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Employment and retirement – explaining recent trends

Daniel Chandler and Gemma Tetlow
Observation

Employment rates of men and women in their 50s and 60s have been growing for nearly two decades – a trend that was only briefly halted during the recent recession. Employment rates for men age 65-69 are at their highest levels since 1974 and continue to grow while employment rates for older women are at record levels. There are reasons to expect that this growth will continue as changes in private pensions and state benefits increase incentives to remain in work longer. For women this upward trend reflects the continuation of a long-term trend since at least the late 1960s. In contrast, recent growth in employment among older men follows a period of dramatic decline between the late 1960s and mid-1990s. In two new publications released today, researchers from the IFS set out levels of employment among older men and women in England in 2012–13, and survey explanations for why these have increased so substantially since the mid-1990s.

Figure 1: Employment rates of older men, 1968–2013

Source: Family Expenditure Survey (1968–1982), Labour Force Survey (1983–2013). Figure 2.1 in Retirement in the 21st Century

Figure 2: Employment rates of older women, 1968–2013

Source: Family Expenditure Survey (1968–1982), Labour Force Survey (1983–2013). Figure 2.6 in Retirement in the 21st Century

Employment in 2012-13

In 2013, 87% of men and 77% of women aged 50 in England were in paid employment or self-employment. Labour force participation declines sharply with age, with the largest declines occurring around the State Pension Age, which in 2013 was between the ages of 61 and 62 for women, and 65 for men. After age 61, employment rates of women were below 50%; for men, employment rates were below 50% from age 64 onwards. A small minority continue working into their 70s, and even at the age of 74 nearly one-in-ten men and one-in-twenty women were doing some form of paid work.

Older people are much more likely to be working part time. This pattern applies to both men and women: more than half of men still in work in their late 60s are working part time, while for women this rises to more than 80%. Self-employment also increases significantly with age, accounting for 44% of men and 20% of women who are working ages 65-69. Recent ONS research has shown that the number of over-65s who are self-employed has doubled in the past five years to nearly half a million.

Health is an important determinant of work status and older people on average have worse health than younger people. For those in the worst health, employment is already low at age 50, while those who are in poor health but still in work in their early 50s tend to leave work more quickly than their healthier counterparts. However, even among those aged 70–74, six-in-ten men and seven-in-ten women report that their health does not limit the kind or amount of work they could do – suggesting that, while health may be a very important factor for some people, it is not a limiting factor for labour force participation for most people, even in their early seventies.

Employment since the mid-1990s

As Figures 1 and 2 demonstrate, women have seen rising employment since the late 1960s, while male employment plummeted between the 1960s and 1990s before increasing since then. Although our research has focused on explaining the more recent rise in employment (particularly among men), this is best understood in a longer term context: some explanations for more recent trends point to a reversal or amelioration of downward pressures seen in the 1970s and 1980s, while others point to genuinely new forces acting on labour force participation of older people.

Between the late 1960s and mid-1990s a number of factors affecting both the demand for and supply of older workers put downward pressures on the labour force participation of older people. On the demand side, the recession of the early 1980s, the decline of traditional manufacturing industries and a general shift in employer demand against low skilled employees all had a disproportionately large effect on older men. On the supply side, increases in the coverage and generosity of private pensions and the widespread availability of early retirement packages made retirement a more attractive option for many., A large increase in the fraction of older people claiming disability benefits, which is more readily explained by economic conditions than changes in health, suggests that for some these benefits acted as an alternative route to retirement. Although some of these pressures also affected women, these downwards pressures were more than compensated for by rising labour market attachment of successive cohorts.

Employment rates among older men started rising in the mid-1990s, while employment among women over 50 increased at a faster rate than in the previous decades. On the demand side, strong economic growth from 1995 to 2007 will have contributed to rising demand for all workers (including older workers), while the continued trend towards services may have increased employment opportunities appropriate to older workers. On the supply side, this period saw a drying up of the generous early retirement packages previously offered by many employers, while reforms to the disability benefits system in 1995 and the mid-2000s reduced the on-flow and increased the off-flow from these benefits, respectively. On the other hand, pension coverage was broadly stable among those approaching the State Pension Age, while overall wealth increased (driven in large part by rapidly rising house prices), factors which (if anything) we would have expected to reduce labour supply. Continued improvements in health are likely to have increased employment further, though this cannot explain the reversal in male employment in the mid-1990s as health was also improving in the earlier period.

Some new factors may also have been at play. A range of policy changes are likely to have increased both demand for and supply of older workers, including legislation allowing people to draw their pension while continuing to work for the same employer, anti-age discrimination legislation, and increases in the female SPA.

Looking forward, many of the forces that have contributed to rising employment among older people over the last two decades are likely to persist. On the demand side, employment among older workers has fared remarkably well in the recent recession compared to previous recessions, and the trend towards more flexible, service sector jobs is likely to continue. On the supply side, there is unlikely to be any relaxation of access to disability benefits, while the full impact of the shift from defined benefit (that is, salary-related) pensions to (typically less generous) defined contribution pensions, which have less sharp financial incentives to leave work, is yet to be felt and could well lead to later retirement.

 

Find out more

Report
In this report, we distinguish between factors affecting mainly the demand for older workers and those affecting mainly the supply of older workers. However, in practice, it is very difficult to disentangle the effects of the two.
Briefing note
In this briefing note we use data from the Labour Force Survey (LFS) and the English Longitudinal Study of Ageing (ELSA) to describe patterns of employment and self-employment among people aged between 50 and 74 in England in 2012–13.