Demographics and Markets
Last week I looked at the myths that surround the older worker. The are not “unproductive, expensive, change resistant and technologically challenged”. Indeed they offer every opportunity to increase productivity. They cost the same as younger workers are in search of new opportunities (see Newsletter #082). This Newsletter focusses on the other half of the Longevity Dividend: Consumption. The role that the over 65’s have in supporting the economy through spending.
Older households have come to dominate consumer spending across the G20 largest countries. The now account for 56% of all spending in those countries. This is an increasing trend. The over 50’s represent a huge amount of expenditure today. It is equal to the GDP of Japan, Australia, Canada and Brazil combined. Only in four countries in the G20 have the over 50’s not yet reach half of all expenditure.
There are many factors driving that increase in spending power. One is the increasing number of people passed “retirement age” that are continuing to work. Ageism is still rife in employment but the battle is being slowly won. The working age populations of the world are starting to decline (see Newsletter #059 When the Sweet Spot Turns Sour). Countries and companies need to employ older people.
In the Eurozone, 98% of the increase in the labour supply since 2000 came from those people between fifty five and seventy four . The year 2000 was an important turning point. In most developed countries, prior to 2000 older male workforce participation levels were below the average. The European Central Bank estimates that the effective male retirement age was as low as 61.
From 2000 onwards the situation changed. By 2019 workforce participation levels of men between 55 and 59 had risen. It had reached the same levels as 45 to 49 year olds only twenty years earlier. When men chose to leave the workforce had also changed. In 1999 20% left work between the ages of 55 to 59. Only 20 years later, that figure stood at 7%. In 1999 38% of men stopped work between 60 and 64. That number was 30% immediately pre-COVID. People are “retiring” much later. In fact they are now retiring after the state pensionable age. The effect is even more pronounced for women. The “effective retirement age” for women declined between 1980 and 2000 to 60. Since then is has increased by two and a half years.
The pensionable age seldom has reflected when people retire. As people stay healthier longer they are being encouraged to work longer (see Newsletter #027). The state retirement age is being increased all over the world. The state retirement age of women is being increased to match men in many places. In the UK last year 1.5m or 17% of people past retirement age were working. Unfortunately in places like Japan raising the retirement age will have little economic benefit. The normal pensionable is sixty five. For many years most men and women have worked to seventy.
One of the major brakes on consumption amongst older people is their health. Surveys show that a sudden deterioration in health produces a “rethink” of the expenditure. Conversely the data shows that for the vast majority of people we are living healthier, longer (#027 Life Extends with Good Years). We are perfectly capable of consuming until much later in our lives. There are huge variations even within a single country. The difference between the most prosperous areas of the UK and the most deprived is 20 years of male life expectancy (see Newsletter #052 The Opportunity of Inequality ).
The COVID effect
There has been much written about the impact of the COVID lockdowns on work. Around the world people left the workforce to take care of themselves and their families, particularly the older members. In most places the effect was only temporary. There were 5.8m “missing” workers in the EU in the summer of 2020. By late 2021, people participating in the workforce had rebounded to their pre-pandemic levels. In only one of the 38 OECD countries has this not happened. Only in the UK has older economic inactivity continued and indeed grown. There are arguments that this is due to continued “ill health”. Indeed this is the reason given by many people for not working. Yet a study this weeks shows that the vast majority have retired. They had been unemployed for five years prior to COVID. The pandemic triggered a decision to retire.