Never in history have people lived as long as they live today, mostly in good health. At the same time, people have fewer children than ever before and birth rates continue to fall or remain at low levels. As a result, region after region and country after country is facing an unprecedented shift in the age structure of its population. The timing and extent of ageing differs across countries, but the development is widespread.

OECD countries are ageing rapidly. If no action is taken to improve the labour market situation of older workers, this could put a brake on further improvements in living standards and lead to unsustainable increases in social expenditures. Across the OECD, the median age of the population is projected to increase from 40 years today to 45 years in the mid-2050s, and the ratio of older people aged 65 and over to people of working age (15-64) is projected to rise from 1 in 4 in 2018 to 2 in 5 in 2050.

Populations in OECD countries are set to become significantly older over the coming decades. However, with the right polices in place, these challenges can be turned into opportunities for more inclusive growth and higher well-being by extending working lives and making better use of older people’s knowledge and skills.

Rapid population ageing is a major challenge to future increases in living standards and the sustainability of public finances. Longer working lives would help address this challenge but must be combined with efforts to strengthen work attachment at all ages.

Over past decades, much of the policy focus in OECD countries to deliver longer working lives has been on increasing incentives to continue working at an older age. Countries have been reforming old-age pensions and restricting the use of early retirement schemes and other passive benefits. Some reforms have also sought to make it easier to combine income from work and the pension as well as reduce financial penalties to working longer. In many countries, the statutory age of retirement has been raised to improve the financial sustainability of the pension system. However, higher retirement ages must be accompanied by greater employment opportunities at an older age to avoid hardship for older workers. Good‑practice measures towards a more inclusive labour market for older workers should facilitate phased retirement, with better possibilities for combining work and retirement while preventing welfare benefits being used as alternative pathways to early retirement.

It is not sufficient to improve the incentives for older people to continue working longer; they must also have better opportunities to do so. Thus, a key issue for more inclusive ageing and employment policies is to encourage employers to hire and retain older workers in better jobs. This in turn depends on how well firms manage age diversity and ensure the most productive use of all workers irrespective of their age and according to their capacities. Governments’ policies can influence the employment policies of employers with respect to hiring and retention of older workers by striking the right balance between employment flexibility and stability via labour market regulations.

Many barriers deter people from working longer. Some are related to employers’ willingness to retain and hire older workers (Chapter 4) but others affect older workers directly, which make it difficult for them to either stay in their existing job or find a new one. These include poor working conditions, limited training possibilities and interrupted careers earlier on in workers’ lives. The best practice for strengthening employability and job opportunities at an older age is to provide equal opportunities for workers to continuously upgrade their skills, recognise skills acquired throughout working lives and improve working conditions at all ages. This prevention strategy should be the motto of a work culture promoting longer and better working lives.