It turns out young people end up taking the hit even when people over the age of 55 just take early retirement.
Well, that’s according to economist Catherine Mann. She has just issued a stern warning that people who resigned early during the pandemic may have created “societal burdens” on the younger generations.
As a member of the Bank of England monetary policy committee, which sets the Bank’s interest rates (something which in turn affects the price of borrowing and inflation), her warning is worth paying attention to.
Writing for the Resolution Foundation think tank on Monday, she pointed out that there had been a decrease in workers aged between 50 and 66 – the latter is current age when you can get your state pension – compared to before the pandemic.
Mann describes this group as “still prime-age workers” and points out that on average, they’re already advantaged over younger groups. She explained: “Older cohorts have a more favourable trajectory for their life-time earnings than those of younger cohorts.”
Younger people, on the other hand, struggle to increase their earnings at the same rate especially if “they start their careers during a period of sluggish growth”. So, er, like now?
And, fewer older workers puts more pressure on the younger ones, resulting in:
A rising tax burden
Mann said: “For those who have left due to sickness, there will presumably be increased pressure on health expenditure.
“If it is presumed that younger workers will pay through higher taxes, then intergenerational tensions could worsen.”
She said there could be “long-term income scars facing younger workers and the rising post-retirement demands of older workers”.
Lower productivity
Mann suggested that older workers, even if they decide to come out of retirement, are less likely to learn new skills.
She warned: “Decisions to retire can be hard to reverse: it is increasingly difficult to re-enter the labour market as an older worker, even more so if skills atrophy.”
Job destruction
She also touched on that fear which has been revived through AI too – that technology will soon take over our jobs.
She explained: “The fall in labour force participation will have wider consequences. If it persists it will result either in firms investing in labour-saving technology, or we will see the continuation of the sluggish productivity growth of the 2010s.”
However, she did add: “To date there is little evidence that firms are undertaking this investment.” (Phew!)
Exacerbating the current economic woes
She also pointed out that the UK already has a shortage of workers because younger people are not entering the workforce, while older people have retired early.
And, there’s no running from the fact that the UK is one of the few main economies to have a labour market smaller than it was before the pandemic.
The Office for National Statistics points out that the number of economically inactive people since February 2020 has soared by half a million.
Mann’s comments also come after the Bank governor Andrew Bailey said that workers taking early retirement would help fuel inflation by reducing labour supply – and fewer workers means employers pay remaining workers more.