Why might employers not hire older workers or provide more part-time work?
Editor’s note: This text corresponds to the third instalment of Professor Nicholas Barr’s article for CENIE, “Why don’t we work for longer?”. Throughout the month of October, we will be publishing the different parts on a weekly basis, as part of the activities organised to mark Financial Education Day 2025.
Older people’s willingness to work – the supply side of the labour market – is important. But the demand side is equally important, with policy to date focussing mostly on reducing age discrimination.
Age discrimination
The problem is real and should be addressed. But it is a mistake to think that is all that is necessary.
Imagine an enlightened employer whose instinctive attitude is willingness to employ older people, but who has to remain profitable. Thus, the issue is not one of inappropriate discriminatory attitudes. The right question is to ask is what factors an employer would legitimately and rationally regard as impediments to employing older people. Policy that takes insufficient account of those impediments will create indirect discrimination – regulation (i.e. against discrimination) and incentives to employ older workers need to be aligned.
The following paragraphs cover issues that have been inadequately explored and which merit further investigation.
Labour market impediments
Employers want to hire people at a wage that reflects their productivity, which in turn depends, inter alia, on their skills, hours of work and health. To the extent that rigidities interfere there is an impediment to employing older workers.
Fixed costs of employment. Suppose that each worker costs $4,000 per year in medical insurance premiums, as broadly in the USA. The incentive for employers is to minimise the number of workers and maximise the number of hours that each works. A related problem arises where insurance premiums (e.g. medical, travel) rise with age. In both cases, the incentive against offering part-time work is clear.
Any non-proportional employer contribution has a similar effect, e.g. the flat-rate weekly National Insurance contribution (‘the stamp’) in the UK between 1948 and 1975.
Legal impediments to downshifting. There are also indirect costs to offering part-time work.
Transactions costs: labour law may be unclear. If a worker wants to downshift at their existing employer, time is needed to negotiate the deal. The problem arises where downshifting involves a move to part-time work, and particularly for a move to a different, perhaps less stressful, type of work.
Uncertainty: legal uncertainties add to transactions costs, e.g. whether it is legitimate to reduce the wage of a worker who has either become less productive or wishes to reduce stress by moving to a lower productivity job.
Such problems create a hassle factor for employers in contract design.
Skills of older workers
Employers may worry that, given technological progress, older workers do not have the necessary skills. On the face of it, the payoff to training earlier in life is higher because the payoff period is longer. A mitigating factor is that with more rapid technical change the shelf-life of skills is shorter. If skills go out of date in 5 years rather than 10 it becomes more worthwhile to retrain older workers.
Or employers may think that older workers have lower cognitive ability. However long experience can be a countervailing factor and, as discussed earlier, may bring skills that complement those of younger workers.
Health of older workers
Employers may think that older workers have more health problems. The reality is more equivocal (Petery et al. 2023). Older workers may have more long-term health problems such as high blood pressure, but such problems often have no impact on work performance. There is also some evidence that health-related absences by older workers tend to be longer than for younger workers but less frequent (older workers are less likely to fail to turn up on Monday morning after a weekend partying).
