Increasing the employment of older workers generally has no detrimental impact on the employment of younger workers, according to a recent report by the independent research organisation IZA (Institute for the Study of Labor).
The report concluded that, by and large, there is no correlation between older people staying in the labour market and growth in youth unemployment. It suggests that retiring older employees does not tend to “free up jobs” for younger people.
Although on a broad level the report showed no correlation, some connections were in fact discovered. For example, close analysis of the data revealed a small positive correlation between the overall exit rate of elderly men and the male youth unemployment rate.
So, older men retiring may free up work for younger men – but the correlation is relatively weak. The report gives a correlation coefficient of 0.431, where zero implies no correlation, and 1 implies a perfect correlation. A figure of 0.431 implies some correlation, but not a strong one.
In addition, remember that correlation is not the same as causation. There are many spurious correlations, where it would be anathema to deduce a causative relationship. A small correlation between older male workers leaving the labour market and male youth unemployment does not mean that one causes the other, even to a minor degree. Furthermore, the female figures revealed no similar relationship.
If there is indeed little connection between the employment rates of different age groups, this may have significant legal consequences. Retirement ages must be justified as a proportionate means of achieving a legitimate aim. One of the accepted aims is “workforce planning”, also referred to as “intergenerational fairness” by the European Court of Justice. In essence, that means ensuring work is shared fairly between the generations by retiring older people to free up work for younger people – precisely what the IZA report suggests doesn’t happen!
That’s not to say employers with mandatory retirement ages should necessarily be worried. The data in the report is at a macro level, comparing employment rates of entire countries. Particular circumstances of individual employers will differ greatly. An organisation seeking to justify discrimination will always need adequate relevant evidence to support its case, and may or may not be able to show how retiring older workers would free up positions for younger staff. Big picture data showing a lack of a relationship on an international level would be of minimal relevance.
Where this might be more significant is in European countries that continue to allow employers to operate compulsory retirement. These laws could be open to challenge if it turns out the legitimacy of their aim is unsupported by data. Although the UK’s default retirement age was repealed in 2011, other EU member states continue to operate similar laws - including Denmark, Germany, Italy, Luxembourg, Norway and Sweden.