Labour Market and Wage Developments in Europe 2024

Retirement, disability and long-term inactivity of women as the main structural determinants of inactive older individuals

Retirement is identified as the most important determinant of the inactivity of older people in the labour market.

The willingness of current retirees to work is very low , regardless of age (Graph 3.11). On average, less than 7.7 % of retirees aged 55 to 64 are willing to work in 2022, even if they retire at a young age, and only 6 % in the group aged 65 to 68 are willing to work. Conversely, the willingness of non-retirees to work decreases only gradually with age. This suggests that the labour market projection must examine the composition and trend projection of retired and non-retired populations separately, and must also examine the transition into retirement. Furthermore, this indicates that one of the main policy challenges is to encourage people to postpone their labour market exit.

Retired people constitute the majority of inactive older people.

In 2022 there were 26.8 million retired people aged 55 to 68, of which 10.3 million were aged 55 to 64 and 16.5 million were aged 65 to 68. However, due to the low activity rates of the retired population, only 1.6 million of all the retired people were active in 2022. Among the inactive retired people aged 55 to 68, 26.8 % had limitations in performing their usual daily activities due to health problems (7.3 % had severe limitations) .

Long-term inactive women are the largest inactive group among the non-retired.

As already discussed in the previous section, three times as many older women as men are inactive, which is primarily due to personal and family reasons as well as caring responsibilities (Graph 3.6). In the EU, 67.2 % of inactive women aged between 55 and 68 (64.9 % for those aged 55 to 64) without disabilities or long-term illness either have never been on the labour market (28.8 % for those aged 55 to 68; 27.2 % for those aged 55 to 64) or have not been in employment for more than 10 consecutive years (38.4 % for those aged 55 to 68; 37.7 % for those aged 55 to 64). Only 32.1 % have been out of the labour force for less than 10 consecutive years, and only 2.3 % have been in the labour force in the last year (Graph 3.12). Long periods of inactivity are often due to caring responsibilities after the birth of children and no subsequent return to the labour market. Many older inactive women remain inactive even after reaching statutory retirement age, as they do not fulfil the requirements for formal retirement and are often dependent on their male partner’s pension as the sole household income, which also leads to higher poverty rates among older women.

Pension reforms and cohort changes are projected to bring more older people into the labour force

This subsection presents the results of a forward-looking projection of expected labour market dynamics for older workers.

Demographic change, changes in the conditions for retirement and changes in the educational and occupational structure are the main factors influencing the distribution and size of the retired and non-retired populations. The model is based on Eurostat’s baseline demographic projections, combined with Labour Force Survey microdata to account for the changing educational and occupational structure of the older population, as well as publicly available data on current and future statutory retirement age based on current legislation in each Member State, including future changes already included in the legislation (Annex 3.2).

Altogether, the model projections point to an expected increase in the number of active people aged 55 to 68 of 8.8 million by 2030 and 8.2 million by 2040.

This represents the joint effect of an increase in the effective retirement age (due to both recent pension reforms and the changing socioeconomic structure), an increase in old-age disability, a decline in the size of the long-term inactive subgroups and demographic change (Graph 3.13 bis).

The currently adopted retirement reforms are the main factor behind the expected increase in the activity of older people.

In the future, there are expected to be fewer younger retirees aged 60 to 65, primarily due to pension reforms in which the increase in the statutory retirement age is already anchored (Graph 3.13). By 2030, the non-retired population between the ages of 55 and 64 is expected to increase by 7.4 million and the non-retired population between the ages of 65 and 68 by 2.2 million (Graph 3.14). Conversely, the retired population in the same age group is expected to decline by 6.9 million people. Primarily due to differences in the expected activity rates of the retired and non-retired populations, the projected population shift in favour of non-retired people due to retirement reforms is expected to bring 6.3 million new active individuals into the labour market by 2030 and 7.6 million by 2040, with the group aged 65 to 68 representing 26 % of the expected increase.

Population ageing alone is expected to increase the number of active older people by 2030, but will have a negligible effect by 2040.

The demographic increase in the number of economically active people aged 55 to 64 of 0.8 million by 2030 is projected to be reversed by 2040, with a 1.3-million-person decline compared with 2022. By 2040 the size of the population of the group aged 55 to 68 will be similar to its 2022 level, as the increase in the group aged 65 to 68 is expected to be similar to the decrease in the group aged 55 to 64. The strongest increase in the number of older people is forecast for the population group aged over 75, although this is not expected to have a significant impact on the dynamics of the labour market due to their retirement.

The rising share of inactive people with disabilities or long-term illness is expected to exert a limited negative effect on the overall activity rate.

The trend of a growing share of inactive people with disabilities is largely a direct consequence of an increasing effective retirement age, as health problems worsen with age. The increasing use of disability schemes and other alternative schemes to exit from the labour market is also linked to the tightening of retirement schemes. However, the increase in inactivity due to disability is predicted to decrease the active population by around 0.2 million by 2030 and 0.4 million by 2040, indicating a high net positive effect of pension reforms on the labour market activity of older people (Graph 3.14).

Generational shifts are expected to reduce the long-term inactivity rate of older people and contribute an additional 1 million active people, mainly women, by 2030.

As already described in the previous subsection, most inactive non-retired women either have never been in the labour market (28.8 %) or have been inactive for more than 10 consecutive years (38.4 %) (Graph 3.12). However, there is a trend of a gradual decline in long-term inactive older people, primarily because younger women have higher activity rates in their active years, leading to higher expected activity rates in their older years (Graph 3.15). This trend is expected to continue according to the projections, primarily due to younger and more active cohorts maintaining higher activity rates as they get older.

The expected composition of the remaining inactive older population can help to better target activation policies

This section presents the projected composition of the inactive older population.

While the previous subsection presented the expected labour market developments under the assumption of continuation of past trends, this subsection aims to present the composition and characteristics of the projected remaining inactive older people.

Inactive retired people are expected to represent the biggest group of inactive older people in 2030.

The number of retired inactive older people is likely to reach 19.3 million in 2030, of whom 0.5 million are projected to be in the group aged 55 to 59, 3.6 million in the group aged 60 to 64 and 15.2 million in the group aged 65 to 68 (Table 3.2). There are expected to be 10 million inactive retired women and 9.3 million inactive retired men in 2030. Of all the inactive retired people aged 55 to 68, 5.3 million are anticipated to have limitation in activities due to health problems or disability.

Despite positive activation trends, the size of the inactive non-retired older population will remain significant, especially among people with disabilities or long-term illness and long-term inactive women.

By 2030, the number of inactive non-retired individuals aged 55 to 68 is expected to be 7.1 million (Table 3.3). Despite the ageing of more active younger cohorts, there would still be 2.7 million women (38 % of the total) inactive for more than a decade. Some 2.5 million (35 % of the total) would be people with disabilities or long-term illness.

Improved targeting and more tailored policies will be essential to activate older people.

Specific policies will need to be devised to reach each of these subgroups, in particular retired people, long-term inactive women and people with disabilities or long-term illness. Furthermore, activation policies aimed at older people, particularly those with disabilities or severe illness, should consider in which cases further labour market activity is not possible or desired and ensure that gradual market exit is supported. The next section discusses in more depth activation policies targeting older people.