Research & Policy Briefs

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From the World Bank Malaysia Hub

No. 48 August 09, 2021

Does Elderly Employment Reduce Job Opportunities for Youth?
Alyssa Farha Jasmin and Amanina Abdur Rahman
The aging of populations around the world and the associated fall in the working age population are expected to adversely affect
countries’ GDP growth in coming decades. These demographic shifts will also place fiscal pressure on governments, given the need either
to finance pension systems or to support the most vulnerable in retirement. Extending working lives is imperative but often politically
challenging, due to the widespread belief that extending employment for older workers will limit employment opportunities for youth.
Global empirical evidence summarized in this Brief, as well as original analysis, does not support this belief, and in fact suggests that
elderly employment has positive effects on youth employment, on the well-being of older workers, and on economies and societies. There
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is much to gain in creating a supportive regulatory environment to harness the economic potential of older workers by eliminating
age-biased hiring practices, allowing for flexible working conditions, and providing equal opportunities for upskilling and reskilling.

Aging and its Impacts on Economies
In only two decades, the global average life expectancy at
birth has increased by 7.7 years—and it is projected to
continue rising (UN 2019). The pace of aging varies
significantly across countries; while the aging transition has
occurred over at least a century for developed countries,
developing countries, especially in Asia, are aging at an
exceptional speed. The share of elderly people will more than
triple between 2000 and 2050 throughout the region, while
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on family members to finance the needs of elderly. Aged care
and health care costs are also expected to rise as the
population ages, further straining governments’ budgets.
To improve the sustainability of pension systems, many
member countries of the Organisation for Economic
Co-operation and Development (OECD) have introduced
policies to extend working lives. This includes increasing
statutory retirement ages, as well as undertaking reforms to
boost labor demand for older workers (OECD 2019). However,

the old-age dependency ratio—that is, the number of
persons aged 65 years or above relative to number of persons
aged 20 to 64 years—is projected to more than double in East
and Southeast Asia (UN 2019). This demographic trend is
expected to have adverse impacts on the macroeconomy.
Labor force participation rates globally are expected to fall as
more people enter retirement relative to people entering the
labor market, resulting in lower levels of GDP growth (Otsu
and Shibayama 2016; Guillemette and Turner 2018).
Important policy parameters have not kept up with the
pace of increased longevity to ensure the older population
has sufficient income to last their lifetimes. A study of 43
countries (Bloom et al. 2011) finds that male life expectancy
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despite the economic need, the process of undertaking
reform to increase elderly employment has not been smooth
and is often met by resistance by the public and policy makers
alike. Among the main reasons for such resistance are the
assumptions that there is a fixed number of jobs in an
economy (commonly referred to as the “lump of labor
fallacy”), and that older and younger workers are substitutes.
Accordingly, elderly employment is thought to limit the
employment opportunities available for youth (see Gruber,
Milligan, and Wise 2010). Interestingly, these notions persist,
despite evidence showing otherwise.
The Relationship between Elderly Employment and

increased an average of nearly nine years between 1965 and
2005; for the same period, the mean legal retirement age
rose by less than half a year. Increased divergence between
policy parameters and life expectancy is also expected to be
especially worse for countries that are aging more rapidly. As
a result, old-age support systems will be challenged. In
countries with defined benefit systems, generous benefits
coupled with a constant receipt of tax revenues will create
fiscal pressure on governments. The challenge will be
balancing the adequacy of pension benefits with the
sustainability of pension systems. In contrast, in countries
with defined contribution schemes, low contributions and
early withdrawals are major risks. Where informality is high,
coverage of these schemes could also exclude the most
vulnerable—particularly women and those with low incomes
—as they tend to be informal workers. Thus, the burden falls
Youth Employment
Various attempts to improve youth employment by reducing
elderly employment have been unsuccessful. For instance,
the United Kingdom government introduced the Job
Release Scheme in 1977 to encourage older workers
to retire early in order to release jobs for the registered
unemployed—specifically, youth. The scheme successfully
reduced employment of the elderly but did not have a
positive effect on youth employment (Banks et al. 2010).
Similarly, the French government actually lowered the
retirement age from 65 to 60, along with other reforms to
encourage older workers to leave the labor force. The reforms
were successful in their objective to induce older workers to
leave, but no evidence was found to support the view that the
reforms provided more job opportunities for the young
(Gruber, Milligan, and Wise 2010).

Affiliations: Alyssa Farha Jasmin and Amanina Abdur Rahman, Social Protection and Jobs Global Practice, World Bank.
Acknowledgements: The authors thank Yashodhan Ghorpade, Tobias Pfutze and Kenneth Simler for useful comments and suggestions.
Objective and disclaimer: Research & Policy Briefs synthesize existing research and data to shed light on a useful and interesting question for policy debate. Research & Policy Briefs
carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions are entirely those of the authors. They do not necessarily represent
the views of the World Bank Group, its Executive Directors, or the governments they represent.
 Does Elderly Employment Reduce Job Opportunities for Youth?

Figure 1. Employment Rate of Youth and Employment Rate of Elderly across Countries

Employment rates of older workers and younger workers in OECD and ASEAN countries tend to be positively linked

90

Iceland
80 Sweden
Japan New Zealand
Employment rate, workers aged 55–64 (%)

Norway Switzerland
Latvia Estonia Denmark
70 Korea Lithuania Germany Netherlands
Israel
Chile Czech Republic Indonesia Finland United Kingdom
Ireland Australia
Slovak Republic Colombia Canada
60 Portugal United States
Costa Rica
Hungary Mexico
Italy Spain France Austria

50 Belgium Poland
Slovenia Brazil
Russian Federation
Greece Luxembourg
40 South Africa

Turkey
30
0 10 20 30 40 50 60 70 80

Employment rate, workers aged 15–24 (%)

Source: Authors’ illustration based on data from ILOSTAT and OECD Stats.
Note: ASEAN = Association of Southeast Asian Nations; OECD = Organisation for Economic Co-operation and Development.

Indeed, while intuitively appealing, there is no solid
evidence to back the view that increased employment among
older workers adversely affects the employment prospects of
younger workers (see World Bank 2016 and Box 1, which
presents the results of an analysis for this Brief of the labor
market in Malaysia). In fact, findings from the literature have
generally pointed that the relationship between elderly and
youth employment is either nonexistent or contradicts the
crowding-out theory. An international analysis of 12 OECD
countries highlights that the relationship between elderly and
youth employment is actually slightly positive, and that the
relationship between elderly and youth unemployment is
slightly negative (Gruber, Milligan, and Wise 2010). Similar
findings have been found in a more recent study analyzing the
relationship in OECD countries (Böheim and Nice 2019), as
well as in studies analyzing the relationship in East Asia (see
Oshio, Shimizutani, and Oishi 2010 for Japan; and Munnell
and Wu 2013 for China). Countries that employ more older
persons also tend to employ more youth, as seen in Figure 1,
which illustrates the positive relationship between elderly
and youth employment seen in OECD and Association of
Southeast Asian Nations (ASEAN) countries.
There are a number of possible reasons for the positive
relationship between elderly and youth employment. The
labor market participation of older workers can stimulate the
2
economy, creating higher aggregate demand for labor,
including that supplied by younger workers (World Bank
2016). Studies have also shown that older and younger
workers have different skillsets and are therefore
complements rather than substitutes. For example, empirical
evidence shows that workers who differ by as little as five
years in age are found to be imperfect substitutes in Germany
(Fitzenberger and Kohn 2006). A study of 22 OECD countries
has found that older workers and younger workers tend to be
complements rather than substitutes (Kalwij, Kapteyn and De
Vos 2010), as older workers may have skills such as life
experience and job-specific knowledge that generally differ
from those of younger people who have yet to experience a
long working life.
In contrast to evidence at the national level, policies
increasing the retirement age has been found to adversely
affect youth employment at the firm level. In Italy, a
mandatory increase in retirement age in 2011 resulted in the
reduction in youth hiring among private firms (Boeri,
Garibaldi, and Moen 2016). Similarly, in Portugal an increase
in the legal retirement age for women from 62 to 65 years in
1993 resulted in a reduction in hiring of younger women (the
legal retirement age was unchanged for men) (Martins, Novo,
and Portugal 2009). Nonetheless, while there is limited
evidence that a higher retirement age could cause firms to

delay the hiring of younger workers in the short term,
longer-term and aggregate findings still suggest that there is
no real evidence of older workers crowding out jobs for the
young.
Policies to Support Elderly Employment
With labor shortages anticipated in the future, retaining and
encouraging the participation of older workers in the labor
market is imperative. However, older workers often face
discrimination in the labor market, and poor working
conditions may push them into early retirement. Thus,
extending the retirement age will not be enough—there must
be real employment prospects for older workers for them to
remain working. Countries aiming to increase the
employment rates of the elderly can learn from OECD
countries, where the labor force participation rate of 55- to
64-year-olds has risen by nearly eight percentage points on
average from 2009 to 2018 (OECD 2019). Among these
practices are improving the incentives to work at older ages
(and removing the incentives to retire early), boosting
employer demand for older workers, and improving the
employability of older persons.
Long working hours and physically demanding jobs may
discourage older workers from working and result in workers
going from working full time to not working at all. One of the
main incentives to extend working lives is introducing flexible
work arrangements (particularly reduced work hours) and
offering part-time positions to give older workers greater
choice and facilitate their phased transition to retirement
(see the UK government survey of older workers in
Department for Business, Energy & Industrial Strategy 2018 ).
Flexible working arrangements are also found to improve the
Box 1. The Relationship between Elderly and Youth
Employment in Malaysia
To analyze the relationship between elderly and youth
employment in Malaysia, this Brief adopted a regression
model based on Munnell and Wu (2013). Specifically, the
model looks at how variables such as the employment rate of
the young (20 to 24 years old) and the prime-aged (25 to 54
years old), and the employment income of the young and the
prime-aged could be influenced by the employment rate of
the old (55 to 64 years old). The employment rate for each
group is defined as the ratio of employed persons to the total
population in each age group. All variables are measured at
the district level. Other covariates include other factors at the
state level that vary over time that could influence
employment rates of younger workers, such as state-specific
economic conditions (GDP per capita, GDP growth, poverty
rates); the state-specific nature of employment (the share of
those employment in the manufacturing and services sectors
as well as the share of the self-employed); and demographic
Research & Policy Brief No.48
physical and mental health on workers (Joyce et al. 2010).
Governments have a key role to play to create awareness
about the importance of elderly employment and facilitate
practices by firms to encourage it. While employers may have
negative perceptions of older workers' capabilities and
productivity, a recent OECD report finds that the productivity
of older workers is similar to that of prime-age workers (OECD
2020). Moreover, in the face of age discrimination, it is
important to eliminate age-biased hiring practices and
promote age diversity, as greater age diversity enables
workers of different ages to collaborate and share knowledge.
Wage subsidies can also boost reemployment of older
workers and are particularly effective when targeted to
low-wage earners and the long-time unemployed (OECD
2020).
Lastly, providing equal opportunities for older workers to
upgrade their skills throughout their lives is crucial in
strengthening their employability. For example, the
government of Canada introduced a Targeted Initiative for
Older Workers (TIOW) program that helps unemployed
workers, typically aged 55 to 64, reintegrate into
employment. It provides employment assistance services
such as interviewing techniques and activities such as skills
upgrading and community-based work experience. An
evaluation of the program found that it has been relatively
successful in helping older workers find employment or
become self-employed (Government of Canada 2017).
Furthermore, in some countries such as Australia, Germany,
and the Netherlands, initiatives to reduce the cost of training
of older workers relative to other workers have been
introduced to encourage employers to invest in training for
older employees (OECD 2019).
characteristics at the state level (share of those with low
education). The analysis also included a set of state controls
and year dummy variables. The analysis was conducted using
nationally representative survey data from 145 districts from
13 states and 2 federal territories nationwide from 2014 to
2016. The federal territories of Kuala Lumpur and Putrajaya
were considered to be one federal territory due to the
relatively small population in Putrajaya.
Preliminary evidence shows that the relationship between
the employment of older workers and younger workers is
either positively linked or nonexistent. The analysis finds that
the relationships between the employment of older workers
and youth, as well as employment of older workers and
prime-aged workers, are positive and statistically significant
for the overall sample and female-only sample, while they are
positive and not statistically significant for the male-only
sample. All in all, these results suggest that the employment
of older workers is associated with higher levels of
employment among younger workers, or has no association
at all.
3
 Does Elderly Employment Reduce Job Opportunities for Youth?
However, there is a statistically significant and negative
relationship between the employment rate of older persons
and income of youth overall, and young men specifically.
Nonetheless, the magnitude of this relationship is small: a
one percentage increase in the employment rate of older
workers is associated with a 1.2 and 1.7 percentage decrease
in the employment income of the overall sample and young
men, respectively.
Among those with a primary education, a negative
relationship is also found between older men and prime-aged
men, while the relationship between older men and young
men is insignificant. This could be explained by the fact that
those with primary education are more readily substitutable
because of the similarities in the skills they provide. The same
Conclusion
Population aging is one of the most significant demographic
trends occurring around the world. Important policy
parameters to ensure the sustainability and adequacy of
incomes for the older population, such as raising the
minimum retirement age, have not kept up with this trend.
One of the main arguments used to reject such policy
changes is the belief that extending working lives would
reduce job opportunities for the young. As this Brief has
shown, the employment of older workers and younger
workers tend to move in tandem, rather than in conflict, with
each other.
Low employment rates of the elderly, coupled with a
shrinking labor force, make it imperative to retain and hire
older workers. In parallel to raising the minimum retirement
age, other policies are needed to foster the productive and
inclusive employment of older workers. In particular,
introducing flexible working arrangements such as reduced
work hours and offering part-time roles; eliminating any
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4
relationships for women were found to be positive for the
former and insignificant for the latter. In contrast, for workers
with post-secondary education, the employment rate of the
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younger persons.
age-discriminating practices in firms; subsidizing wages of
older workers; and providing opportunities for upskilling and
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automatically link the normal retirement age to life
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