Key insight: Preparing for an ageing workforce

As birth rates fall and life expectancy rises across the globe, population ageing is predicted to accelerate for all global regions of countries featured within the Index (as illustrated by Fig. 4). This is occurring at a faster rate in high-income economies, although emerging markets such as Mainland China and Russia are expected to follow a similar trend given the long-term decline in fertility rates.15 As a consequence, many countries’ shrinking labour forces will struggle to generate sufficient tax revenues to sustain the current levels of social security payments for the growing number of retirees in the future. Furthermore, within the labour market, older participants will likely struggle to keep up with the pace of structural and technological change, and to maintain the skills they require to remain employed.16

As fewer individuals retire early, policymakers will need to focus on improving the employability of workers at an older age by facilitating the training necessary to update their skills. In addition, the International Monetary Fund (IMF) suggests that greater international migration would help to boost labour supply and address the ageing workforce in some countries.17 Others argue that migrants can only play a temporary role, however, given they too will inevitably age.18

Certainly, finding other ways to boost productivity will help to offset the impact of an ageing population. Interestingly, one study found that population ageing has been associated with more growth, as a more rapid uptake in technology has occurred in countries undergoing large demographic changes.19

Key insight: What causes such a marked difference in working hours?

The average hours worked by employees each year varies significantly across the countries featured within the Index. While there are several explaining factors, there is some relationship with national income in that people in low- and middle-income countries, such as India and Mexico, tend to work longer hours than people in high-income countries. This has significant welfare implications, as people in lower-income countries not only consume less compared with  those in high-income countries, they also have less time for leisure.20 However, there are exceptions to this rule, as some countries – Singapore, for example – average a relatively high number of hours worked, despite being at the top end of the income distribution.

Differences in hours worked may also be partly explained by differences in the availability of childcare services and in variations in tax rules. In Germany, for example, the average hours worked by married women have been found to be lower than for unmarried women and men. This may be because, while countries such as the United Kingdom, Sweden and Austria treat income tax on an individual basis, Germany taxes married couples on a joint basis. In other words, individuals are taxed as if their income is half of the total household income. In this case, secondary income earners face a higher marginal tax rate than under a system of separate taxation, disincentivising the secondary earner from increasing their hours.21

Tax rules that discourage individuals from increasing their hours are likely to be hindering female labour supply around the world. This is particularly important given the ageing populations and shrinking workforces in many countries. To facilitate higher labour supply, policymakers need to improve incentives to increase hours, particularly for their female populations.

Key insight: Gender equality in the workplace

Improving gender equality in the workplace is important not only for achieving social objectives, but for economic growth. We can examine the extent of gender inequality in the workplace across countries using the World Economic Forum’s Economic Participation and Opportunity Sub-index (see Fig. 10).22 This measure captures differences in labour force participation, earnings and career advancement between men and women.23 While the gap remains wide in emerging economies such as India and Mexico, the difference has narrowed in developed economies, with Sweden having closed over 80% of the gap.

In all countries, however, women are still less likely to participate in the labour market than men, and when they do, they are less likely to find employment. There are particularly large differences in participation between men and women in emerging economies, for example in India. The participation gap is narrower in developed economies which show similar educational attainment levels across men and women, and which possess more advanced public policies concerning affordable childcare services, the right to paid leave, and the right to return to equivalent work. Yet there remains a persistent pay gap in developed economies, which can only be partly explained by women taking more time out of paid work compared to men for the purposes of childcare.24

To tackle the differences in participation in emerging economies, policymakers must work to address social norms that obstruct women from entering paid work. In developed economies, policymakers must work towards closing the gender pay gap by eliminating discrimination, enabling more flexible working patterns and instituting paid parental leave for both men and women (with a particular focus on men), in order to address the differences in time taken out of paid work.25