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­­­Trends in employment and wages of employees of pre-retirement and retirement age

Priority areas of development: sociology
2019

Goal of this research is, first, a comprehensive analysis of position of people of pre-retirement and retirement age on the Russian labor market, and, second, a description of challenges for the Russian economy in light of the upcoming increase in the share of older age groups in population and labor force.

Methodology of this study combined descriptive and econometric data analysis methods, such as, statistical tables, construction of counterfactual distributions, employment restructuring index, Duncan dissimilation index, Gini index and decile dispersion ratio, regression discontinuity design, ordinary least squares, Fields decomposition.

Empirical base of this research is largely provided by the microdata of several regular surveys conducted by the Federal State Statistics Service (Rosstat), namely, Labour Force Survey for 2000-2017, Survey of Occupational Wages for 2015, Survey of Income and Participation in Social Programs for 2016, Survey of Population Participation in the Life-long Learning. The Russia Longitudinal Monitoring Survey – Higher School of Economics (RLMS-HSE) covering the period of 1998-2015 should also be mentioned. The report also used the Federal State Statistics Service’s population forecasts and data from international surveys or international databases (PIAAC, International European Social Survey).

Results of the research demonstrate that people over 50 years old constitute a large proportion of the working age population. This share will grow up further in the next 10-15 years. According to the official demographic forecast, it will increase from 42.6% in 2017 to 45.4% by 2028. The economically active population over 50 years old increased by 29% (or by 4,500 thousand people) between 2005 and 2015, while the whole size of the economically active population increased only by about 3.5%. According to various scenarios, the size of the economically active population over 50 years old will decrease by 330 - 575 thousand people by 2028. At the same time, the net positive effect of the pension reform on economic activity of men aged 60-64 and women aged 55-59 will be about 1 million people.

The period between 2005 and 2015 was marked by an increase in the share of elderly people in the number of employed as opposed to the share of the young and middle-aged workers. This growth was in all sectors except agriculture and manufacturing where the reduction of the share of elderly people was 3 and 6 percentage points respectively. The main sources of jobs for the elderly were business services, trade, healthcare, construction and other services.

There was an increase in the share of highly qualified specialists, as well as service and trade workers between 2005 and 2017. However, there is no reason to believe that older workers were massively crowded out into less qualified jobs. It has been estimated that 3.4 out of the 4.8 million increase in the number of employed over 50 years old had white-collar professions including 2.3 million managers and specialists.

In Russia, mobility of the labour force aged 50-72 years old is quite low with a weak reaction to macroeconomic shocks. About 10% of all older workers change their jobs during a year. Obsolete knowledge and skills and health problems are the key factors that determine the low rate of labour mobility in this age group. Mobility in these ages is primarily linked to the seeking to have more comfortable working schedule.

In the recent decades, there was an increase in the proportion of workers under perpetual employment contracts in all age groups. For example, less than 10% of employees aged 65-72 are currently employed under the fixed-term contract or under the oral agreement. This result refutes the myths about the displacement of older persons to precarious employment.

By 2015, the informal sector of the Russian labour market employed more than 3 million people over 50 years old. Informality in the labour market is most prevalent among older workers (over 65 years old), but at the same time there is a clear tendency towards an increase in the number of informal workers aged 50-59 years, which is taking place together with a rising convergence of the educational, occupational and industrial structure of informal workers of different ages. Among workers aged 60 and older, the main risks of informal employment move from the lowest educational levels to secondary or vocational education which are associated with the greatest risks of informality in prime working ages. The reduction in household production of goods for sale among informal older workers goes on simultaneously with the expansion of employment in trade, transport and construction - traditional industries of informality of prime working ages. The similarity of the employment structure of informal workers of different ages, combined with the ongoing aging of more numerous cohorts and the increasing deformalization of employment of 50-59 year olds, can lead to further expansion of the informal sector.

There will be noticeable changes of the educational structure within the group of older workers as more educated birth cohorts will be entering the respective age. The number of people with higher education in this age group increased by 2,870 thousand people between 2005 and 2017 and amounted to 23.3% of the total population aged 50 years and over. Along with this, age group 50+ experienced an increase in proportion of people with vocational education, which reached 72% in 2017. However, once acquired knowledge may become obsolete and depreciate. This problem is especially relevant for older workers. A way to preserve the quality of human capital may be continuing professional training. However, as the results of the study show, the scale of retraining of the workforce in Russia is extremely low in accordance with international standards, this is true not only for older ages. Levels of participation in continuing professional training are significantly higher for highly qualified specialists.

The analysis of the age-wage profile and wage differentiation within and between age groups shows that earnings peak early in the working life and then decline monotonically. By their pre-retirement age, Russian workers find themselves on the declining wage trend. The findings suggest that wage inequality to be higher among older age workers reflecting stronger selection into employment with age. The age profile of the hours worked during the year as well as age-wage profile has the same shape of an inverted U. The investigation of the wage formation shows that there is no discrimination against workers in the pre-retirement and retirement age in term of targeted use of the variable component of salary. Given the forecast of changes in the age composition of employment by 2025—2030 and assuming the stability of the age-wage profile, we can expect non-trivial reallocation of the aggregate wage fund to the benefit of the middle age group of workers while the old age group is likely be unaffected.

A cross-country analysis of the specific aspects of labor force participation of workers in the pre-retirement and retirement age illustrates that policies aimed to improve the situation of this group in the labor market may include not only a set of standard measures (pension reforms, changes in labor laws), but also provision of various subsidies to cover the wages of older workers, reducing rates of contributions to social funds, special taxes for employers dismissing older workers. However, the effectiveness of these policies will be reduced if there is no participation of older workers in the retraining and continuing education programs.

Level of implementation, recommendations on implementation or outcomes of the implementation of the results. Results included in this report develop and expand researchers’ understanding of the specific aspects of employment, unemployment and wages of workers in the pre-retirement and retirement age. Our findings describe the current state of the Russian labour market and the main directions of its change and, thus, can be used for developing labour market policy recommendations.