A degree is for life

Should there be a relationship between further education and the retirement age? Specifically, if you get a degree, should you be expected to work longer?

This train of thought was triggered by a new McKinsey report on the future global labour market. As the work of a cheerleader for neoliberalism, this is interesting for the assumptions it makes. The key one is that we face a challenge to increase productivity due to the supply of educated young workers declining, in relative terms, as a result of an ageing population. This is obviously not helped by an absolute decline in student numbers, which may be the consequence of the introduction of tuition fees.

Education is the magic bean of productivity in McKinsey's worldview: "Advanced economies will need to double the pace at which the number of young people earning college degrees is rising—and find ways to graduate more students in science, engineering, and other technical fields". But for the non-college-educated, problems loom. We need to "create more jobs for those who aren’t as highly educated". Solutions include "finding opportunities for workers without a college education to participate in fast-growing fields—such as health care and home-based personal services". The servant class looks like it might be about to enjoy a comeback.

The central demographic assumption is that the numbers of skilled workers joining the labour force will be offset by increasing numbers leaving it for retirement. It is for this reason that tertiary education needs to be expanded at an even faster rate, as well as adopting complementary strategies to further increase female participation, re-train workers mid-career and (of course) defer retirement. This last point emphasises that the motivation for increasing the retirement age is not solely about cutting anticipated pension costs. It's also about extending the useful life of the asset.

There is no explicit mention of class, unsurprisingly, though you can see the references to college education as a proxy. As I've mentioned before, extending the state pension age is a class issue as it imposes an unequal burden. Similarly, the effect of increased longevity on the labour market has a strong class dimension. “We’re all living longer” and “we’ll all have to work longer” masks the reality of widening inequality in both longevity and working years. The better-off will retire earlier (because they can afford to) and will, if trends to date are anything to go by, enjoy faster growth in longevity than the poor. Thus the higher your education and skills (the more middle class you are), the earlier you will retire on average. Together with the deferred start to your working life, because you were in further education, this means that your working years are likely to be 5-10 fewer than a manual worker who left school at 15 or 16.

Given McKinsey’s warnings about the skills crunch and the exacerbation of this by oldies leaving the jobs market, it would actually make more economic sense to increase the retirement age for people with tertiary education faster than the rest of the population, or even to limit the increase to just this cohort. That would increase the number of skilled workers as a percentage of the active population, would decrease the number of the unskilled, and would increase the average wage and therefore tax revenues.

As a quid pro quo, we could dispense with student loans. Instead of going into debt, you just accept a deferral of your state pension, with the additional years of tax and avoided benefits offsetting the initial investment. According to the ONS, the longevity difference between the top and bottom socio-economic classes is 5 years, so we could keep the standard retirement age at 65 and increase it for those who went to college to 70.

The wage differential for those with tertiary education (compared to those with GCSEs) is 45%, rising to 85% for those with a degree. Working an extra 5 years (or forgoing the state pension for that period - you might still choose to retire at 65 if you have a private pension) seems a reasonable exchange for 44 years earning roughly one and a half to twice as much as you'd otherwise have got, particularly if you received your education for free and skipped 5 years of NICs.