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Men 55 and older: Work or retire?
Slow population growth has made the population 55 and over an important potential source of labour. Nearly one-third of Canada's adult population in 2001 was at least 55. The relative size of this group is projected to increase to 40% by 2026, primarily because the baby boomers are aging.
Public attention is generally focused on the employed and unemployed, and relatively little attention is paid to those who are not active in the labour market (see Data sources and definitions). The inactive, however, are a potential source of labour. For example, when the economy is expanding, many people who have given up looking for work are drawn back into the labour market.
As the baby boomers gave way to smaller generations, labour force growth became fuelled by immigration and the growing participation of women. Since the participation rates of women are approaching those of men, this potential source of growth no longer exists. The sources remaining are immigration, which is a well-studied topic, and the older inactive, which is not.
What are the characteristics of men 55 years and over who are no longer active in the labour market, and what are their reasons for leaving their last job? Is inactivity 'voluntary' (retirement, personal or family responsibilities) or 'involuntary' (disability, layoff, or other economic conditions)? 1 Are international trends comparable (see International comparisons)? These questions address the feasibility of the older inactive as a source of labour.
Labour market inactivity rising among older men
Labour market inactivity varies over the life cycle. It is typically high for youth (15 to 24) attending school, and low during the active working years (25 to 54). Inactivity rises continuously in later years (55 and over) and depends on a range of personal, economic and social factors. While labour market inactivity among youth is generally temporary, inactivity among older workers is often a permanent withdrawal from the labour market.
From 1976 to 2001, the inactivity rate among workers aged 25 to 54 dropped 12 percentage points (from 27% to 15%), largely because of the increased participation of women (Chart A). By contrast, the rate among those 55 years and over increased by 5 percentage points (from 69% to 74%).
The growing inactivity of the older population is caused primarily by the falling participation of older men. The growth in inactivity is concentrated among men 55 to 64 (Chart B). Some of the increase can be attributed to institutional factors, such as the lowering of the minimum age for drawing benefits from the Canada and Quebec Pension Plans in the late 1980s, the recession of the early 1990s (which affected older workers particularly), government downsizing, and the use of early retirement for workforce adjustment (Sunter 2001).
On the other hand, the rising tide of labour participation among women extended to the older age groups. Labour market inactivity fell for women aged 55 to 64 while it remained stable for those 65 and over.
A focus on men 55 to 59
Although the decision to retire is a personal one based on a number of factors, a general trend to earlier retirement (increased inactivity) could have widespread consequences as the population ages. 2 The labour market would lose a wealth of experience and potential economic contribution if inactivity continues to rise among those aged 55 to 59. If inactivity were involuntary, men in this age group would face financial consequences since 60 is the minimum age for receiving Canada or Quebec Pension Plan benefits. According to life expectancy calculations, a 55 year-old man can expect to live, on average, an additional 20 years. Even when adjusted for disability, the calculation shows that he has on average 10 more years of disability-free life expectancy. 3
At some age, attachment to the labour market dramatically declines or ceases completely. Those 70 years and over would largely be in this category. 4 Thus one would expect the share of inactivity among those 55 and over to be heavily weighted by older Canadians approaching permanent withdrawal from the labour market. However, in the 55 to 69 age group, the largest increase in labour market inactivity came from those aged 55 to 64. The proportion of inactive men 55 to 59 rose by 2.5 percentage points between 1976 and 2001, while their population share increased only 0.8 points (Table 1). The population share of those 60 to 64 was unchanged, but the proportion inactive rose by 2.2 points. For those 65 to 69, the proportion remained constant.
The labour market inactivity rate of men aged 55 to 59 increased from 16% in 1976 to 28% in 2001, after peaking at 29% in 1998 (Chart B). In 1976, 78,000 men 55 to 59 were inactive in the labour market. By 2001, the number had climbed to 220,000. This is more than the annual average influx of immigrants (212,000) between 1997 and 2001.
The inactivity rate has risen in all regions since 1976 (Chart C). The rate falls from east to west, with the Atlantic region having the highest and the Prairies the lowest in 2001. Although the inactivity rate is affected by regional labour market conditions, it is also influenced by myriad personal, social and economic factors.
Given the long-term increase in labour market inactivity among men 55 to 59, what are their characteristics and what are the reasons for leaving their last job? Are the recent declines a reversal of long-term trends? Are these trends observed in other countries?
Most have been out of the labour market for more than a year
Even though factors underlying inactivity may have changed, a majority of inactive men 55 to 59, both in 1989 and in 2001, ended their last job more than a year earlier. The short-term inactive proportion dropped from 26% in 1989 to 19% in 2001, while the proportion who worked in the previous 13 to 60 months remained virtually unchanged (40% in 1989 and 42% in 2001). The proportion of long-term inactive rose slightly (from 34% in 1989 to 40% in 2001).
This rise may signal a troubling trend. The long-term inactive would have left at age 50 to 54, implying that relatively young workers may be leaving the labour force at a time of slow population growth. Furthermore, a majority (93%) of inactive men in 2001 did not want a job, according to the Labour Force Survey. 5 A recent study also showed that over half of 55 to 59 year-olds who voluntarily ended their job were still not working two years later, indicating that they may be leaving permanently (Pyper and Giles 2002). 6
The past 25 years have witnessed enormous change in the educational profile of inactive men aged 55 to 59. In the 1970s, labour market inactivity was almost exclusively the domain of less-educated men (Chart D). Now the inactivity rate of university-educated men in this age group is nearly equal to that of men with only an elementary school education. The gap between those with a university degree and those with eight years or less education was over 50 percentage points in 1976. By 2001, it had narrowed to less than 2 percentage points with 18% of inactive men in this age group holding a university degree. In the same year, the proportion of men with eight years or less of education had fallen to less than 20% from nearly 60% in 1976. 7
These improvements reflect the rising educational attainment of the population as a whole. It is also possible that those with higher levels of education have access to better pensions that make early retirement more attractive. 8 Regardless of what prompts labour market inactivity, its increase among an age group characterized by both experience and a rising level of educational attainment indicates the loss of a skilled labour resource.
The short-term inactive
The short-term inactive make up nearly 20% of those currently inactive in the labour market. Although small in number, the analytic importance of this group lies in the availability of information about their previous job and their reason for leaving it. 9 The occupation, industry, and reason for leaving may provide clues to prolonging their attachment to the labour market. 10 Furthermore, in contrast to those who have been inactive longer, the short-term inactive may be able to re-integrate into the labour market relatively quickly. Compared with all inactive men aged 55 to 59 in 2001, twice as many of the short-term inactive stated that they wanted a job.
Most were in the private sector
The share of short-term inactive men previously employed in the private sector rose more than for any other group over the 1989 to 2001 period. While both the public and private sectors lost proportionately more men aged 55 to 59 to labour market inactivity in 2001 (25% and 61% respectively) than were employed in these sectors in 2000 (17% and 54%), the public sector was hit harder proportionately (Table 2). 11 The proportion recently self-employed also rose in 2001 (14%). 12
The rise in inactivity among those who had been self-employed is a bit puzzling given that in 2000 the median age of retirement for self-employed men was higher than the median for all men (66.4 versus 61.8). Self-employment increased over the 1988 to 2000 period among men aged 54 to 58 (that is, the years and age in which the short-term inactive were working). Self-employment may therefore have been a transition from employment to labour market inactivity. Older workers may use self-employment to supplement pension income or simply to remain in the labour market prior to permanently exiting.
A majority of the short-term inactive were last employed in services. However, in 2001, goods industries lost proportionately more men aged 55 to 59 to labour market inactivity (42%) than were employed there in 2000 (36%). Half of the short-term inactive in goods industries said they left for reasons of retirement. An even higher proportion (64%) of those previously employed in manufacturing said they left for this reason (figures not shown).
The highest proportion of the short-term inactive came from trades, transport and equipment operators (29%), followed by sales and service; processing, manufacturing and utilities (12%); and occupations in social science, education and government services (10%). However, for four occupations-processing, manufacturing and utilities; trades, transport and equipment operators; primary; and social science, education and government services-the share of the short-term inactive was significantly higher than their share among those employed in these occupations in 2000.
The proportion of short-term inactive men in social science, education and government service occupations may reflect early retirement trends in the public sector. Three-quarters of the men in these occupations cited retirement as the reason for leaving their last job. Furthermore, these occupations had the lowest median retirement age (57.3) in 2000 and one of the largest proportion of employees 55 and over (Labour Force Survey 2001).
Retirement the primary reason for leaving last job
In 2001, half of the short-term inactive cited retirement as the reason for leaving their last job, compared with only 20% in 1976 (Chart E). The shift to early retirement could be influenced by a number of factors, ranging from personal (such as health, income, and leisure interests) to social and economic (the state of the economy, labour demand, and social policies). Pension coverage would be an important element of this decision; higher pension plan coverage rates in Newfoundland and Labrador and Quebec have been linked to early retirement trends in these regions (Kieran 2001). 13
As well, those who cited retirement as a reason for leaving their last job were more likely to be highly educated, and it has been shown that pension coverage increases with educational attainment (Morissette and Drolet 2001). While 18% had a university degree in 2001, the rate rose to 23% for those who had retired, reinforcing the possibility of higher pension benefits among this group.
Tax data demonstrate the increasing importance of pensions; average pension income for all men 55 to 59 increased more than $3,000 between 1989 and 1999 while income from employment declined (Chart F). 14 Income from self-employment also rose, further strengthening the suggestion that this may provide a transition mechanism for men in this age group. Other income and government transfers increased as well, while income from investments declined. 15
Economic conditions also important
Economic conditions, the second most important reason for leaving the last job (Chart E), were cited by over one-third of the short-term inactive in 2001-a proportion almost unchanged from 1989, an expansionary year. Recent studies have also shown that job separation among men 50 to 65 was largely due to involuntary separation caused by layoff (Rowe and Nguyen 2002).
Among those in 2001 who left their last job for economic reasons, 13% cited business conditions (including business closing down or sold), 12% the end of a seasonal job, and 5% the end of temporary or contract work.
In 1976, one in four recently active men 55 to 59 cited own illness or disability rather than retirement as the reason for leaving their last job (Chart E). By 2001, this proportion had dropped by half to 12%. One explanation for the trend may be the overall improvement in health across the population. Another factor may be related to the positive association between education and health. A relatively low proportion of those with a university degree cited disability as a reason for leaving their last job (11% compared with 18% overall).
The Canada and Quebec Pension Plans (C/QPP) provide the single largest disability program in Canada. The CPP disability benefit (CPP-D) is the only portion of the CPP other than the survivor benefit payable prior to age 60. Workers who meet the medical requirements and have contributed to CPP in four of the previous six years are eligible. Over the 1981 to 2001 period, the CPP-D rate (CPP-D beneficiaries as a percentage of the labour force) for men 55 to 59 increased by over 2 percentage points (from 3.5% to 5.7%). The trend in CPP-D receipt is opposite that of disability reported in the Labour Force Survey, but the two rates are not comparable. First, the LFS does not ask the reason for being out of the labour force, only the reason for leaving the last job. Second, CPP-D receipt is for a smaller proportion than those who reported leaving work due to illness or disability.
Men 55 to 59 no longer active in the labour market are an important source of potential labour supply in an era of slow population growth. Rising labour market inactivity among increasingly skilled older men poses a significant potential economic loss. Over the 1976 to 2001 period, recent cohorts of men inactive in the labour market demonstrated higher levels of educational attainment. The proportion with a university degree increased from 4% in 1976 to 18% in 2001, while the proportion with only grade 8 education fell from 57% to 19%.
Retirement is the primary reason for leaving the last job. In 2001, half of 55 to 59 year-old men who had worked over the previous 12 months cited retirement as the reason for leaving their last job, while a third claimed economic conditions. Fewer left because of illness or disability than in the past-this reason for inactivity dropped by nearly half between 1976 and 2001.
For all men 55 to 59, the average level and share of pension income rose over the 1989 to 1999 period. These trends further corroborate results indicating early retirement as a reason for labour market inactivity.
If labour shortages do develop in coming years, the incentive effects of public and private pensions, implicit taxes (for example, clawbacks, public pension adjustments) and other government transfer programs will bear examination. 16
Roman Habtu is with Labour and Household Surveys Analysis Division. She can be reached at (613) 951-3830 or email@example.com.