Demographic risks are a slow-burning issue. Policymakers often ignore them as they are perceived to be slow-moving and too far away. Left unaddressed for too long, ageing populations pose a serious risk of making high inflation endemic.
While inflation has moderated from the peaks reached last year, it is still too high and could scupper chances of a healthy economic recovery in most EU countries. The most frequently used tool to address this problem is legislation to increase the retirement age in line with improving life expectancy.
It is not surprising that, as in France, ordinary people who have worked for decades hoping to retire at a certain age rebel when they are told they need to work for two or three more years before they qualify for their meagre state pension.
Increasing the retirement age alone will not be sufficient to defuse the risk of persistently high inflation. Today many businesses complain that they are not finding enough workers to fill their vacancies. The pandemic made the shortage of labour an even more acute challenge. In many countries, the participation of workers aged 55 and over fell sharply as many older workers left their jobs or were discharged by their employers to cut operating costs.
The statistics on labour market participation for older workers are nothing short of alarming. According to an OECD report, in 2021, only 64 per cent of those aged between 55 and 64 were in the labour force. In the US, this figure was 64.6 per cent. In Malta, only 53.5 per cent of this cohort of adults were gainfully employed.
Without significantly more selective immigration, improving fertility rates, working longer hours and longer working lives, and even more technological advances to improve productivity, most western economies will have a combination of lower labour output and a larger number of dependants.
With a scarcer labour supply, workers will increase their bargaining power and demand higher wages. Moreover, if improvements in productivity stall, a smaller labour force will struggle with increasing demand from consumers wanting more goods and services. This is the perfect recipe for endemic high inflation.
It is important to acknowledge why we find ourselves in this situation. Workers often plan to take early retirement as they are disillusioned by the frustration and stress they face in the workplace.
The current social support system can no longer guarantee us an adequate standard of care from the cradle to the grave. We must stop and re-evaluate our options
Some prepare for this stage in their lives by saving enough to have sufficient income in retirement to prevent a fall in their lifestyles. Unfortunately, high inflation often makes such plans obsolete. Many are now compelled to work beyond the statutory working age.
Some are forced into early retirement by short-sighted employers who are incapable of seeing beyond the projected bottom line of the next financial year. Most early retirement schemes prove the ingrained ageism in the mindset of some of today’s business leaders. While companies focus on race and gender discrimination and the needs of Generation Z, workplace age discrimination is increasing.
A survey conducted in the US found that 78 of older American workers claimed to have seen or experienced age discrimination in 2020.
In the UK, the Chartered Management Institute found that only four in 10 managers are open to employing anyone aged between 50 and 64 to a large extent.
Why have so many of our excellent medical consultants been forced to retire on reaching the statutory retirement age despite being able and willing to continue to serve their patients in public hospitals?
Many business leaders’ ageist mindset is due to believing in the long-discredited lump of labour theory. This is the mistaken belief that there is a fixed amount of work available in the economy and that increasing the number of workers decreases the amount of work available for everyone else.
“Your country needs you”, pleaded UK chancellor Jeremy Hunt to the over-50s. Federal Reserve president Jay Powell also expressed concern about the “excess retirements” that have drained the US of millions of valuable workers.
No monetary policy measures will defuse this element driving high inflation without the political will to introduce cultural reforms that encourage higher labour participation.
Age stereotypes need to be challenged. We also need to update our conventional career timetable. Planning to leave the rat race at age 50 is no longer sustainable.
The current social support system can no longer guarantee us an adequate standard of care from the cradle to the grave. We must stop and re-evaluate our options to ensure financial security and physical and mental well-being.