Select Committee on Education and Employment Appendices to the Minutes of Evidence


Memorandum from Institute of Directors

  Thank you for giving the Institute of Directors (IoD) the opportunity to provide information to the Employment sub-committee about the issue of age discrimination in employment. The IoD is a non-political organisation with some 54,000 members in the UK, whose aim is to help directors to fulfil their leadership responsibilities in creating wealth for the benefit of business and society as a whole.

In what ways and to what extent are older workers treated less favourably than younger workers as a result of their age?

  Over the past two decades, the proportion of men aged between 50 and the State Pension Age who are not working has doubled. Moreover, older people (those aged 50 and over) are more likely to be economically inactive than other age groups. Just 7 per cent of men aged between 25-49 are economically inactive compared to 27 per cent of men aged between 50 and the State Pension Age. At the same time, while 23 per cent of women aged between 25-49 are economically inactive, the figure for women aged between 50 and the State Pension Age is 34 per cent. One third of men and women in this age group (2.8 million people) are not working.[38]

  It can be argued that less favourable treatment of older people by employers has contributed to the rise in the economic inactivity rates for people aged between 50 and the State Pension Age and the fall in the employment levels of this group.[39] Discrimination on the part of some employers against older workers has certainly been one of the factors behind these developments. For example, some employers have probably treated older workers less favourably in comparison to younger workers when recruiting.[40] Additionally, some employers who have had to reduce the size of their workforce have promoted a policy of early retirement, partly because this is a relatively painless way of shedding employees and is less likely to have adverse consequences for industrial relations than a policy of compulsory redundancies.

  It is not only private sector employers who have encouraged or permitted their employees to take early retirement. In central Government, civil servants are still required to retire at 60. Additionally, in the public services, many employees take early retirement. For example, only one teacher in five continues to work until the age of 65.[41] Moreover, 76 per cent of all retirements from local government are early.[42] Consequently, older people have been treated less favourably than younger people have by employers in the public sector too.

  In the summer of 1999 the IoD Policy Unit Commissioned NOP to conduct a survey of 491 to IoD members in order to ascertain their views concerning older workers and a number of age related issues. The principal findings of that survey are highlighted here.

  In the first instance, a majority (82 per cent) of the IoD members who took part in our survey declared that they had not pursued a policy of early retirement over the previous decade. Of those respondents who had operated such a policy during the previous 10 years, 77 per cent had now terminated this practice.[43]

  Additionally, the recruitment strategies pursued by the directors who participated in our survey appear to have been generally favourable to older workers. 31 per cent stated that over the last decade the proportion of their company's workforce aged over 50 had increased. 46 per cent said that the proportion had stayed the same and just 18 per cent stated that it had decreased.[44] At the same time, 51 per cent of the IoD members interviewed by NOP stated that they never took the age of job applicants into account when recruiting. Admittedly, though, a sizeable minority of the participants in our survey (39 percent) did take this criterion into account when hiring staff.[45]

  Most of the IoD members who took part in our survey did not have a negative attitude towards older workers:

    —  A clear majority (56 per cent) of the participants in our survey disagreed with the statement "older employees are more difficult to train than younger employees". 31 per cent agreed with this statement.[46]

    —  52 per cent of directors disagreed with the statement: "younger employees incur lower costs for the company than older employees". 36 per cent agreed with this statement.[47]

    —  50 per cent of the IoD members interviewed in our survey disagreed with the statement: "younger employees fit in better with the company's workforce". 23 per cent agreed with this statement.[48]

    —  70 per cent of those directors questioned by NOP disagreed with the statement: "younger employees are more productive than older employees". Only 9 per cent agreed with the statement.[49]

  Consequently, while some of the individuals who participated in our survey held less favourable views of older workers in comparison to younger workers, most did not. Moreover, the rise in economic inactivity rates and the fall in employment rates among older people in recent years are not simply a consequence of ageist behaviour on the part of some employers. Rather, it has been occasioned by a concatenation of factors[50], of which changes in the economy and the labour market and the increasing prevalence of occupational pensions are probably among the more important.

  The recessions of the early 1980s and early 1990s contributed to the fall in employment among older male workers. Older men were not disproportionately affected by redundancies, but they were less fortunate in returning to work than their younger counterparts.[51] This is partly because older people tend to have fewer qualifications and tend to have received less formal education in comparison to younger people. 28 per cent of people aged between 50 and the State Pension Age have no formal qualifications, compared to 13 per cent of those aged between 25 and 49.[52] As a result, the employment opportunities of older people have generally been less favourable than those of younger people and the appeal of older workers to employers in comparison to their youngest counterparts has typically been weaker.[53] Additionally, older people without work are much more likely than younger people to lose touch with the labour market and to move from unemployment to long-term sickness, before subsequently proceeding onto retirement. Older people often find that on losing a job they are unable to find employment that provides them with the same level of remuneration as they previously received.[54] As a result, the incentive to return to work is significantly reduced.

  The development and spread of occupational pensions has undoubtedly had an impact on the employment of older people. Men in their 50s who are in the top quartile of the wage distribution and who belong to an occupational pension scheme are 50 per cent more likely to be displaced from work than men in the same age group and on the same wages, but who lack an occupational pension.[55] Occupational pensions have had the consequence of encouraging older men to drop out of employment for two reasons. Firstly, occupational pensions typically provide their members with an income in retirement that facilitates their early departure from the labour market.[56] Secondly, occupational pensions may discourage the demand for labour on the part of employers. 90 per cent of occupational pension schemes are salary related and employers' contributions to these schemes typically increase as the members of the schemes near retirement.[57] Concomitantly, occupational pension schemes invariably increase the cost of employing older people and so employers who run such pension schemes may be inclined to encourage their employees to retire early.[58]

  Consequently, while ageist employment practices on the part of some employers has contributed towards the rise in economic inactivity rates and a fall in employment levels among older people, it is by no means the only factor driving this development.

What benefits does promoting age diversity in the workplace offer to employers and employees?

  In general terms, a mixed age workforce is beneficial to an employer because it provides him with employees who have a variety of experience and knowledge. One of the advantages of a business that has a reasonable number of older employees is that they will have acquired considerable experience over the course of their working lives and more specifically, knowledge about how the company in which they are employed operates. The experience and knowledge that they will have gained over the years may help an employer to avoid potential pit falls and enable his business to operate more efficiently than it would in their absence. The presence of older employees in a business also enables knowledge to be transferred efficiently to newcomers who join the operation. Conversely, making older workers redundant can entail a loss of experience and knowledge and leave a business more prone to making mistakes.

  At the same time, the presence of younger employees in a business can contribute to the emergence of fresh ideas and new approaches to ways of working. Additionally a diverse workforce may give a business a better idea about the interests and desires of consumers. This is probably particularly true of businesses in the retail sector.

  Research commissioned by the IoD illustrates that skill shortages are one of the principal problems facing British business.[59] An employer who is not prejudiced against prospective employees on the grounds of their age, but is instead willing to hire anyone who is capable of doing the job that is required of them, is less likely to suffer from skill shortages than an employer who is ageist in his recruitment policies.

  Although there are advantages to having a mixed age workforce, many businesses may not always be in a position to recruit a balanced workforce in terms of age. This is because most firms in the UK are small in terms of the number of people that they employ. 95 per cent of businesses in the country employ only between 0-9 people.[60] Clearly, it is much harder to recruit a mixed age workforce that accurately reflects the age profile of the UK population in a business that has only a handful of employees, in comparison to a multi-national company.

In what circumstances (if any) is the use of age as a criterion for the recruitment and retention of employees justified?

  Generally speaking employers should recruit on the basis of merit, rather than any other recruitment criteria. This is rational because it means that an employer will typically hire the individual who is most capable of doing the job. However, circumstances do exist in which it is rational for an employer to take the age of an individual into account when recruiting. For example, it would be perfectly reasonable for the owner of a night club to have a preference for recruiting relatively young and physically fit staff in preference to either teenagers or elderly gentlemen to work as doormen or bouncers because, other things being equal, they are more likely to be able to control troublemakers and generally maintain order. Age is important in this context because it is a proxy for competence for the job in question. Similarly, it would be reasonable for a business to have a preference for older, more experienced non-executive directors or advisory board members, rather than relatively youthful entrepreneurs. Some enterprises now specifically want "grey hairs" as non-executive directors or as advisory board members because they are considered to have wisdom and commercial experience that they can bring to the business. Consequently, although employers should normally recruit on the basis of merit, there will be occasions when it is reasonable to take the age of job applicants into account when hiring new staff. It is probably for this reason that 53 per cent of the IoD members interviewed by NOP believes that employers should be allowed to advertise jobs specifying the age of the person that they would like to hire.[61]

How effective is the Government's Code of Practice in promoting age diversity in the workplace?

  The IoD supports the Code of Practice for Age Diversity in Employment (Department for Education and Employment, 1999). The Code may help employers to avoid recruitment procedures that unintentionally discriminate against particular age groups. It might also help to convince some employers of the benefits of a mixed age workforce and of the talents that older people have to offer as employees.

  Encouragingly, our survey of IoD members showed that 76 per cent of the interviewees were in principle prepared to use the Code of Practice.[62] However, we have not conducted any research on the extent to which IoD members have used the Code of Practice or the consequences that it has had for their employment policies. We look forward to seeing the Department for Education and Employment's evaluation of the impact of the Code of Practice, which is due to be published in the form of a review in March of this year.

In what ways do other Government policies such as the New Deal help or hinder older workers, especially unemployed job seekers?

  Other things being equal, the employment prospects for older people can probably be enhanced through retraining. As remarked earlier, older people typically have fewer qualifications than younger people do. This is harmful to their employment opportunities because people with few skills and qualifications are typically relatively unattractive to employers as potential employees. Interestingly, 54 per cent of the directors who were interviewed in our NOP survey said that they would be more likely to hire a worker aged over 50 if the Government helped to cover the costs of training the employee in question[63] Assistance in the provision of training would be particularly apposite for those older people who have been out of work for a long period of time, because such individuals are less appealing to employers as prospective workers.

  The IoD has not conducted any research specifically assessing the consequences of the Government's policies for helping older workers. However, in principle we welcome measures such as the New Deal for 50- plus because of the help that they offer older people to upgrade their skills (amongst other things, individuals on the scheme have access to training grants amounting to £750).[64]

Is there a case for anti-discrimination legislation and, if so, what provisions should it include?

  The case for legislation prohibiting age discrimination in employment is partly grounded on the belief that it will enhance the employment prospects of older people. However, in practice legislation outlawing age discrimination does not necessarily have this effect. The USA, France, Canada, Finland, Spain, Australia and New Zealand have age discrimination legislation, but of these only the USA and New Zealand have lower unemployment and inactivity rates for the over 50s than the UK.[65] Indeed, in the EU as a whole the UK already has the fourth highest employment rate for older people (after Portugal, Denmark and Sweden).[66]

  The need for age discrimination legislation may be questionable because changes in the demographic profile of the UK labour force are likely to make it increasingly difficult for employers to be ageist in their recruitment policies. At the present time, there are over three million more people in their 20s and 30s than there are people aged between 45-64. However, by 2020, there are expected to be one million fewer.[67] Consequently, the next two decades should see a relatively larger number of older people in the labour market in comparison to younger people. In these circumstances it will become relatively harder for employers to maintain a preference for younger people over older people when recruiting.

  However, while the case for legislation prohibiting age discrimination is not particularly strong on practical grounds, the majority (63 per cent) of IoD members who were interviewed in our survey by NOP in principle supported the introduction of such legislation. Most employers recognise that they should recruit on merit and this probably explains why a majority of the directors interviewed in our survey backed age discrimination legislation.

  The Government agreed with other EU members states in October 2000 to adopt the General Framework for Equal Treatment in Employment and Occupation Directive. Amongst other things, this provides for the introduction of age discrimination legislation in the UK by 2006. Under Article 1 of the Directive, the Government is required to implement into UK law "the principle of equal treatment as regards access to employment and occupation, including promotion, vocational training, employment conditions and membership of certain organisations, of all persons irrespective of racial or ethnic origin, religion or belief, disability, age or sexual orientation."

  Consequently, direct discrimination on the grounds of age (in other words, where an individual is treated less favourably than another individual would have been treated precisely because of his age) would be illegal unless such treatment is specifically provided for in the legislation.[68] Additionally, indirect discrimination, which can be said to occur where an apparently neutral provision, criterion or practice is liable to adversely affect an individual because of his age, would be illegal under the legislation, unless the provision, criterion or practice in question could be objectively justified by a legitimate aim and the means of achieving it were appropriate and necessary.[69]

  As argued earlier, there are circumstances and occasions when direct discrimination on the grounds of age can be objectively justified. The General Framework Directive recognises this point. Article 5 enumerates some instances of different treatment on the grounds of age that are acceptable and allows the British Government to permit others if they are "objectively justified" and if "they are appropriate and necessary to attain a legitimate aim". Article 4 permits direct discrimination on the basis of age in situations where age represents "a genuine occupational qualification for the job". Arguably, age is a genuine occupational qualification for employment in many parts of the military, police and fire service. Older people may not be able to carry out the physically arduous duties that are expected of them in aspects of these professions. This may also be the case in respect of some aspects of the construction industry and possibly others. The IoD has not surveyed its members to ask them to identify occupations where age might constitute a genuine occupational qualification for the job. However, as a general rule it would seem reasonable to suppose that the more physically demanding a job, the more likely age will represent a genuine occupational qualification. The Government should consult closely with trade associations and businesses representative bodes prior to the introduction of age discrimination legislation to discover which professions employers consider age to constitute a genuine occupational qualification. It should then publish guidance to employers as to the situations in which age could constitute a genuine occupational qualification so that they can readily comply with the law.

  Although IoD members support age discrimination legislation, unfortunately, the provision in the Directive for prohibiting apparently neutral provisions, criteria and practices that are liable to adversely affect a particular age group on the grounds that they are indirectly discriminatory is likely to entail costs for business. In order to comply with this measure, employers will have to examine all aspects of their employment practices and procedures to ensure that they are not indirectly discriminatory and make changes if necessary. Businesses might be surprised to learn that under the Directive traditional recruitment procedures, such as graduate recruitment schemes, recruitment by word of mouth or advertising in particular places or publications, could be deemed to be indirectly discriminatory. The vast majority of businesses in the UK are small in size and they tend to recruit locally or through informal procedures. Most of these businesses lack personnel or human resources departments and so it would be burdensome and potentially costly for their owners to have to devise and operate more formal recruitment procedures. Similarly, employers will have to develop formalised procedures to govern decisions relating to promotion and training in their businesses to ensure that they are not indirectly discriminatory. A training scheme that benefited a particular department or group of workers might be considered to be indirectly discriminatory if most of its beneficiaries were from a particular age group while other departments with employees who were mostly of a different age group did not receive a similar level of training. As a corollary, employers will be obliged to increase the amount of record keeping that they undertake to try to ensure that their promotion and training policies are not indirectly discriminatory and to protect them from the threat of legal action. Businesses might need to invest in training and awareness programmes in order to reduce the risk of litigation. In short, the effect of prohibiting indirect discrimination could be to impose more administration costs on business and to expose them to still more tribunal claims. This would be highly unfortunate. Employment tribunal claims are already high—there were over 164,500 in 1999-2000.[70] The large number of employment tribunal applications has worrying implications for British business. Unjustified employment tribunal claims can inflict financial costs on businesses, harm their competitiveness, imperil jobs and distract employers from running their enterprises. Many employers and managers are already deciding that, in order to avoid the prospect of damaging legal costs.[71] The most rational course of action is to pay off individuals who threaten them with tribunals, even if such payments are unjustified.

  If age discrimination legislation is to have beneficial consequences and avoid imposing unnecessary costs on business, clarity in the law will be essential. As stated earlier, occupations where employers may discriminate directly on the basis of age for objective reasons should be listed by the Government in guidance notes accompanying the forthcoming legislation. Additionally, the Government may want to give a definition in the prospective legislation of who precisely is an older worker, a younger worker and a middle aged worker.[72] This might be helpful to employers who will be keen to avoid acts of indirect discrimination in their employment policies.

  By itself, age discrimination legislation will probably not have a dramatic impact on improving the employment opportunities of older people. Other courses of action will be needed. As already stated, measures to improve the skills of older people are likely to be beneficial. Additionally, the Government should work to discourage early retirement in the public sector, continue to promote the Code of Practice and assist those older people who wish to become self-employed. Above all, probably the best contribution that the Government can make to raise the relatively low rates of employment among older people in the UK is to maintain a stable macro-economic environment that is conducive to a steady expansion of employment.[73]

  I hope that this submission will be of some interest.

Institute of Directors

February 2001

38   Second Policy Seminar on 3rd Age in SMEs, Presentation by Carolynne Arfield, Age Policy Lead, Department for Education and Employment, at the British Chambers of Commerce, 29th November 2000. See also Winning the Generation Game (Performance and Innovation Unit Report, Cabinet Office, April 2000), Chapter 3. Back

39   Winning the Generation Game, pp. 38 and 52-54. Back

40   For example, according to a report in the Guardian (12 April 2000), a 69-year-old man was turned down for a job with Age Concern on the grounds that he was too old. Similarly, a survey of approximately 1,400 professionals in the IT sector revealed that two thirds of those interviewed doubted that they would be able to get a job when they reached the age of 45 (Financial Times, 15 October 2000). Back

41   Cited in The Spectator, 30 September 2000, p7. Back

42   Cited in N Campbell, The Decline of Employment Among Older People in Britain (Centre for Analysis of Social Exclusion. London School of Economics January 1999), p51. Back

43   R Wilson, The Rise in Unemployment Among Older People: Causes and Solutions (Institute of Directors Research Paper, 2000), pp. 11-12. At the same time, though the over-50s constituted a minority of most of the directors' workforces who participated in the NOP survey. For 38 per cent of directors, the over-50s made up between 1-10 per cent of their company's workforce and 7 per cent had no employees aged over 50 at all. Back

44   Ibid, p10. Back

45   Ibid, p14. Back

46   Ibid, p15. Back

47   Ibid, p15. Back

48   Ibid, p16. Back

49   Ibid, p16. Back

50   Changes in the economy and the labour market, occupational pensions, the benefit system, the Employment Service, skills and learning patterns, age discrimination on the part of employers and cultural attitudes in society are factors referred to in Winning the Generation Game, Chapter 4, as having contributed to the fall in employment levels among older people. Back

51   Winning the Generation Game, p34. Back

52   Second Policy Seminar on 3rd Age in SMEs, Presentation by Carolynne Arfield, Age Policy Lead, Department for Education and Employment, at the British Chambers of Commerce, 29 November 2000. Back

53   Winning the Generation Game, p37. Back

54   According to one recent research paper, certain men over the age of 50 who have become unemployed could face a 35 per cent loss in their real wage growth on returning to work. See P Gregg, G Knight and J Wadsworth, Heaven Knows I'm Miserable Now: Job Insecurity in the British Labour Market (London: London School of Economics, 1998). Back

55   Nigel Campbell, The Decline of Employment Among Older People in Britain, p38. Back

56   Since 1979, pensioners' average incomes from occupational pensions have more than doubled as the schemes have matured. At the same time, pensioners' incomes from investments have more than doubled as well. In 1993, 62 per cent of pensioners benefited from an occupational pension and 73 per cent received some investment income (ibid, p48). Back

57   Ibid, p51. Back

58   Ibid, pp49 and 51. Back

59   See, for example, R Wilson, Skills Survey 2000 (Institute of Directors Research Paper, 2000). Back

60   Quarterly Report on Small Business Statistics, October 2000 (Domestic Finance Division Bank of England), p35. Back

61   R Wilson, The Rise in Unemployment Among Older People: Causes and Solutions, p18. Back

62   Ibid, p23. As will be seen later, though a majority of IoD members do support legislation to prohibit age discrimination. Back

63   Ibid, p21. Back

64   The New Deal 50 plus also provides individuals with job search assistance and a personal adviser. Additionally, it guarantees those aged over 50 a minimum take home pay of £170 a week (£9,000 pa for those in full time employment. Alternatively, it provides an income of £215 a week £11,000 pa) for those individuals who are eligible for the Disabled Person's Tax Credit (press release, Department for Education and Employment, 6 April 2000). Back

65   Winning the Generation Game, p57. A comparison with France is particularly striking. In France only 11 per cent of men in 60-64 category remain in work, compared to 48 per cent in the UK (Robert Taylor, Financial Times, 25 August 1999. Statistics from the European Commission, May 1999). Back

66   Second Policy Seminar on 3rd Age in SMEs, Presentation by Carolynne Arfield, Age Policy Lead, Department for Education and Employment, at the British Chambers of Commerce, 29 November 2000. Back

67   The Age Shift-Priorities for Action (Foresight, Department for Trade and Industry, 2000), p15. Indeed according to the Government's predictions in the next 10 years 40 per cent of the workforce will be over 45, but only 17 per cent will be under 24 (press release, Department for Education and Employment, 14 February 2000). Back

68   A Profit's Warning-the macroeconomic costs of ageism, EFA 1998-see appendix. Back

69   Reed Skills Index 2000. Back

70   ACAS, Annual Report 1999-2000, p56. Back

71   Typical legal costs for defending a case before an employment tribunal amount to £5,000 (The Engineer, 7 January 2000). Back

72   In America, the Age Discrimination in Employment Act 1967 is specifically designed to protect individuals of 40 years or older from discrimination in any aspect of employment including recruitment and dismissal, compensation, assignment or classification of employees, transfer, promotion or recall (People Management, 11 May 2000). Back

73   Strong economic growth in the USA has made a major contribution towards improving the employment prospects of older people (The Economist, 4 September 1999, p90). Back

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