Chapter 14 Growing diversity? Typical transitions towards retirement from active workforce participation

Bibliography

Ending one's professional life is among the most significant transitions that will occur in an individual's lifetime. After 10, 20, 30, 40 years or more spent doing paid work, devoting much of their energy to their professional activity and defining themselves, to a large extent, in relation to their work, individuals in this situation now face a totally different social status and role.

Quite often, retirement from the job market occurs at the same time as other changes in a person's life such as children leaving the family home for good, the arrival of grandchildren, providing support to elderly parents and the loss of one's parents. Men and women sometimes experience such transitions quite differently, especially those related to the job market, insofar as many women may not have held paid employment on an ongoing basis for as long as men normally would. That said, a majority of the new generations of women who will attain retirement age in the coming years will have been part of the labour force. In fact, 70% or more of Quebec women born between 1946 and 1951, during the initial phase of the baby-boom, will have been employed in the 40 to 44 and 50 to 54 age groups (Gauthier 2003). The experience of women respecting retirement, though not identical to that of men, will nonetheless show similar features.

Widely available statistics shed light on some cross-sectional aspects of retirement, though the process of retirement from the workforce itself, despite its significance, is largely unknown. For example, we know that retirement age has dropped dramatically in recent decades. Average retirement age in Canada reached a low point in 1998 (60.9 years). It has risen slightly since then (61.8 years in 2004), though it remains to be determined whether this is a result of economic conditions (termination of major public retirement programs and an economic upswing) or the sign of a long-term trend. The Labour Force Survey (LFS) also reveals certain features that foster activity among older individuals (such as self-employment).

Interesting as they may be, these cross-sectional statistics do not explain significant aspects of the retirement process. Let us take another look, for instance, at our prior observations. Where there is an increase in the workforce participating rate of the 55 to 59 and 60 to 64 age groups on a year-to-year basis, as is currently the case in Canada, it is unclear what motivates individuals to extend their market participation. Indeed, we are unable to determine even whether these are individuals who choose to stay in the workforce or retirees who have decided to return to work. Nor do we know how long self-employed individuals have enjoyed their current status or if they are former salaried employees. Finally, are university graduates, whose retirement age is rather low, more likely to take on a new job after retirement? As mentioned by L. O. Stone and H. Nouroz (2005) with reference to statistics from the Netherlands cited by the OECD (1995), cross-sectional data on the numerical importance of certain classes of individuals (employed, unemployed, handicapped, retired, social assistant recipients, etc.) provide no information on the preretirement process or the duration of the various stages experienced by individuals in transition to retirement. These few examples underscore the interest in longitudinal studies of the transition towards retirement.

Further, in recent years analysts and planners have been considering how to increase the retirement age. In fact, many retirement plan reforms have been conducted in industrialized countries for this very purpose. In Canada, such changes were made to Old Age Security in 1989 and to the Québec Pension Plan/Canada Pension Plan in 1998, though the aim was to increase plan financial viability rather than delay retirement. Certain results achieved have indeed caught the attention of governments, whose retirement programs have led to a drop in the retirement age in Canada, while experts in the field were expecting the opposite (OECD 1998). On an industry basis, retirement age among workers in the public administration sub-sector is among the lowest (Statistics Canada 2003). However, the past few years have seen growing support for continued workforce participation among older workers as a remedy to a slowdown in the growth rate of the population of individuals who will be old enough to enter the workforce over the coming decades, and even to a forecast negative growth rate among those individuals in provinces such as Quebec (Légaré 2004). However, prior to considering particular measures to increase the retirement age we must get a better understanding of the process of transition towards retirement.

There is at least one more compelling reason to study the process of transition towards retirement, namely, its impact on individual income (Crespo 2005). It has been determined, for example, that replacement income levels among Quebecers who retired between 1991 and 2000 are lower than the desirable standard of 70%. That is not all, among those with a preretirement income between $29,000 and $49,000, the level of replacement income was less than 60% of preretirement income in 45% of all cases (Langis 2004:246-247). Which groups will be most affected? Will the new generations currently contemplating retirement be willing to reduce their level of consumption so sharply? If not, they will be more inclined to rejoin the workforce.

There is frequent mention of potential social problems stemming from an increase in postretirement life expectancy due to a lowering of retirement age along with an increase in life expectancy in general. We often forget, however, that the length of the postretirement period creates risks for the individual: the longer the life expectancy upon leaving the workforce, the greater the need for financial resources. According to Georges Langis (2004:276-277), the length of the postretirement period among Quebec men has risen from 16 to 20 years between the generations born around 1920 and those born around 1940. These figures are based on averages: for many individuals the length of the postretirement period will be much greater. For all the above reasons, we must no longer rely exclusively on static data. We must evolve towards the use of dynamic information.

The chapters contained in this section analyse the preretirement process based on longitudinal data from the Survey of Labour and Income Dynamics (SLID). The SLID allows us to observe the behaviour and characteristics of an individual over six consecutive years.

The first two chapters and Appendix A form one integrated unit that arises from a single, highly innovative project initiated by Leroy O. Stone of Statistics Canada. In view of the aging of the workforce over the next 30 years, policymakers and the public are contemplating various means of extending the working life of individuals. This course of action is being considered for several reasons: it meets the needs of the worker who has no desire to retire, it provides assurance to employers that the most experienced workers will transfer their knowledge gradually and allows them to better manage the job supply, and it maintains or improves economic conditions and the potential to redistribute collective wealth.

For most people, transition to retirement means a passage from a working state to another, that of a person with no job. This simple scenario is only one of several possible paths. Indeed, the paths are many: they were described thanks to an abundance of information gathered through the SLID (samplings of respondents are surveyed 12 times in 6 years). Stone and his team identified individuals who were in the workforce in Canada during the first quarter of 1996 and who initiated a transition towards retirement during 1996 to 1997. Insofar as the survey contains no questions on plans or the intention to retire, the authors rely on a series of events as indicators of a transition towards retirement, for example, receiving retirement benefits or the onset of a long period of unemployment. The abundance of details on the activities and periods considered makes this study a highly original initiative.

The paths followed by these individuals towards retirement, over the four following years, are analysed on the basis of five properties of trajectories of transition to retirement (of the eight that have been defined theoretically), such as the length of the transition, events that increase vulnerability to reductions of retirement income, instability, flexibility and the propensity to rejoin the workforce. The authors set out the results related to such properties for the quarters of the 1998 to 2001 period.

Based upon this general exposé (found in Appendix A), the first chapter of the section, by H. Nouroz and L.O. Stone, adds to our limited knowledge of the characteristics of the paths taken by self-employed workers between work and retirement. According to LFS data, self-employed workers tend to be older than other workers when they leave the workforce. In 2004, the median retirement age of Canadian self-employed workers was approximately seven years greater than that of public-sector salaried workers and three years above that of private-sector salaried workers. The gap has increased and is reason enough to pay particular attention to the transition path between work and retirement followed by self-employed workers.

Specifically, longitudinal analysis may be of use in predicting changes in the various paths to retirement with the massive arrival of the baby-boomers. Thus, the transitional path followed by self-employed workers is longer than that taken by salaried workers, with the exception of university graduates. One may wonder whether the paths of salaried university graduates are caused by the fact that they are in-and-out out of the workforce.

The study also shows that the propensity to rejoin the workforce, as expressed by the number of returns to work and the length of job retention, is greater among self-employed workers. Financial insecurity after retirement may be an important explanatory factor for re-entering the job market.

It is stated, furthermore, that self-employed workers enjoy greater flexibility than salaried workers in terms of reducing the number of hours worked, especially among university graduates. When faced with a potential change in work activity leading to lower living-standard expectations upon retirement (for example, bankruptcy for the self-employed worker or job loss for the salaried worker), the self-employed person experiences a lower level of vulnerability.

A recent OECD (2005) study on measures for improving the employability of older workers suggests that Canada should implement a support program for the self-employed.

The section's second chapter, by L. O. Stone and H. Nouroz, deals with the differences between public- and private-sector employees from the standpoint of the work-to-retirement transition. Public-sector employees retired, on average, at age 59.1 in 2004, 2.5 years earlier than their private-sector counterparts. Thus, the waves of the baby-boom will affect government organizations much earlier than they will private companies. Retirement is more highly regulated and gradual retirement is more stringently controlled in public organizations, making the sector a fertile ground for increasing our knowledge of the transition between work and retirement.

When considering the link between health and work, the effect of poor health on retirement or that of inferior working conditions on health come to mind. In the section's third chapter, He et al. instead emphasizes the link between professional instability and health.

Yaohua H. He, A. Colantonio and Victor W. Marshall also draw on the longitudinal nature of the Survey of Labour and Income Dynamics in their study of the link between work and health. More to the point, they seek to determine the extent to which various types of professional instability cause changes in a worker's state of health. They define professional instability as the number of work-free periods, weeks of unemployment or weeks spent outside the workforce. Their assumption is that professional instability is linked to, and, in fact, plays a causal role in, the future deterioration of a worker's state of health. Though it is impossible to claim that professional instability caused the health problems disclosed by respondents, it is nonetheless significantly related to serious health problems.

In conclusion, what will be the future direction of research on the link between work and retirement? In the first instance, though the studies are complex, the authors have proved skilful in using innovative concepts such as the definition of the transition towards retirement and the various properties of the path leading to retirement. They offer results demonstrating important aspects of the transition. In so doing they open the door on a field of research that has largely been untouched to date and will certainly elicit keen interest in the future.

Top of Page

Bibliography

Crespo, Stéphane. 2005. Une étude exhaustive des formes de transition vers la retraite. Under the direction of Frédéric Lesemann, Groupe de recherche sur les transformations du travail, des âges et des politiques sociales. Montréal. INRS.

Gauthier, Hervé. 2003. « Les personnes âgées de demain : que peut nous dire l'analyse générationnelle? » Pp. 13 to 28 dans Santé, Société et Solidarité.

Langis, George. 2004. « Les sources de revenu. » Pp. 227 to 282 in Vie des générations et personnes âgées, Volume 1 : Conditions de vie. H. Gauthier, S. Jean, Y. Nobert and M. Rochon (co-authors). Quebec. Institut de la statistique du Québec.

Légaré, Jacques. 2004. « Les fondements démographiques de la main-d'ouvre québécoise de demain. » Gestion. Revue internationale de gestion. 29, 3: 13 to 19.

OECD. 2005. Ageing and Employment Policies: Canada. Paris.

OECD. 1998. Policy Brief : Maintaining Prosperity in an Ageing Society. Paris.

OECD. 1995. "The labour market and older workers." Social Policies Studies. 16: 1 to 33.

Statistics Canada. 2003. "Fact sheet on retirement." Perspectives on Labour and Income. 4, 9, September: 12 to 18.

Stone, Leroy and Hasheem Nouroz. 2005. Policy Concern with the Work-to-Retirement Transition among OECD Countries. Unpublished paper. Ottawa. Statistics Canada.