Keeping Australia's older workers in the labour force. A policy perspective

Australian Journal of Social Issues, Winter, 2008 by Maggie Walter, Natalie Jackson, Bruce Felmingham

Policy Options for an Ageing Society: Carrots and Sticks

The ASRAM survey was also interested in how older workers would respond to both policy disincentives to retire earlier and incentives to retire later. That is, what might most usefully extend the working life of older Australians: the carrot or the stick? Two sets of policy options were provided. In the first set the items involved a reduction of current entitlement or options relating to the age pension and superannuation lumps sum payments. This set might be characterised as policy 'sticks'. The other set, which can be seen in terms of policy 'carrots' canvasses a range of possible policy incentives for workers to remain longer in the workforce.

Policy Disincentives to Earlier Retirements (the Sticks)

The results from the entitlement-reducing set indicate that less than 10 percent of respondents find any of the policy options very acceptable. Only the option of raising the Age Pension qualifying age for those who had retired early on lump sum superannuation is rated acceptable by more than half of the respondents. Slightly contradictorily, the least acceptable item is abolishing lump sum superannuation, with around 70 percent finding this option unacceptable. Given the loss of currently-held entitlements involved in all policies in this group it is perhaps more surprising that a substantial minority rate most of the options as acceptable.

The second--more positive--set of options asks about the persuasive effect of a range of policies. As shown in Table 7, all options are popular, with a majority indicating that five of the six are likely or very likely to persuade them to work longer. Offering more training for older workers is the only option not considered likely to extend working life for a majority of respondents.

The item relating to mentoring or training roles for older workers is also considered strongly persuasive. Clearly, although workers respond positively to financial incentives, the option to pass on their skills and experience also rates highly. This result has significant policy implications.

Rating the Policy Carrots and the Sticks

While a direct comparison of the effectiveness of the two policy sets is not possible, some inferences can be made. The sticks are largely unacceptable to most respondents while a clear majority rate the carrot items as likely to persuade them to extend their working lives. We might speculate that policy carrots will be more effective than policy sticks in raising the retirement age of older Australian workers.

Principal components analysis of the two policy option sets finds that both the 'sticks' and the 'carrots' can be reduced to the one principal factor. The respective statistics for each set are detailed in Table 8. The reduction of the policy options to a single set of scores allows the respondents' willingness to consider working longer to be analysed against with their reaction to policy incentives and disincentives.

For this analysis, the responses relating to the likelihood of working longer (Q37) and the likelihood that they would work beyond age 65 (Q38) are dichotomised into two attributes; likely and unlikely. A t-test using these groupings is then undertaken using the stick and carrot scale scores. In each case a significant positive relationship between respondents' policy scale scores and their willingness to consider remaining in the workforce is found. That is, those respondents most likely to rate the policy sticks as acceptable and to report that the policy carrots are likely to persuade them to defer their retirement are also more likely to indicate that they are willing to remain in the workforce for longer, and/or to work past age 65. The mean score on both the carrot and stick scales is significantly higher for those who indicate a willingness stay in the workforce than for those unlikely to change their plans. A similar pattern is found on the mean scores for those willing to work past age 65.