A joint committee of the Pensioner Affairs Ministry and the National Economic Council didn’t surprise a soul when it announced that it had found numerous barriers to continuing to work past retirement age. This, even as many of those who have reached retirement age want to keep working. The main barrier the committee focused on was Israel’s foolish tax rules, which in practice make it unprofitable for the overwhelming majority of those of retirement age to remain employed.
These laws tax their National Insurance Institute retirement benefits, deprive them of government stipends and, most importantly, deduct a portion of their earnings from their NII (social security) benefits. Those earning in the neighborhood of the median gross monthly salary, around 5,000 shekels to 6,500 shekels ($1,400 to $1,900), are effectively paying a marginal tax rate of 97% on retirement benefits due to their employment. Under such circumstances, it’s no wonder that few people choose to work past retirement age.
Most of those who do fall into one of two general categories: people who earn meager salaries but who nevertheless continue to work in order to supplement their meager retirement benefits, and very high earners for whom the NII stipend is of little consequence. The figures bear this out: The median monthly salary of individuals who are past retirement age and whose salaries exceed 10,000 shekels a month is 20,000 shekels. Those who continue to work past retirement age are disproportionately in professions that are in high demand and other particularly high-paying jobs.
To encourage more people to work past retirement age, the punitive tax regime must be changed. That would help take care of the supply side. But what about the obstacles on the demand side? To what extent do employers really want to hire older workers?
A survey of 100 major employers conducted by the business data firm BDI Coface for TheMarker revealed the disturbing finding that only one in five workers hired by these companies was over 45. Older job seekers are less likely than their younger peers to be hired, despite being perceived as more stable, experienced and capable of working longer hours because they don’t have small children at home. They are also seen as loyal and generally healthy, thanks to increases in life expectancy. In short, the survey revealed a picture of blatant discrimination based on pure prejudice.
The BDI findings followed an even larger survey, carried out for Israel’s Equal Employment Opportunity Commission by the Economy Ministry’s research division, which produced even more worrying results. The hiring rate for employees aged 45 and up is just 1.3%, even though this group accounts for 38% of Israel’s labor force.
The Economy Ministry survey also asked 700 employers, who together have more than 100,000 employees, why they were reluctant to hire older workers — which for this purpose was defined as age 55 and up. Fully 27% of the respondents said it was because older workers were not good workers, when compared to younger ones. They cited lower productivity among older employees. How much lower? 22% lower.
There are two ways to look at these findings. On the one hand, it can be argued that the vast majority of employers — more than 70% — are satisfied with their older employees. Indeed, 3.5% of respondents said their older workers were more productive than their younger employees. That’s the glass half-full view, which gives hope for the future in regard to demand for older workers. On the other hand, there’s that 27% of respondents who said older workers were not as good, and which explains the low demand for their services in the present.
When the issue of individual wage flexibility is added to the picture, it looks even darker. Of the employers who complained about the low productivity of their older workers, 91.5% reported being prohibited from reducing their salaries to match their performance. From the perspective of the companies, they are being punished twice, first by being stuck with older, burned-out workers, and second by having to pay them more than they deserve. In most cases, these are probably companies where collective bargaining agreements guarantee job security and steadily rising pay scales based on seniority rather than performance.
Indeed, employers in the survey who reported higher levels of satisfaction with their older employees generally also reported that their companies have flexible wage arrangements, based on performance.
Guaranteed job security and wages that are based on seniority, without any flexibility that would allow for a reduction in pay for underperformers therefore explains a lot of the reticence to hired older workers. Despite genuine concerns that employers will take advantage of older hires and pay them less than younger workers, it’s clear that this situation also needs to be addressed if employers are to be encouraged to take on older employees. It seems that ending job security based solely on seniority is critical to this goal.
It would also seem that public debates over “ageism” do nothing to advance the cause of older workers if employers are genuinely convinced, rightly or wrongly, that a substantial portion of this worker cohort is past its prime. Apart from the question of whether the retirement age should be reduced for positions with high burnout rates, such as security guards, cleaners and drivers, for other professions a way needs to be found to boost the productivity of older workers. Continuing job training, monetary incentives, changing and adding more variety to tasks, as well as offering flexible or reduced working hours, are among the approaches the government needs to encourage if we really want to ensure that older workers are not to be considered inferior workers.
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