Working towards a different kind of employment

AROUND the world, persistent unemployment, skill mismatches, and retirement frameworks have become central to fiscal policy — and to the often fierce political debates that surround it.

The advanced countries are facing an immediate “ageing” problem, but most emerging economies are also in the midst of a demographic transition that will result in an age structure similar to that of the advanced economies — that is, an inverted pyramid — in just two or three decades.

Multiple problems affect employment. Globalisation results in a continuous shift of comparative advantage, creating serious adjustment problems as employment created in new activities does not necessarily compensate for the loss of jobs in old ones. In any case, most new jobs require different skills, implying that workers losing their jobs in dying industries have little hope of finding another one.

Technological progress is becoming ever more “labour-saving”, with computers and robots replacing human workers in many sectors. Given the volatile macro-economic outlook, many firms are reluctant to hire workers, leading to high youth unemployment.

At the same time, ageing — and the associated cost of healthcare for the elderly — constitutes the main fiscal challenge in maturing societies. By the middle of this century, life expectancy at age 60 will have risen by about 10 years relative to the post-Second World War period, when current retirement ages were fixed.

A radical reassessment of work, skill formation, retirement, and leisure is needed, with several principles forming the core of any comprehensive reform.

Skill formation and development must become a lifelong process, starting with formal schooling, but continuing through on-the-job training and intervals of full-time education at different points in life.

Retirement should be a gradual process. People could work an average of 1,800-2,000 hours per year until they reach their 50s, taper off to 1,300-1,500 hours in their early 60s, and move towards the 500-1,000 range as they approach 70. A hospital nurse or secondary-school teacher, for example, could work five days a week until her late 50s, four days a week until age 62, three days until age 65, and perhaps two days until age 70.

Employers and workers should negotiate such flexibility, but they should do so with incentives and financial support from government.

Public policies should also encourage greater scope for individual choice. For example, every 10 years, a worker should be able to engage in a year of formal learning, with one third of the cost paid by the employer, one third by public funds, and one third by personal savings (these proportions could vary by income bracket).

The overall objective should be a society in which, health permitting, citizens work and pay taxes until close to the age of 70, but less intensively with advancing age and in a flexible manner that reflects individual circumstances.

In fact, gradual and flexible retirement would in many cases benefit not only employers and governments, but also workers themselves, because continued occupational engagement is often a source of personal satisfaction and emotionally enriching social interaction.

Using the Gallup World Poll, my colleagues at the Brookings Institution thinktank in Washington DC, Carol Graham and Milena Nikolova, found that the happiest cohorts are those who work part-time voluntarily. In exchange for longer work lives, citizens would have more time for both leisure and skill formation throughout their lives, with positive effects on productivity and life satisfaction.

The new social contract for the first half of the 21st century must be one that combines fiscal realism, significant room for individual preferences, and strong social solidarity and protection against shocks stemming from personal circumstances or a volatile economy.

Many countries are taking steps in this direction. They are too timid. We need a comprehensive and revolutionary reframing of education, work, retirement, and leisure time.

* Kemal Dervis is former administrator for the UN Development Programme and is vice-president of the Brookings Institution thinktank.