Age and its costs made the news last week as the Peak State penny began to drop. A cross-party group of council leaders from the Local Government Association wrote to David Cameron, Nick Clegg and Ed Miliband warning that parks, libraries and leisure centres might soon have to close to fund councils’ growing elderly care responsibilities. Sir Merrick Cockell, chairman of the Local Government Association, said that the costs of an ageing population kept council chiefs awake at night and that, along with climate change, it was seen as their biggest long-term challenge.
If it’s going to add around 4 percent of GDP to the public sector bill over the next two decades it’s no wonder they are worried. And it’s not surprising that Danny Alexander told public bodies to keep 5 percent of their budgets back for a rainy day.
It is, therefore, likely that people are going to have to keep working beyond what used to be the normal retirement age. Meagre pensions will not pay for 30 year retirements and taxpayers will be reluctant to cover the cost of increased healthcare spending. To avoid the sheet anchor of an ever increasing population of aged poor, people will have to keep working and paying taxes. According to PwC’s estimates, the state pension age will need to rise to seventy by 2046. Many will have no option but to carry on working.
Of course, some people will be unable to work into their sixties but a lot will. People stay fitter for longer now. The hunched old women with shawls around their heads in the Mitchell & Kenyon footage of Edwardian mills were probably only in their forties. Nowadays, fifty is no age. Older people ain’t what they used to be. They are healthier and can do a lot more. Which is just as well because they are going to have to.
But what does that mean for youth unemployment? Will all these oldies carry on working and keep younger people out of jobs? Lucy Kellaway seems to think so. The job-hogging over-50s should retire to make way for younger workers, she wrote on the BBC website.
Which provoked this reaction from the Telegraph’s Daniel Knowles:
Basically screaming “LUMP OF LABOUR FALLACY” at the screen right now for this drivel from Lucy Kellaway: bbc.co.uk/news/magazine-…
— Daniel Knowles (@dlknowles) April 27, 2012
The Lump of Labour fallacy is the belief that there is a fixed amount of work available and that, therefore, if some people have more work others will have less of it. Usually, we hear arguments about the Lump of Labour in relation to immigration – whether or not immigrants take the jobs of local workers. The opponents of the Lump of Labour argument claim that more people working leads to more people spending and thus increases the size of the economy. In short, then, immigrants create their own jobs. Recent studies on the impact of immigration seem to support this. It may sound counterintuitive but there is little evidence to suggest that, over the longer term, immigration has had much effect on unemployment.
The same is true of older workers. As the CIPD’s Dianah Worman said:
Recent CIPD labour market analysis has made clear that the notion of there being a “lump” of older labour standing in the way of younger workers finding jobs is a fallacy.
The Institute for Fiscal Studies agrees. After some disdainful comments about “the naïve ‘lump-of-labor fallacy'” it concludes:
When looking at the entire 1968- 2005 period, labor force participation of the old is positively associated with employment of the young. Controlling for the business cycle reduces the magnitude of the correlation but does not alter this positive association.
Overall we find no evidence of long-term crowding-out of younger individuals from the labor market by older workers. The evidence, according to a variety of methods, points always in the direction of an absence of such a relationship.
A recent paper by UCL, Active Ageing: Live Longer and Prosper, claims that, if people work into their sixties and seventies, the additional spending by the elderly could boost GDP by enough to cover the increased costs of care.
So if all the over 50s quit the workforce, far from opening up jobs for younger people, the removal of their spending power would wreck the economy so thoroughly that unemployment among all age groups would shoot up. Keeping the old folk in work and spending is therefore in everyone’s interests.
That said, Antony Mason of the Intergenerational Foundation sounds a note of caution:
It’s a convincing argument. Get more people working: they earn more, they spend more, they increase demand for goods and services – and jobs.
According to the National Institute of Economic and Social Research, for every year that the working life of employees is extended, the GDP of Britain expands by some £13 billion.
The lump of labour fallacy argument looks particularly good from a distance. With hindsight it may be possible to say that, yes, the labour force expanded, the nation prospered.
But currently the British economy is expanding at a snail’s pace, if at all. Youth unemployment (for 18–24 year olds) stands at over 20% and rising. To a large extent, this is the outcome of the failure of the labour market to adapt to a post-industrial, highly mechanised and automated world, where many of the traditional low-skill, entry-level jobs have vanished.
So today, if businesses cling on to their older members of staff beyond the traditional retirement ages, and if at the same time entry-level jobs are taken up by older workers, this must surely affect the job prospects of the young.
It would seem that, where an economy is expanding, it may be appropriate to debunk the nay-sayers by citing the lump of labour fallacy. But where an economy is shrinking or static, the job market starts to look decidedly lumpy, and letting more people into the job market is unlikely, per se, to be a catalyst for growth.
Perhaps he’s right but if the economy really does flatline on zero growth for years then we are all stuffed, young and old alike.
Calling on older workers to retire and make way for the young might sound like a good idea. It is no way to solve youth unemployment though. As ever, keeping as much of the population as possible economically active is what makes for a prosperous and stable society. If a greater proportion of people are over 65 it makes sense, therefore, for the over 65s to stay in work. Given that people in their sixties are healthier and fitter than in previous generations, that is now possible. The same factors that make people live longer also enable them to work for longer.
If we are to counteract the costs of ageing, more older people will have to carry on working. Far from taking the jobs of the young, the working elderly are more likely to keep spending and creating jobs for the young. Accusing older workers of job-hogging fits in neatly with the fashionable generational warfare narrative but it is nonsense. If we are to deal with the consequences of an ageing population, that ageing population will have to keep working. And that will be better for all of us.