Economic Implications of Longevity

It is clear that in the coming years we will see a considerable increase in the elderly population in the coming years. If things remain as they are now, these people would not work; they would belong to the group of retirees. What are these economic implications?

At that time, they stop counting as human capital although, if they wish, they can dedicate themselves to taking care of other people or volunteering tasks. Society does not give them the choice to stay in the labor market. This is going to have implications at the macroeconomic level because it considerably widens the difference between life span and working life. During his working life, a person has to pay for his existence not only while working, but also while he is training and while he is retired.

Two periods, the training and retirement periods are being prolonged in recent years and this has an impact on the economy that must be solved so that society remains sustainable and so that the expenses derived from the health problems associated with greater longevity can be covered. To do this, it is very important prolong and optimize working life. “When human capital is wasted on a small scale, we can look the other way; but when it is on a large scale, no“, explains our expert Eugene Kandel.

Getting this is not an easy task and, as the experts participating in the Future Trends Forum on Longevity emphasize, philosophical concepts even come into play. For example, it could be that people act logically if they have the necessary or non-rational information and require incentives.

A seemingly easy solution would be to link the retirement age to life expectancy, but it is a measure that has many detractors. One of the aspects that could be reviewed is the current link of the concept retirement with two others: compulsory retirement -a measure in force in many countries- and the right to a benefit in the form of a pension. These two measures go hand in hand by pure logic: if the dismissal is mandatory when reaching a certain age, the retired person has to live on something and that is where the pension comes into play.

What if the two events were not linked? Among other things, the protests in many countries around the postponement of the retirement age could be reduced. Because what generates more rejection on the part of workers and future retirees is the delay of their right to the pension. Entrepreneurs don’t like the measure either; a worker’s salary increases with age, but this does not necessarily happen with productivity. At the current retirement age, productivity levels vary widely from person to person and, if they all maintain their employment by law – due to a unanimous and mandatory delay in the time of compulsory retirement, a requirement to collect the pension – companies could find themselves with people who would not contribute to society, but would be a burden on it. Thus, employers fear that the mandatory extension of working life could imply an increase in the cost of living -because prices rise- or / and a decrease in the competitiveness of the country in the markets.

For Kandel, one possible solution would be to unlink the two concepts; that there are two distinct decisions to make:

– On the one hand, he proposes, workers would have to decide at what age they want to access the pension and if they prefer to delay this moment in exchange for it being larger.

– On the other hand, a measure should be established that would allow employers and employees to set a time in working life to negotiate the terms of the contract, working conditions and salary. That is, it could be reegotious the contract as an alternative to dismissal. 

It is logical to think that everyone will want to work more, as long as the concept of work changes. The possibility of working from home, ending presenteeism and having more decision-making power over one’s own career is raised, not taking for granted a certain evolution linked to the increase in age.

A problem that arises is that the increase in longevity is accompanied by a massive demand for employment of the elderly in the coming years, a demand that could also be affected by the robotization of some jobs. But there is also the field of care, which will grow exponentially and will be a field of job opportunity.

What clearly needs to be to avoid is that people are punished for continuing to work, because what would not make sense is for someone who voluntarily delays their retirement age to have to pay more taxes.

There is a certain fear of robotization and that this implies a loss of jobs. But this is something that has accompanied society since the industrial revolution and fears have been unfounded. In fact, the only category of employment that has been completely lost is that of elevator operators. In general,  robotics can help many of the job opportunities that the elderly will need and there will always be someone who has to handle those robots, and it could even be the most seniors who are the most suitable.

Of course, the flexibility in the retirement age would imply a change in government benefits, pensions and tax credits, so it would not be a change of mentality easy to implement, although it is certainly an interesting challenge, especially if you want to promote employment and have a more productive society. It is very important to keep in mind that in the longevity economy there are three actors: the individual, companies and the Government and each of them has to act in coordination with the other two to share the burden of this longer life expectancy.