Late-life work and well-being

Creative solutions to multi-tiered labor market challenges

The challenges of unemployment, aging populations, and unsustainable pension burdens were heightened by the 2008–2009 global financial crisis and the uneven recovery, with new entrants to the labor force taking the hardest hit. Youth unemployment rates peaked at 53% in Spain and nearly 40% in Portugal in 2012, compared with 16% in the US [2]. At the other end of the age distribution, given rising life expectancy and low and falling fertility rates, unsustainable fiscal deficits are forcing the reconsideration of public pension and retirement schemes.

How well different employment and retirement schemes meet people’s needs depends on their career objectives, innate levels of well-being, and stage in the lifecycle. Understanding how employment, retirement, and late-life work relate to well-being can contribute new insights into ongoing public discussions of how to resolve these multi-tiered labor market and fiscal challenges.

Given aging populations and the increasing role of work in retirement in several countries, understanding the well-being effects of both flexible work arrangements and late-life work may increase in relevance. Most Western economies have experienced a significant aging of the workforce. In Europe alone, the number of people aged 60 and older is expected to increase by some two million people a year over the next 30 years. At the same time, due to structural economic trends and technological innovation among other influences, the labor force is likely to shrink by more than one million workers a year [2]. Not surprisingly, there are discussions about raising the retirement age in countries including France, Germany, Japan, the UK, and the US.

An emerging body of work is exploring the relationship between well-being and productivity. Some work finds that higher levels of life satisfaction are associated with higher earnings and better health, while other research finds that having meaningful work is more important to productivity than is simple job satisfaction. Greater autonomy (including in relation to one’s working hours) also seems to play a role [3]. In contrast, the negative effects of work-related stress on health and longevity are well-documented [4]. Late-life work may provide social contacts and interactions, personal growth, autonomy, and a sense of purpose, which may be particularly important for older cohorts as opportunities for active social engagement dwindle.

One possible solution is that older workers could gradually reduce their working hours while remaining in the labor force (and continuing to pay taxes) well past official retirement age, with associated fiscal benefits from postponed public pension payments [5]. Late-life workers can be valuable to enterprises due to their experience and competence. In the US older workers receive a pay premium relative to their younger counterparts, suggesting that they are more productive [6]. Older workers may also play a role in training younger workers and apprentices, and some of the fiscal contributions from postponed retirement could be used to finance apprenticeships and training programs [1]. And as there is a shortage of skilled labor in some occupations, well-trained part-time older workers could fill multiple roles.

Much less is known about the transaction costs related to such proposals and about their effects on worker well-being. Much of what is known comes from small-scale experiments or from individual country programs. Germany introduced a number of flexible work arrangements during the recent Great Recession, and there is some evidence that these policies protected the labor market and even added jobs at a time that unemployment was soaring in neighboring countries.

Labor market arrangements and well-being

One innovative way to assess the costs of different labor market arrangements is through the novel metric of well-being, which typically covers large-scale population samples. Well-being is a broad concept that includes income and non-income dimensions. It has been assessed based on reported (subjective) levels of well-being, which is now a well-established measurement practice for assessing individual well-being. Initial work in this area finds that people who are unemployed have much lower levels of well-being than people with jobs in virtually every context. The psychological “scarring” effects of long-term unemployment are well-documented [7], [8]. Social norms related to employment also mediate these relationships, however, with the negative effects of unemployment sometimes mitigated by a relatively high local unemployment rate or by generous norms of unemployment compensation [9], [10].

Retirees’ well-being, meanwhile, varies across countries because of different retirement practices and the generosity of public pensions. And involuntary retirement reduces well-being in some contexts. While retirees in Organisation for Economic Co-operation and Development (OECD) countries are happier than the average individual, retirees are less happy than average in Latin American countries and Russia, likely because their financial situation is more precarious [10], [11].

Other work arrangements also have differential effects on well-being, depending on the context. Several studies for OECD countries find that self-employed people are more satisfied with their jobs than those working for an employer [11]. In contrast, the evidence from Latin America, while mixed, suggests that people who are self-employed are less satisfied with their lives and jobs, due to the unstable nature of self-employment in the region. Self-employment is far more likely to be involuntary and in the informal sector there than in OECD countries [10].

Several studies of well-being and flexible work arrangements in advanced economies suggest that flexibility in work patterns, which gives workers more choice or control, is likely to have positive effects on health and well-being [12], [13]. An important channel seems to be work−family balance, and these studies suggest (unsurprisingly) that the positive benefits are greater for women than for men. As in the case of self-employment, though, the same arrangements may play out quite differently in labor markets with large informal sectors and more precarious employment.

Assessing the effects of labor market arrangements and late-life work on well-being

Novel data in the Gallup World Poll allows for further exploration of these relationships across several dimensions of well-being [1]. Evaluative metrics allow for assessing satisfaction with life as a whole, including over the lifecycle, while hedonic metrics capture well-being—including positive and negative affect, such as smiling and stress—as people live their daily lives. The Gallup World Poll provides individual-level data on well-being, income, health, and employment status, among other variables, for 160 countries around the world, beginning in 2005. Questions about employment were included beginning in 2009.

Research using the Gallup World Poll data focused on countries with roughly similar per capita income levels, labor markets, and demographic structures (France, Germany, Greece, Italy, Portugal, Spain, Sweden, Turkey, the UK, and the US) and explored the relationship between employment status, work arrangements, and subjective well-being (including job satisfaction) [1]. The study also considered whether there are additional well-being effects of late-life work.

About 30% of respondents in the sample were employed full-time, 6% were self-employed, 4% were unemployed, and 44% were out of the workforce. Roughly 8% reported that they worked less than 30 hours a week but did not want to work more than that, while 4% worked part-time but wanted to be employed full-time. As expected, voluntary part-time employment varies by gender. Specifically, 10.9% of men and 5.3% of women were voluntarily employed part-time.

In addition to the general trends, the employment statistics vary by country [1]. Germany and the UK had the highest proportion of voluntarily employed part-time workers (11%), while Greece and Portugal had the lowest (3%). Spain and the US had the largest proportion of respondents who said that they were employed part-time but wanted to work full-time (7%) among all countries in the sample. Sweden had the highest proportion of full-time workers (51%) among countries in the sample, while Greece, Italy, and Turkey had the lowest (25% each). Finally, respondents in Spain were the most likely to report that they were unemployed (12%), while those in Germany were the least likely (3%). These differences suggest divergent labor market conditions and norms about the acceptability of part-time work, which are also reflected in the results from regression analysis.

The out-of-the-workforce category includes students, people with disabilities, homemakers, and retirees. In 2009 and 2010, respondents who were not employed were asked whether they were retired. For the sample as a whole, about 60% of those who were not employed were retired. The percentage of those who were not employed who were retired was as high as 81% in Sweden and as low as 19% in Turkey.

As noted above, unemployed people are, on average, much less satisfied with their lives than are their employed counterparts. In addition, though, voluntarily employed part-time workers and self-employed workers both have higher levels of life satisfaction than do those who are working full-time for an employer (Figure 1). The positive correlation with life satisfaction is highest for older workers (ages 46 and over) who are either employed full-time or voluntarily employed part-time (Figure 2). Voluntarily employed part-time workers also experience less stress than do their full-time employed counterparts, which is not surprising. Voluntarily employed part-time and self-employed workers were also more satisfied with their jobs, while self-employed workers were more likely than workers in other categories to report that their job was ideal.

An important caveat is that there are significant differences across countries in the extent of voluntary part-time work and thus likely in the extent to which social and labor market norms are accepting of part-time work. One can imagine that when this practice is rare, part-time workers could experience stigma or be relegated to inferior jobs. In addition, if flexible work arrangements prevent marginal workers from entering unemployment, then the appropriate comparison category should be unemployed workers rather than full-time employed workers. In this instance, then, the comparative well-being effects would be even greater. But that is again also likely to vary across countries, depending on norms. In Germany, which has encouraged flexible work arrangements, part-time workers might otherwise be in the ranks of the unemployed (and this may partially explain Germany’s lower than average unemployment rates compared with its counterparts in the EU). In contrast, these same kinds of workers are likely to be in the ranks of the unemployed in countries such as France and Spain.

While we still need to know more about these relationships, as well as the causal channels driving them (for example, it could be that more productive workers are more likely to report having meaningful work), there is sufficient evidence of a positive link between well-being, personal health, and labor market performance to suggest that the benefits of higher levels of worker well-being extend beyond the individual to society.

Late-life work

There is some country-specific research suggesting that late-life work has positive effects on well-being [11]. There are two problems in identifying the effects, though, stemming from endogeneity. One is self-selection, or the fact that retirees differ from late-life workers along a set of unobservable characteristics that are also correlated with their well-being. For example, those remaining in the labor force might be more motivated, more risk-loving, skilled, and so on, than those choosing to retire. These unobservable characteristics are also correlated with life satisfaction and could bias the results.

The second issue is the direction of causality. It is quite plausible that the people who chose to remain in the labor force after retirement were more satisfied with their jobs (and their lives) before retirement, and thus the difference between their level of life satisfaction and that of their retired counterparts later in life has nothing to do with remaining in the labor force. In addition, more educated workers are more likely to remain in the labor force than are less educated ones, not least as their jobs are usually less physically taxing [6].

Taking advantage of a very large and detailed data set, propensity score matching techniques were used to compare retired individuals with observably similar late-life workers [1]. Individuals were matched with others of the same age group, gender, marital status, education, religiosity, country, and year. Income matching was not done because the current income of retirees is by definition less than that of people who remain in the labor force. While the matching exercise is far from perfect, the results are both statistically robust and intuitive.

Workers who remained in the labor force past the retirement age (either in full-time work or in voluntary part-time arrangements) had higher levels of life satisfaction and hedonic well-being (smiling yesterday and happy yesterday) than did their retired counterparts, on average [1]. It is interesting to note that the life satisfaction of the late-life workers who worked full-time was higher than that of late-life workers who worked part-time. Late-life workers in general were also more satisfied with their health. Again, there are causality issues at play that suggest caution, as healthier people are more likely to remain in the labor force.

Regardless, the findings suggest that there are significant well-being benefits for late-life work for respondents who choose it.

An additional note is that the direction of the findings is very similar in two different specifications: the matching exercise just described and an ordinary least squares regression that included older workers and different work arrangements. Indeed, in the first round ordinary least squares regressions, the benefits of voluntary full-time and part-time work (including self-employment) were greatest for the oldest cohort (66 and older) in the sample. This constitutes additional confirmation that the results are not driven totally by unobservable differences across older workers.