Promoting longer working lives in the digital era

High automation risk discourages older workers from remaining in employment. In technologically advanced countries such as Finland, generous unemployment benefits to people 59 and over ends up creating a retirement pathway. Simply pushing that age limit back increases the probability that older workers facing higher risk of automation will remain in employment. Naomitsu Yashiro, Tomi Kyyrä, Hyunjeong Hwang, and Juha Tuomala write that as governments move to discourage early retirement, employers will need to work together with employees to support longer working lives.

Countries around the globe came out of the COVID-19 pandemic with larger government debts. This occurred against a background of already challenged long-run fiscal sustainability in many countries owing to rapid population ageing, which will increase government spending on pensions and health care. Lengthening working lives, for instance by linking the retirement age to life expectancy, is a policy priority across many OECD countries. However, there are various barriers for older workers to remain employed, including declining productivity and employers’ reluctance to hire or retain older workers.

In several OECD countries, labour market institutions also create strong incentives for early retirement, notably exceptional entitlements or looser criteria for unemployment and disability benefits applied to older individuals. Closing these so-called early retirement pathways is more important than ever, as rapid diffusion of digital technologies is pushing older workers toward entering these pathways. Older workers have weaker incentives to acquire new skills that would allow them to thrive under digitalisation and automation of workplaces than younger workers, because of their shorter remaining working lives. Employers may also not find it worthwhile to upskill older workers and may instead prefer to encourage early retirement. Thus, older workers who are more exposed to new technologies are particularly likely to exit employment when they become eligible for early retirement pathways.

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