Where have all the workers gone? Homeward-bound migrants aren’t the only ones who are leaving labour shortages in a number of countries in their wake. An army of older workers has headed for the exit too. These “Covid retirees” are bucking a trend. One of the most important employment stories of the past two decades has been the rise in the proportion of older people still participating in the labour market. Much will depend on whether the pandemic reverses, temporarily disrupts or in the long-run even accelerates that phenomenon.
There have been slightly more than 3m “excess retirements” prompted by Covid in the US, according to calculations by the Federal Reserve Bank of St Louis published last month. This accounts for more than half the 5.25m people who left the labour market from the start of the pandemic to the second quarter of 2021.
In the UK, the Institute for Employment Studies estimates there are roughly 310,000 fewer older people (especially older women) in the labour market than one would have expected if pre-crisis trends had continued. Some have become too ill to work while others have retired.
Which older workers are leaving the workforce and why? It is a mixed and incomplete picture. In the US, both college and non-college educated over-65s have retired in greater numbers since the pandemic, according to the Schwartz Center for Economic Policy Analysis. But between the ages of 55 and 64, workers without college degrees were more likely to retire than before Covid, while those with college degrees were less likely to do so. Part of the story is that some Americans were prompted to retire early because of job losses and health risks which fell most heavily on those without degrees.
Tony Wilson of the IES says the UK data suggest some older women in jobs like cleaning and hospitality, which were badly hit by the pandemic, have now left the labour market. Because older people are most at risk from the virus, they may also be more likely to have given up work. In contrast, others may have chosen to retire early because their nest eggs have grown, especially in the US.
This is an unexpected twist in a long-running story. For the past two decades, older people have been the driving force behind rising labour force participation rates in many developed countries. In the eurozone, for example, 98 per cent of the increase in the overall labour supply between 2000 and 2019 came from those aged between 55 and 74. Two decades ago, 20 per cent of the male population in the eurozone left the labour market when they were between the ages of 55 and 59. On the eve of the pandemic, that number was just 7 per cent. The participation rate of women aged between 55 and 59 years, meanwhile, had reached the participation rate of those aged between 45 and 49 years two decades ago.
People have been working longer for a range of reasons, from increased life expectancy to more flexible job options. Policymakers anxious about the affordability of their pension systems have been pushing people in the same direction. Reforms in recent decades in OECD countries include increases in the statutory retirement age and less generous early retirement schemes.
Could Covid prove a turning point? Wilson of the IES believes the pandemic will leave “a permanent scar for a cohort of older women who left the labour market, but participation will kick on and start rising again”. Indeed, one legacy of the pandemic has been to normalise working from home, which might make it easier for older people to work for longer.
Survey data from the UK’s Office for National Statistics shows those who have been working from home in the pandemic are more likely to say they are planning to retire later compared with those who were not. One of the main reasons people drop out of the labour market is poor health, and those with a longstanding illness or disability who work from home are now more likely to say they plan to retire later.
There’s only one problem: the people for whom the WFH revolution would be most helpful are those least likely to have access to it. People who work in low-paid or physically demanding sectors are six times more likely to leave work before the state pension age because of ill health than those working in the professions. Yet the older workers who switched to WFH during Covid were predominantly in managerial or professional positions and less likely to live in deprived neighbourhoods.
The pandemic hasn’t put an end to the trend of people working later in life. But it might just make their future more unequal.