Live longer, work longer : making it happen in the labor market

The objective of the paper is to summarize labor market implications of population aging and to discuss policy options to increase the employment of old workers. The paper argues that population aging and ensuing shrinking of the workforce will create a significant drag on the economies of developed, transition, and even some developing countries. Thus working longer is an imperative: unless countered by productivity increases, working longer, or both, population aging and ensuing shrinking of labor force will reduce economic growth and may jeopardize the economic well-being of some of the elderly. However, extending working lives has proven difficult, both because workers do not want to work longer and because employers are lukewarm about employment old workers. Among measures to motivate workers to work longer, the paper proposes providing retirement incentives and attractive, flexible working arrangements; and to stimulate employers to hire old workers, it argues for removing obstacles imposed by restrictive labor market institutions, for increasing human capital of workers via life-long learning, and for addressing age discrimination. Chances for extending working lives will also increase with improving health of old workers. The organization of the paper is as follows. Section 1 discusses the implications of population aging for economic growth. Section 2 examines factors that stand in the way of longer working lives - why workers opt for early exit from the labor market, and why employers are often lukewarm about employing old workers. In the policy part of the paper, Section 3 proposes possible measures to attract workers to work longer, and Section 4 describes how to remove institutional obstacles and introduce incentives that would make old workers more appealing to employers.