Join our community of smart investors

The ageing workforce

Workers are getting older. This is a symptom of structural economic failure.
The ageing workforce

The UK’s labour market is no place for the young. Latest figures show that 346,000 people aged under 24 have lost their jobs in the last 12 months, a drop of over 9 per cent. By contrast, over-50s have seen employment fall by just 1.2 per cent.

This is partly a sectoral story: young people are disproportionately likely to work in hospitality, which has been hardest-hit by the downturn.

But it has accelerated a long-term trend for more oldsters to be in work and fewer youngsters. Since the mid-1990s the proportion of over 65s in work has doubled from 5 to over 10 per cent and the proportion of 50-64 year-olds in work has risen from 58 per cent to over 71 per cent. Meanwhile the proportion of 18-24 year-olds in work has dropped from 66 to 60 per cent.

In part, this is a story of success. Fewer jobs require heavy manual work and so older people can work longer because their health isn’t broken. And young people are choosing university instead of drudge work.

But only partly. Even in the good times, the economy wasn’t creating good jobs for young people who aren’t academic: at its 2019 low point almost 10 per cent of 18-24 year-olds were out of work. UB40’s song about the desperate times of the 1981 recession (One in Ten) still holds true.

At the other end of the age range, many oldsters are still working because they cannot afford to retire when their savings aren’t paying an income. And zero interest rates, remember, are not a monetary policy error so much as symptom of ongoing stagnation in western economies.

In different ways, therefore, many of the old and young are united by the fact that the economy is failing them.

Whatever the cause of the greying of the workforce, however, it leaves us with a puzzle.

In his new book Fully Grown, the University of Houston’s Dietrich Vollrath argues that a big cause of the slowdown in US productivity growth this century is that the growth in human capital has slowed down, because some older experienced workers have retired and because of slower growth in the number of highly educated people in the workforce.

But in the UK, we’ve seen the opposite. Workers now, on average, have more experience than in the 1990s simply because they are older. And thanks to the expansion of universities in the 1990s a greater proportion of the workforce have degrees.

With workers now being more experienced and better educated we should have seen decent productivity growth.

Which of course we haven’t. Output per worker hour grew by just 0.2 per cent per year between 2008 and 2020, compared with growth of 2.2 per cent in the previous 30.

Education and experience, then, are not the prime drivers of productivity, at least in aggregate.

This is only partly because we’ve churned out a cohort of overqualified graduates: the ONS estimates that the extent of over education has risen only slightly since before the financial crisis. Instead, it directs us to other reasons for the productivity slowdown such as a lack of capital spending; slower innovation; bad macroeconomic policy; insufficiently competitive markets; and so on.

Although it’s unclear why productivity has slowed, one thing is clear: we cannot blame workers for it.