The French may not like it, but retirement ages have to increase across the developed world. As we live longer, our social security systems simply cannot be sustained when people draw a pension for 20 years or more. But at the same time, older people face a massive challenge finding a job in the private sector above the age of 55 or so because few companies want to hire them. And with the rise of automatization and AI this challenge seems to become only bigger.
Today, the average statutory retirement age in OECD countries is 63.8 years rising to 65.8 years for the people currently in the workforce. But even so, most economists who look into the sustainability of public retirement and social security funds think that the retirement age needs to rise even more than that. I am not an expert, but I think Italy is on to something when it increases the retirement age to 71 in coming years.
Statutory retirement age in selected industrialised countries
Source: OECD.
Now, the automatization and AI revolution has gone into overdrive, and one has to wonder if there will be any jobs left for people at an advanced age who want to work. Automatization is likely to replace more and more low skilled workers in physically demanding jobs. That might not be too much of a problem, since in my view the best solution to the retirement crisis is to allow people who cannot work much longer than the official retirement age to retire at a lower age than white collar workers who have physically less demanding jobs. This has been advocated by Michael Falk in his book “Let’s all learn how to fish… to sustain long-term economic growth” and I am still convinced it is one of the best ways to create a fair retirement age for everyone.
I know that some readers don’t like this proposal of a differentiated retirement age based on how physically demanding a job is because they find it impossible to implement in practice. And I agree that in countries like the US where there is no proper record-keeping about its citizens that may be a problem. But across Europe, the government already knows from your tax forms where you are employed and in what function so they can easily assess your career to classify you into different groups with different retirement ages based on your career trajectory as well as your applications for disability insurance, etc. I can already hear the libertarians scream about the invasion of privacy, but let’s face it, the government in most countries already has that data and can use it whether we like it or not.
In any case, with the rise of AI, there is another problem because now automatization is not only going to increasingly replace physically demanding jobs, but also white collar jobs in call centres, accounting, and legal services. So, the people who could work longer suddenly face even more limited job opportunities than before.
What are we going to do about it?
I don’t know for sure, but I think as a society, we need to have a discussion how our lives are going to look like in the 21st century. And this discussion can no longer be limited to individual dimensions like the retirement age, or the number of hours worked per week. We need to make hard choices about the trade-offs between retirement age, retirement benefits, etc. and these choices impact other parts of the economy like the taxes we pay, or the unemployment and disability benefits offered. You change one variable, and many other variables will be impacted. If we don’t provide holistic solutions, we are only going to make things worse.
Which brings me back to our attitude toward older employees. It cannot be that companies are reluctant to hire people over the age of 55. Having employees in their 60s as a substantial part of their work force has to become normal in a world where the retirement age closes in on 70. And no voluntary scheme by private businesses is going to make a significant change to this awful habit of businesses to not employ older people.
Obviously, we can’t force companies to hire older people just to give them a job. But we can enforce transparency on the diversity of their workforce. Regulators are already enforcing public disclosure on gender and ethnic diversity. This helps investors put pressure on companies to improve this dimension of diversity and inclusion.
But what about ageism? Shouldn’t we enforce more transparency on the age distribution of a company’s workforce? Isn’t the current practice of indirect age discrimination just as bad to a company’s bottom line as the discrimination against women or ethnic minorities? After all, older employees may not be as fast in adopting new technologies, but their experience and their institutional memory allows them to avoid many mistakes younger people make. I don’t know of any study that looks at the impact of age diversity on corporate performance, but I wouldn’t be surprised to see a better performance of companies with a more equal age distribution in their workforce than of companies with predominantly young or predominantly older workforces.
I can't help but look at this situation through a different lens. If AI and automation are relentlessly replacing jobs and doing our work for us, then why are we not working less rather than more?
I know this is hardly a novel concept, and for time immemorial it has just not worked like that. However we're now told we're in demographic crisis too, with fertility rates in almost all developed countries plummeting. Less mouths to feed, whilst tech. continually removes things we need
We seem to be a long way from it, but I think UBI keeps knocking on the door as the possible solution. I'm not pretending it's a panacea or easy answer though.
I'm not entirely convinced though that it's the finances that are the problem. I think we as humans are generally driven for more more more, so new industries will always pop up to replace the old.
Re: ageism, personal anecdotal experience. Before I did the FIRE thing, I worked in a large blue chip IT services firm as a project manager. Of the older generation I worked with, there were pretty much two camps:
1) A small group of wise heads, who almost all were there because they actually enjoyed the work and took value from being an expert in their field. They had a high degree of autonomy and were totally invaluable to the team.
2) A larger pool of 'work to live' people, who were pretty much just counting down the clock until retirement, sometimes literally with a retirement countdown screensaver. They hadn't kept up their skills, their drive and thoughts were clearly elsewhere and they were usually far less effective than their junior counterparts and often overpaid too. If they were at work for anything other than money, it was for a gossip and cups of tea.
I'm sure people in group 1 had no problem being hired because their network was strong and their talent undoubted. But if it was a choice between an unknown 60 year old who theoretically meets the requirements and a 25 year old with a similar CV and keen attitude? I can kind of understand why those choices are made.
There is another factor to take into account now. It's the fact that the ever-shrinking younger generation wants to work less and values the work-life balance much more than the current working cohort (if you allow me to generalize here). This means that going forward (and we can already start to feel it now) it will be actually harder for employers to fill job vacancies. This leaves us/them with only two solutions : robotization/AI wherever possible, and/or keep older employees in their job for longer.