Labour Market and Wage Developments in Europe 2024

Well-designed pension systems can promote the labour market participation of older people

Reforms of the pension system and the provision of disability and unemployment benefit schemes can provide enhanced incentives for the employment of older workers.

Such reforms can include increasing the statutory retirement age or the contributory period for a full pension; discouraging early retirement; fair adjustments and incentives for deferred retirement; and greater flexibility for combining work and retirement. These reforms should take into account individual characteristics, such as gender, disability and health, as well as the degree of job strain in certain occupations. Disability and unemployment benefits, which can provide an alternative exit pathway from the labour market before retirement age, can reduce incentives to remain active. Tightening the eligibility criteria without jeopardising the main goals of the schemes could to a certain extent stimulate employment among older people. However, such reforms should respect these schemes’ primary aims of income maintenance and poverty prevention.

Several Member States have increased the labour market participation of older people by raising the statutory retirement age, individualising pension entitlements and phasing out special pensions, in addition to restricting early retirement.

Since 2020, five Member States (Denmark, France, Hungary, Slovakia and Sweden) have raised their statutory retirement ages. As a result, the retirement age currently stands at around 65 in most Member States . In addition, reforms to limit early retirement were adopted in, among others, Czechia, Estonia, Greece, France, Croatia, Italy and Austria. They involved, for instance, lengthening the period of insurance granting the right to retirement and moving the age of eligibility for early retirement closer to the statutory retirement age . Some countries switched from a defined-benefit to a defined-contribution statutory pension scheme (e.g. Italy and Sweden).

More recent pension reforms have shifted the focus towards positive incentives to promote longer working lives.

Longer working lives can contribute to intergenerational learning, as both older and younger workers can benefit from each other’s knowledge and experience , as well as to improved pension adequacy and thus to quality of life. Indeed, according to the simulations of the 2024 Pension Adequacy Report , adequate pensions in the future will increasingly depend on longer careers. Member States have introduced measures that allow people who continue working beyond the retirement age to accrue additional pension benefits ; phased retirement systems in Germany, Luxembourg, Austria and Sweden allow workers to gradually reduce their work commitments without affecting their final salaries, while people can defer retirement to a higher age in Estonia, Hungary, Romania, Finland and Sweden . To tackle labour shortages, a few Member States, such as Luxembourg, have relaxed rules restricting paid employment for early retirees.

Flexible work arrangements, accessible workplaces and effective collective bargaining can contribute to extending working lives

Flexible work arrangements, including part-time work, can contribute to extending working lives, especially for older people with care responsibilities.

Research finds that older workers are as capable of teleworking as prime-age people . Removing barriers to part-time work – such as the administrative, bargaining and implementation costs of reducing working hours – can encourage older adults to remain in the labour force for longer and, in turn, lead to a slower decrease in the total number of hours worked by older workers than will occur if they have more rigid constraints on hours .

Accessible and inclusive workplaces and return-to-work policies can help older people, especially those with health problems or disabilities, to remain in or return to the labour force.

Member States may enact anti-discrimination and occupational health and safety legislation and policies that go beyond the minimum requirements set at the EU level. Guidance and information can be provided to employers on legal requirements and available support for implementing reasonable accommodations at work and on improving the accessibility and inclusiveness of workplaces . Risk assessments can inform the design of accommodations for continued employment or measures to support the return to work after illness (such as vocational rehabilitation schemes). Member States put in place various measures such as quotas, subsidies and information for businesses to increase the employment of people with disabilities . More broadly, some Member States have adopted preventive measures to decrease the likelihood of health-related issues, such as the obligatory psychosocial risk assessment of working practices in Denmark and the provision of reskilling and alternative job opportunities for those that work in arduous occupations in Belgium and France .

Social dialogue and collective bargaining play a crucial role in ensuring better and more adaptable working conditions and in extending working lives.

Workers in sectors with effective collective agreements often benefit from better working conditions that are adaptable to their needs, strong workplace safety and reduced physical and psychosocial risks; in turn, they exhibit lower absenteeism rates and express a preference for later retirement . Moreover, in some Member States such as Bulgaria and Romania, collective agreements in certain sectors contain clauses protecting people close to retirement from dismissal. Collective agreements also provide for seniority-based additional annual leave in Bulgaria, Estonia, Luxembourg, the Netherlands and Austria. This additional leave supports older workers in achieving a better work–life balance, thus likely encouraging them to remain in employment.

Appropriately tailored education and training promote the employment of older workers

Education and training can promote the re-employment of older people very effectively but must reflect their needs.

Training measures have been shown to outperform alternative policies (including wage subsidies) in promoting the employment of older people, especially when they also incorporate search assistance and counselling . However, training should be inclusive, accessible and tailored to the needs of older learners, who frequently mention scheduling difficulties and course availability as reasons for their non-participation. This can be achieved by short, modular and flexible courses and by in-house one-to-one training or training with the same age cohort .

Digital skills can not only help older people perform job tasks but also improve their access to the labour market.

Given the limited digital skills of older adults and the increasing importance of digital tools (especially since the COVID-19 pandemic), some Member States (Cyprus, Slovenia and Slovakia) have enacted policies to enhance the digital skills of older people, supported at the EU level by the Digital Decade policy programme and with funding from the Recovery and Resilience Facility .

Direct subsidies, individual learning accounts and paid leave can promote training for older people.

Direct subsidies such as financial grants or vouchers have been found to be more effective than tax incentives to support training participation and facilitate the targeting of specific groups of employees . Furthermore, individual learning accounts enable all individuals (employed and not employed) to accumulate funds for labour-market-relevant training. Evidence from the Netherlands and Austria suggests that individual learning accounts can boost training participation and learning intentions among older adults . Another way to lower the cost of training for older employees involves paid training leave . In Belgium, for instance, private-sector employees can be absent from work for an approved training course, while retaining their salaries. Their employer can then reclaim part of the salary paid from the regional government .

Wage subsidies and job search requirements can support the demand for, and supply of, older workers

On the demand side, wage subsidies need to be well targeted to be effective.

Subsidies can help firms to align the costs of employing older workers with their possibly reduced productivity. However, evaluations of schemes used in the 2000s in Belgium, Germany and Finland found that wage subsidies had only limited effectiveness in promoting the hiring of older people and carried high deadweight costs . These results hint at important demand-side barriers to the hiring of older workers and emphasise the need to ensure that wage subsidies are well targeted at disadvantaged older people and are used to prevent their long-term unemployment . Although evidence on the effectiveness of wage subsidies targeted at older people is limited, studies focused on broader age groups have found that well-targeted subsidies can be effective . Moreover, comprehensive support packages that combine tailored advice and training with employment subsidies facilitate job transitions more effectively than more isolated interventions .

On the supply side, job search requirements can incentivise the employment of older workers.

Since 2009, exemptions for older people from job search requirements have been pared down in Belgium, Germany and France to restrict exit from the labour market into unemployment benefit schemes. Evidence suggests that such requirements, alongside increased job search monitoring, can promote the employment of older workers, partly by lowering their reservation wages. However, they can also have the unintended effect of diverting older workers to invalidity and sickness schemes where insufficient controls are in place . Moreover, measures to tackle demand-side constraints in hiring can increase the effectiveness of job search requirements, along with training policies to improve the skills of long-term unemployed older adults .

Anti-discrimination measures, skills-based hiring and long-term policies that improve the employability of younger cohorts can enhance older people’s labour force participation

Legislation against age discrimination is in place in all Member States, but additional measures could contribute to effectively tackling this challenge.

The enforcement of strong anti-discrimination policies can end more overt forms of discrimination such as age limits in job vacancy announcements. In the Netherlands, job vacancy notices are screened for discriminatory language as part of the ‘vacancies for all ages’ initiative. Some countries, such as Denmark and Poland, have abolished mandatory retirement ages as a valid reason to terminate labour contracts . Investments in lifelong learning can also contribute to fighting age discrimination .

Older people can benefit from the recognition of skills gained on the job and from skills-based hiring.

Many older adults, whose formal education qualifications may be out of date, have accumulated valuable skills through their work experience and on-the-job training. Recognising such skills and increasing their visibility could enhance the labour force participation of older people and could also counteract employer bias. For example, Belgium and Estonia have programmes in which training providers can assess the competence of an applicant by validating their previous relevant experience . Older people would also benefit from skills-based hiring, focused on specific skills and competences instead of the formal education credentials that traditional hiring practices screen for . For instance, the French Public Employment Service selects candidates for employer interviews based on aptitude tests and without regard to age or previously held employment , as encouraged by the Council recommendation on the validation of non-formal and informal learning .

Long-term policies that improve the employability and labour market attachment of younger cohorts can help to prevent their future inactivity as older people.

This could include providing social investment measures to improve health and skills throughout the life course, along with adequate social protection and access to affordable and quality care facilities. In addition, policies should promote the full-time labour force participation of women throughout their life cycle, including with tax incentives, as women who are economically active earlier in their lives tend to show higher labour force participation and lower poverty rates in old age.