Boomers working in their golden years (for now)

AS more and more baby boomers cross over into retirement age, logic compels us to expect a major collapse in the labour market. But is that really happening?

The oldest boomers are now into their mid-60s and as always, the stirrings of this massive demographic will have a profound ramification on society, particularly the workforce. The immediate impact will not be as traumatic as one might expect – but boomers can’t work forever, and one day our economy will feel the inevitable pinch of losing its strongest workhorse.

In the short term, the Australian Treasury sees the boomer generation participating at just over 65% employment until about 2017 when their working numbers will wane. But independent research reveals this projection may be too pessimistic.

A recent analysis by the Australian industry research company BIS Shrapnel suggests the participation rate of boomers in the workforce will actually increase later this year and will continue to trend upwards before returning to the current 65.2% by the middle of the 2020s.

“The reason for the forecast upward trend in participation over the next few years is that participation rates in older age brackets are increasing rapidly for both sexes,” senior economist for BIS Shrapnel Tim Hampton said. “The female participation rate for those in the 60 to 64 year age bracket has increased by 25 percentage points over the past decade to 45%, and by 12 percentage points to 62% for males. Participation rates are also increasing rapidly for those in their mid-to-late 60s. This reinforces the long-running upward trend in female participation rates more generally.”

Key factors influencing the decision to keep working late in life include:

• An increase in women joining the workforce over the last 30 years.
• Better public health is allowing people to work later in life
• Financial losses due to the global financial crisis delaying retirement plans.

BIS Shrapnel’s research indicates an increased participation rate across most age groups will offset the effect of baby boomer retirement over the next few years. But people over 60 are indeed less inclined to keep working, which can create a drag on the labour market in the long-term.

Also, while people will work later in life, many of them will work fewer hours, pushing down the aggregate average hours of the workforce. This means that even if the participation rate increases as predicted, overall growth in the labour supply will slow.

The trend is expected to leave a pretty big hole.

“Lower growth in the labour supply is going to have significant effects on businesses and the government’s finances,” Hampton said. “Businesses will find it increasingly difficult and more expensive to find the staff they need. The government’s finances will also come under increased pressure as lower growth in the labour supply feeds through to lower growth in tax revenue – at the same time as the ageing population is pushing up health-related spending.”

The government can influence supply of labour by increasing immigration, raising mandatory retirement ages, raising the eligibility age from the aged pension and reducing tax interactions that deter people from returning to work. Businesses can respond by innovating solutions to their staffing needs, sourcing more staff from overseas and taking on more part-time employees.

“So far, only the retail trade and accommodation and food services industries have shown a significant movement toward using more part-timers,” Hampton said. “Other industries, including goods-producing industries, will need to find a way to follow suit. Businesses will also need to ensure that they extract all of the relevant institutional knowledge from their experienced staff before they do finally leave the labour force and put their feet up in retirement.”