Executive summary

In the United States, employment rates at older ages are comparatively high at 62% among 55-64 year-olds against 59% on average in OECD countries in 2016. However, there are large disparities across population groups. Early retirement remains a widespread phenomenon, especially among workers from vulnerable socio-economic backgrounds. Preventing old-age disparities in terms of employment outcomes and retirement income from widening is crucial. Poverty among older persons in the United States is already a challenge today, as more than 20% of those over 65 have incomes under the relative poverty line – defined as half of median disposable household income – compared to less than 13% on average in the OECD. Social Security and Supplemental Security Income provisions are set at low levels compared to other countries. Effective and well-tailored policy action is needed to achieve greater inclusiveness at old age. Further efforts should promote broader access to employment opportunities and foster longer and better working lives.

Promoting longer careers for all socio-economic groups is one way of reducing old-age poverty without putting additional strain on public finances. In the United States, like in many other OECD countries, life expectancy, working lives and the pathways out of the labour market vary substantially across socio-economic groups. Low-educated people tend to stop working earlier than their high-educated peers and they are far more likely to face long periods of unemployment or disability prior to retirement. In addition, poor health as a barrier to extended careers is more widespread among low-educated people.

The following actions can promote longer careers among all socio-economic groups and reduce old-age poverty:

  • Link the early and normal retirement ages to life expectancy, while considering distributional effects due to possible widening inequality in life expectancy. Linking pension ages to life expectancy is becoming more common amongst OECD countries as a way to maintain the level of retirement income in a financially sustainable way. Financial sustainability is an important issue in the United States as well. When changes in life expectancy increase inequality across socio-economic groups such automatic links can be problematic. They may have regressive effects, which should be taken into account in order to design inclusive policies.

  • Provide easily understandable information, with a special focus on groups with poor financial literacy, on the impact of anticipating or postponing retirement on pension entitlements to promote well-informed choices between work and retirement.

  • Increase the Supplemental Security Income level to help reduce the high levels of poverty amongst the older age groups. Poverty levels for the over 75s, at more than twice those of the working-age population, need to be reduced. Increasing the means-tested component of the pension system is one way of addressing this issue. The level of the old-age safety net is equal to 17% of the average gross wage compared to 22% on average in the OECD. Bringing the level to the OECD average would therefore imply a raise of 29%.

  • Increase occupational pension coverage among current workers, for instance through auto-enrolment in pension plans. Around half of workers are not covered by any private pension as a supplement to social security. Introducing auto-enrolment would increase the number of covered workers, as shown in New Zealand and the United Kingdom, thereby increasing future pension entitlements.

  • Design specific training programmes targeting low-skilled workers. These programmes should, among other things, facilitate job change in mid-career and at an older age. While continued training is needed to ensure upskilling, especially in times of quick technological change, many low-educated workers only have limited access to training opportunities. Specific training programmes targeting low-educated workers should be offered to ensure that training is accessible to workers from all educational groups.

  • Increase opportunities for more flexibility in work arrangements and retirement entry, e.g. teleworking, part-time work and combining work and pensions. Flexible work arrangements provide workers with more choice and more opportunities to shape the last years of their working careers and retirement entry according to their wishes.

  • Improve health among all workers, including older workers, through preventive measures and better access to health care services.

With relatively little employment protection and no mandatory retirement age, US firms’ willingness to hire and retain older workers is key to ensuring older workers have access to and retain good jobs. Employers’ attitudes are central. While the United States has pioneered anti-age discrimination, coverage has not been extended to all workers so far. The skill-set of older workers in the United States is relatively good, both with respect to younger workers and older workers in other large OECD countries. While older workers perform less well on information-processing tasks, they have interpersonal skills that are called upon to plan, supervise, and influence others. This highlights the importance of mobility across tasks, jobs and occupations. Occupational mobility is higher in the United States than in other large OECD countries but changes to health insurance rules (such as repealing the Affordable Care Act) risk creating barriers to job mobility of older workers. Non-wage costs continue to create a disincentive to hire older workers, especially the higher costs for health insurance of older workers.

The following actions could support firms in hiring and retaining older workers:

  • Expand the federal age-based anti-discrimination law to cover all workers in all firms. Protection under the Age Discrimination in Employment Act (ADEA) should be extended to people of any age rather than to just those aged 40 and over. The exemption of smaller companies should also be reconsidered. The 2000 EU directive concerning age discrimination extends protection to people of all ages and in all firms. It ought to be considered whether to extend the coverage of the ADEA to cases where discrimination is based on more than one characteristic (e.g. both age and gender).

  • Make anti-discrimination legislation more easily enforceable for workers. Compared to other OECD countries with greater employment protection legislation, the role of anti-discrimination legislation is greater in the United States. Removing barriers to legal expertise and counsel are thus important for all workers to benefit from the same protection.

  • Continue and expand the Disability Employment Initiative (DEI). Conditional on a positive evaluation of the DEI, this pilot programme should be rolled out also in currently non-participating US states.

  • Eliminate the Medicare as a second-payer rule. Extending the advantage of public health-care to employed individuals would reduce labour costs for older workers. While Medicare expenses would increase, additional revenues from higher income taxes may be generated at a similar magnitude as a result of increased work incentives for older workers.

  • Avoid job lock for workers with pre-existing health conditions. Avoid changes to rules governing health insurance that may discourage workers with pre-existing health conditions from changing jobs.

  • Support the business case for promoting longer and better working lives. The outreach and educational activities of the Equal Employment Opportunity Commission should be intensified. Key stakeholders in the United States, including NGOs, should identify firms’ best policies to retain, retrain, and recruit older workers and learn from good practices implemented in other OECD countries.

  • Encourage research on firms’ decisions of employing older workers. There is little research on determinants of labour demand for older workers. Making linked employer-employee data available on a federal scale would enable more focused research.

In addition to strengthened economic incentives and age-friendly employer practices, employability and willingness to stay on are prerequisites for longer working lives. The employability of older workers depends importantly on three key factors: up-to-date skills; ready access to employment services; and good working conditions. Older adults in the United States are relatively highly educated, skilled and among the most frequent participants in training in the OECD. However, the United States faces large disparities among older adults in education, access to training and quality employment services as well as in working conditions.

The following measures can improve the employability of older workers:

  • Take concerted action to boost basic skills of workers throughout their working lives and tackle inequalities accumulated by those with poor basic skills. Without action, the United States will fall further behind other countries which could harm the prospects of future generations of older workers as well as reinforce the persistence of inequalities at an older age.

  • Improve access to employment and training programmes for older jobseekers and the quality of services received. It is not clear whether the federally-funded employment programmes help older jobseekers to find jobs. The evaluation of the Senior Community Service Employment Program (SCSEP) was a first step. Further impact evaluation of employment and training programmes on employment outcomes of older jobseekers is needed.

  • Enhance opportunities for phased retirement. Phased retirement is uncommon in the United States. Low-paid workers planning to phase into retirement confront financial obstacles. Moreover, existing regulations may discourage employers from implementing phased retirement programmes. More research is needed to help guide policy choices. As a first step, the problems encountered in deploying the federal phased retirement programme should be analysed. In addition, lessons can be learned from flexible retirement options in other OECD countries.

  • Encourage and assist employers to enhance working conditions throughout working lives. Employers should be encouraged to set up websites with information on best practices and tools to assess their own performance as age-friendly employers. The European Healthy Workplaces campaigns and the Healthy Workplaces Good Practice Awards can serve as an example.

  • Design and implement experience-rating programmes that effectively motivate employers to improve safety and expand the experience rating of workers’ compensation insurance to smaller firms. In the absence of such an expansion, the Occupational Safety and Health Administration (OSHA) should target its enforcement efforts toward smaller firms.