In order to cope with the aging population, it is important to promote the employment of older people. This paper examines the inherent influences of pension schemes, employment practices and individual behaviors that could pose obstacles to promoting the employment of older people.
Public pension benefits act to reduce the labor supply of pension-eligible older people. There are two ways that public pension schemes have an effect on reducing the labor supply. One is the income effect. Pension-eligible older people are able to retire upon the pension benefit, which they receive as non-earned income. The other is the effect of the earnings test of public pension schemes. Under it, pension benefits may be reduced or stopped according to the level of earnings of pension-eligible people who continue to work and earn income. Consequently, pension-eligible workers tend to reduce their labor supply to avoid having their benefits reduced or cut. In addition to the negative impact of public pension schemes on the labor supply of pension-eligible people, these schemes can also obstruct the full utilization of the skills and abilities of these older workers.
Obstacles to the employment of older people in companies include employment practices that rely upon the age of workers. The most serious among these practices is that of mandatory retirement. Many researchers have estimated the labor supply functions of older people and found that the experience of mandatory retirement significantly reduces the labor force participation possibilities of these people. The mandatory retirement also reduces the utilization of older workers' potential abilities.
Another problem associated with age-based employment practices is the setting of age limits by employers when hiring for job openings. Particularly for workers seeking new employment after mandatory retirement, or even before the age of mandatory retirement for those who become unemployed in mid career, such age limits in hiring seriously constrain their job opportunities. The major reasons for employers to have such employment practices that rely upon the age of workers is their wage and promotion systems that increase employees' rank and wage in line with age and seniority.
Among the aspects of individual behavior, human capital investment and desires of work style are important determinants for workability of older workers. Education is the most typical form of human capital investment. The Hazard show that human capital investment and desires for full time job have a clearly positive impact on older people's survival in labor force.
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