Demographic timebomb threatens global growth

2005

Economic growth across the world risks being derailed by a demographic timebomb unless countries start to make use of the valuable resources that older workers offer to business, the economy and society.

The blunt message is delivered in a new report by the Organisation for Economic Co-operation and Development (OECD) which warns that without major structural changes, GDP growth per capita among OECD members could shrink to around 1.7 per cent per year over the next three decades, about 30 per cent below the average annual rates witnessed between 1970 and 2000.

If there is no change in work patterns, the ratio of older inactive persons per worker will almost double in the OECD area over the next decades, from around 38 per cent in 2000 to just over 70 per cent in 2050.

This, in turn, would lead to higher taxes and/or lower benefits, coupled with slower economic growth.

At present, many public policies and workplace practices discourage older people from carrying on working. On average in OECD countries, fewer than six out of ten of those aged between 50 and 64 have a job, compared with three-quarters of people in the 25-49 age group.

Such policies and practices are "relics of a bygone age and unsustainable at a time when population ageing is straining public finances and holding back higher living standards," the OECD said.

To avoid such an outcome, the OECD argues, age-friendly employment policies are vital to encourage older people to remain longer in the workforce.

At present, average effective retirement ages are well below official retirement ages in many countries, especially European countries. While countries have begun to take action – notably in the area of pension reform – more needs to be done.

The issues raised in the report have been highlighted this week by the collapse of U.S. car parts supplier Delphi, which filed for Chapter 11 bankruptcy last Saturday.

Speaking to the Financial Times, Steve Miller, the company's CEO pointed to the company's $5 billion (£2.85 billion) pension plan deficit and the said that the problems Delphi faced were a "flash point, a test case" for a wider global conflict between the interests of current workers and retired employees.

"I fear something like inter-generational warfare, as young people increasingly resent having their wages reduced and taxed away to support social programs for their grandparents' income and health care concerns," he said.

The OECD, meanwhile, recommended urgent action in three key areas.

Governments should ensure that pensions and other welfare arrangements encourage rather than discourage work at older ages. They should also devote adequate resources to help older jobseekers find a new job.

Employers must end discrimination and adapt work practices to an age-diverse workforce. The practice of mandatory retirement in firms should be questioned, the report argues, as it is inconsistent with the general objective of providing greater choice to older workers on when to retire. Finally, older workers themselves will also need to change their attitudes towards working longer and acquiring new skills, the OECD added, warning that there is a training gap between older and younger workers in all countries, but in some countries it is particularly large.