Introduction and background

Over the past two decades, there have been considerable changes in the age distribution of the population within Britain. An ageing population, caused by an increase in life expectancy and a fall in fertility rates, may induce a variety of social and economic effects. Clearly, a large and growing proportion of older people has implications for the social security system. The retired constitute a significant and growing proportion of the population, and state retirement pensions account for some 40% of government social security expenditure (5% of GDP). The change in the age structure of workers may also alter the distribution of productivity and skills (Lam, 1989), influence the level of savings in the economy (Auerbach et al, 1989), and even affect the housing market (Ermisch and Jenkins, 1999).

Over this period, the British labour market has also gone through dramatic changes. These range from increased female labour force participation and growth in part-time work to the expansion of nonstandard employment patterns (such as fixed-term contracts, flexitime, work sharing), and the diminishing importance of union membership and coverage. Of more direct relevance for older workers is the significant decline in the average retirement age (Tanner, 1998) and in economic activity (Taylor and Walker, 1996), and the proliferation of private and employer-provided pension schemes (Johnson and Stears, 1995). The ageing of the population and recent changes in the provision of pensions have highlighted the need for a better understanding of the labour market behaviour of older workers. In this chapter, we illustrate how British Household Panel Survey (BHPS) data can contribute to this understanding.

Policy makers have recognised the potential impacts of an ageing population and the need for older workers to make a full contribution to society. In April 2000, for example, the British government introduced the New Deal for the over 50s. This is a voluntary scheme available to people who are economically inactive or unemployed when they or their partner have been on benefits for more than six months. In Scotland, the consultation paper on ‘Training for Work’ for the long-term unemployed included a proposal that those aged 50+ would be offered early entry to the programme, which provides support for skills development for those who wish to return to work.