Lack of comparable earnings drives older displaced workers to retire early

Wage insurance, job-search assistance could help
By Amanda Silliker
|Canadian HR Reporter|Last Updated: 03/28/2011

Older workers who face a sudden layoff rarely match their previous earnings upon re-employment and, as a result, many retire early, according to a study by the Institute for Research on Public Policy (IRPP) in Montreal.

One-quarter of workers laid off between the ages of 45 and 59 leave the workforce within five years, found Labour Force Participation of Older Displaced Workers in Canada: Should I Stay or Should I Go? Among those aged 60 to 64, the proportion rises to nearly 70 per cent. This is due largely in part to the inability to find a new job with a comparable salary, said David Gray, professor of economics at the University of Ottawa and co-author of the study.

“So, here we are, losing people, perhaps forever, from the labour force because it seems the only way they can get a job now is to take a tremendous wage cut,” said Gray. “A lot of them simply throw in the towel and try to finesse an early retirement.”

Workers aged 45 to 64 who find a job after they have been laid off typically see earning losses of about 40 per cent relative to earnings in their previous job, found the study.

This tendency toward early retirement could cause problems in the labour market given the impending labour shortage, according to the study.

“Canada’s labour market is in jeopardy and we need everybody who is currently working to continue working as long as possible, especially older employees because they tend to have the skills and all the institutional knowledge,” said Sally Ritchie, media relations and communications manager at Colleges Ontario in Toronto.

Employers will not only have a hard time replacing older workers but they will lose their competence, experience and contacts, all of which you cannot “just get out of a book,” said Susan Eng, vice-president in charge of advocacy at CARP, a Toronto-based advocacy group for people over the age of 50.

Older laid-off workers tend to have more difficulty finding a new position if they held a high degree of seniority at their previous job, said Gray. The higher up they were, the longer they were likely working with that particular company and their skills reflect that, he said.

“The skills which they have to offer are often not very appealing to potential employers,” said Gray. “Some of it may be due to their human capital — their skill set — is not very transferable. It could be they were very productive with their former employer but they just can’t transfer that to a different employer.”

One way to eliminate the likelihood of older displaced workers entering early retirement is to offer wage insurance, said the report. A wage insurance program subsidizes a percentage of any wage loss experienced by an older unemployed worker for a fixed period of time upon re-employment. For example, if a worker was laid off from a job paying $20 per hour and a new job pays $10 per hour, then 55 per cent of the wage cut would be indemnified, so the worker would receive a benefit of about $5.50 per hour, said Gray. The wage would be subject to a ceiling, similar to employment insurance, and be a part of the federal government’s unemployment insurance system, he said.

“I think that makes a great deal of sense,” said Eng. “It’s an expense proposition but I think it would be a valuable one; it’s just a question of costing it out.”

To keep the costs down, conditions on age and work history should be considered, said Gray.

Government-sponsored, enhanced job-search assistance and employment counselling for older laid-off workers should also be offered, said the report. If implemented soon after a layoff occurs, this would encourage workers to look further afield than their previous industry and occupation, said the report.

“I think the real key is (employers) should help them get another job,” said Ritchie. “If they’re in excess to your needs, then help them with somebody else’s.”

Employers can also invest in training for employees, she said, which is beneficial for both parties.

“It’s not just a feel-good exercise, it’s a business investment,” she said. “Businesses need to do this to increase their own ability to compete on the global stage, which is every-changing and very rapidly evolving.”

It bodes well for employers to do whatever they can to prevent older laid-off workers from retiring early, said Ritchie.

“It’s going to be a future of people without jobs and jobs without people,” she said. “If employers can’t find the skilled workers they need and businesses can’t compete, the burden on the social safety net will be crippling and businesses will be failing.”

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