Asia Economics Blog
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Co-authors: Norma Mansor; Halimah Awang
Malaysia is experiencing a demographic transition characterized by a steady increase in the number and proportion of elderly persons in the population. The share of population over age 65 is projected to rise from 7.5 percent in 2020 to 14.5 percent in 2040. Yet even as health and longevity have improved greatly, employment rates among older workers have declined.
Extension of the working life would benefit older persons by augmenting income security and providing a sense of fulfillment. It would benefit society at large by mitigating worker shortages and reducing the burden of elder care. Many countries have raised or are considering raising the statutory retirement age. However, extending the retirement age is a viable policy option only insofar as improved health of older persons allows them to be productive without risk to their well-being. We estimate the potential for longer working lives by treating a drop in mortality among older persons as a proxy for improved health and employment capacity.
Mortality and Employment Changes by Gender, 2000-2019
Mortality rates for Malaysians in their 60s fell sharply between 2000 and 2019, as shown in Figure 1. For 65-year-old males, the death rate per thousand dropped from 29.5 to 23.4 and for females from 21.6 to 15.1.
Figure 1. Mortality rate vs unemployment rate by gender, 2000 & 2019
Over the same period, however, employment rates among those in their 60s declined. Patterns of employment differ starkly between men and women in Malaysia. For men of age 50, employment rates were above 90 percent in both 2000 and 2019. As men aged through their mid 50s, the employment rate declined at a pace that was roughly stable between 2000 and 2019. Then as men moved into their 60s, their employment rate continued to drop but much more steeply in 2019 than in 2000 as retirement took place at younger ages. By age 65, 43.0 percent of men were employed in 2000 but only 16.5% were still working in 2019.
For females, employment rates moved in opposite directions over time for those under 60 and over 60. In 2000, only 40.9 percent of 50-year-old females were employed with the rate rising to 54.4 percent by 2019. Yet while middle-aged women were increasingly engaged in paid work, older women were retiring at earlier ages. By age 66, virtually no women were still working in 2019 whereas in 2000, 11.5 percent of women this age were employed.
Estimating Health Capacity to Work
Given the increase in their longevity, Malaysians would seem to have the capacity to extend their working lives but have opted instead to retire earlier. We estimate how much work effort is being foregone by implementing the method of Milligan and Wise (2015) to infer gains in work capacity based on increases in life expectancy. Specifically, we posit that Malaysians of a given age in 2019 would be able to work at the same rate as those in a younger cohort in 2000 with an equivalent mortality rate (interpolating as needed to achieve a match). For example, the mortality rate for 65-year-old males in 2019 was 23.4 per thousand with an employment rate of 16.5 percent whereas in 2000, men of age 62 had the same mortality rate of 23.4 per thousand with an employment rate of 53.0 percent. Employment capacity for 65-year-old males in 2019 was thus 36.5 percentage points higher than actual employment, with employment foregone thus averaging 0.365 years per person.
Figure 2. Employment capacity in 2019 based on the employment-mortality relationship in 2000
Figure 2 presents employment capacity in 2019 for males aged 57-69 and females aged 60-69 based on the employment-mortality relationship observed in 2000. For males below age 57 and females below age 60, increases in mortality rates or employment rates over time impede the calculation. The cumulative loss in work time for men by age 69 is 3.4 years and for women, 1.1 years.
Our methodology shows much larger potential employment gains for males than for females based on previously much higher employment rates for males in their 50s to benchmark against. Potential gains for females appear far lower, yet the great gains in employment over time from a low base for women in their 50s may portend changing dynamics for female employment going forward that our methodology misses. Female movement into the formal labor force among younger women has been spurred by rising educational attainment and a shift in economic activity from agriculture to manufacturing and services. These gains imply promise to carry over to the next generation of female seniors.
Our results suggest the presence of significant unused work capacity among seniors in Malaysia insofar as their employment rates have declined while their health capacity has improved judging by increases in longevity. The evidence of foregone work effort raises the question as to whether Malaysia’s labor market provides suitable opportunities for older people to find gainful employment. Older workers may prefer more flexible working hours or aspire to make more meaningful contributions through their work. A key issue is whether workplace discrimination on the basis of age impedes employment to the neglect of the experience and acquired skills older people bring to the job. To unleash the productive potential of Malaysia's seniors, policy should seek to tackle workplace discrimination and find ways to incentivize employers to provide work arrangements that better accommodate seniors who wish to continue working beyond the minimum retirement age of 60.
Co-author Norma Mansor is Director, Social Wellbeing Research Centre, Universiti Malaya, Kuala Lumpur, Malaysa.
Co-author Halimah Awang is Principal Research Fellow, Social Wellbeing Research Centre, Universiti Malaya, Kuala Lumpur, Malaysia.
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