.”

(UN 2007)

shrinkageof working population

ageingof workforce

Demographic change

(Skirbekk 2005)

“The knowledge, skills, competencies and attributes embodied in individuals that facilitate the creation of personal, social and economic well-being” (OECD 2001: 18)

Productivity potential, key determinants

Key determinants for a longer working life

• Cognitive abilities predict job performance better than any other observable characteristic, including formal schooling. Their importance is growing over time - also in poorer countries and in primary industries (Schmidt and Hunter 2004, Jenkins 2001, Jensen 2007, Rosenzweig 1989).

• Physical labour market demands decreasing (Burnette 1997, Autor et al. 2003). Health problems decline, the disadvantage of physical health in the labour market is decreasing with computerization and new work technologies (Costa 1998, Dey et al. 2011, Hilton 2008)

Age and productivity

-0.5

-0.4

-0.3

-0.2

-0.1

0.0

0.1

16-19 20-24 25-34 35-44 45-54 55-65Age

Prod

utvit

y pot

entia

l (re

lativ

e to

25-

34 ye

ar

olds

)

Source: US Dept of Labour (2007), Skirbekk (2008)

Age-specific skill levels (relative to 25-34 year olds) (GATB)

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

-19 20-24 25-34 35-44 45-54 55-65

Age Group

Z-

scor

e

Numerical Ability

Managerial Ability

Clerical Perception

Finger Dexterity

Manual Dexterity

Strength

Experience

Focusing on determinants of productivity variation by age -> experience raises productivity, cognitive ability decline implies lower productivity in the latter half

Cognitive abilities

Age-schedules of cognitive abilities differ and should be separated in two groups:

- fluid cognitive abilitiesability to solve novel problems

e.g., memory, learning, perceptual speed and reasoningdecline strongly with age

(Finkel et al. 2007, Maitland et al. 2000)

- crystallized abilities

attained knowledge of language and conceptse.g., fluency, vocabulary size and semantic meaning decline less with age (Schaie 1994, Park et al. 1999)

• Katzman (1993): participating in educational courses increases synaptic density in the neocortical association cortex – could delay onset of dementia by up to five years

• Mårtensson et al (2011): intense language training leading to rapid performance improvements (Swedish military interpreters) lead to cortical and sub-cortical anatomic changes

Cognitive functioning can be improved

Factors affecting seniors’ cognition

Worsened cognition• Dementia (AD, Vascular)• Head injury / trauma• Cardiovascular disease (i.e.,

atherosclerosis, stroke, hypertension)

• Diabetes• APOE e4 genotype• Depression• Vision and hearing deficits• Smoking

Improved cognition• Cognitive stimulation • Social and physical activity• Employment, later retirement • Social involvement• Education• Mediterranean diet• Higher childhood IQ

Refs: Hofer 2011, Horn, 1978; Spiro et al., 2011; Williams et al., 2010

(Finkel et al. 2007)

Cognitive abilities by cohort, Sweden

Born 1900-25

Born 1926-48

International variation in productivity potential, secondary education, 2005

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

Northern Europe

Central Europe

SouthernEurope

USA

Mexico

China

(IIASA education estimates, available from World Bank website)

age-groups

Comparing the burden of aging across countries

Cognitive functioning represent a better measure of effective age than the commonly used Old Age Dependency Ratio (OADR), where «old» equals age 65.

We base our estimates of productivity potential on cognitive abilities.

Cognitively adjusted dependency ratio: CADR

• We use a standardized memory test given around the world

• The OADR is defined as: (population aged 65+)/(population aged 15-64)

• The CADR is defined as:(aged 50+ who recall less than half of the words in the test)/(everyone who is 15-49 years old and the population 50+ with well functioning short-term memory, approximated by being able to recall at least half of the words in the test).

Immediate word recall

Comparison OADR and CADR

OADR = Old Age Dependency Ratio, CADR = Cognitively Adjusted Dependency Ratio (Source: Skirbekk et al. 2012, PNAS)

Country OADR 2005(65+/15-64)

Country CADR

United States of America 4 (0.19) United States of America 1 (0.10)Northern Europe (Denmark, England, Sweden) 5 (0.24)

Northern Europe (Denmark, England, Sweden) 2 (0.12)

India 1 (0.07) India 3 (0.14)Mexico 2 (0.09) Mexico 3 (0.14)China

3 (0.12)

Continental Europe (Austria, Belgium, Czech Republic, France, Germany, Netherlands, Poland, Switzerland)

5 (0.15)Continental Europe (Austria, Belgium, Czech Republic, France, Germany, Netherlands, Poland, Switzerland) 6 (0.25)

China

6 (0.18)Southern Europe (Greece, Italy, Spain) 7 (0.27)

Southern Europe (Greece, Italy, Spain) 7 (0.32)

Later retirement would «solve» the problem

Poland, Support ratios 2015 2030 2050

Ages 20-59 years/[Ages 0-19 + Ages 60-] 1.23 0.98 0.72

Ages 20-64 years/[Ages 0-19 + Ages 65-] 1.64 1.24 0.97

Ages 20-69 years/[Ages 0-19 + Ages 70-] 2.04 1.38 1.30

(Source: UN 2011, medium variation population projections)

• Japanese low wage but relatively high status “secondary career” likely to cause very late retirement (Clark et al. 2006)

• In Austria, reemployment probability of elderly displaced workers equals that of displaced prime age workers when elderly accept lower wages (Ichino et al. 2006)

• German employers perceive seniors high costs to be the major challenge for hiring older workers -- and US, Chinese and UK data suggest that elderly employment is lower when wage profiles are steeper (Daniel and Heywood 2007, Skirbekk et al. 2012)

How to achieve later retirement

Flexible wage levels - > later retirement

AUS

AUTBEL

CAN

CZE

DNK

FIN

FRADEU

HUN

IRLITA JPN

KOR

LUXNLD

NOR

ESP

SWE

CHE

GBR USA

0

2

4

6

8

10

12

14

1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8

Ratio of male earnings 55-59/25-29**

Hiring rate of men 50-64 (%)*

Correlation coefficient: -0.62***

0123456789

10

1.01.11.21.31.41.51.61.71.8Ratio of

male earning

s 55-

Source: Pearson/OECD (2008)

Seniors seek status more than money (I)

- The relationship between measures of social status (education, occupational status) and pension age is positive (even if these groups often are in a better financial state to retire early). Income level may matters less for senior’s than younger individuals’ decisions to work. Seniors:

- place more pride and value to work

- dislike to a greater extent receiving money without contributing

- more likely to think that people who do not work turn lazy

- 42% of individuals in their 60s support the argument that work is what makes life worth living, compared to 21% of individuals in their 20s.

Seniors seek status more than money (II)

- “Feeling truly needed” is – by far – the most important determinant for staying in the workforce in the US (EBRI 2008)

- Seniors react less to pay and promotion rewards, more to rewards related to knowledge utilisation, collaboration, enhancement of positive affect (Kanfer and Ackermann 2004).

- Individuals above 50 much more likely to seek prestige; respect, accomplishment and ways of enhancing their image in the presence of others (Heath and Scott 1998; Wong and Ahuvia 1998; O'Cass and Frost 2002).

Conclusion

• Longer working lives important response to an ageing population

• Maintaining cognition is important – determines work productivity, important determinant of health and social functioning

• Stronger investments in cognition important – may alleviate some of the negative consequences of demographic change

• Productivity variation more important than demographic variation in terms of ”the burden of ageing”