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
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.
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.
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.
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.
Moreover, 76 per cent of all retirements from local government
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
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.
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.
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.
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.
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.
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.
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.
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,
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
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.
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.
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.
As a result, the incentive to return to work is significantly
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.
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.
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
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
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
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
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.
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
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 dot.com business
to have a preference for older, more experienced non-executive
directors or advisory board members, rather than relatively youthful
entrepreneurs. Some dot.com 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
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.
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
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
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).
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.
Indeed, in the EU as a whole the UK already has the fourth highest
employment rate for older people (after Portugal, Denmark and
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.
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.
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.
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
highthere were over 164,500 in 1999-2000.
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.
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.
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.
I hope that this submission will be of some
Institute of Directors
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
Winning the Generation Game, pp. 38 and 52-54. Back
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
Cited in The Spectator, 30 September 2000, p7. Back
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
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
Ibid, p10. Back
Ibid, p14. Back
Ibid, p15. Back
Ibid, p15. Back
Ibid, p16. Back
Ibid, p16. Back
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
Winning the Generation Game, p34. Back
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
Winning the Generation Game, p37. Back
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
Nigel Campbell, The Decline of Employment Among Older People
in Britain, p38. Back
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
Ibid, p51. Back
Ibid, pp49 and 51. Back
See, for example, R Wilson, Skills Survey 2000 (Institute
of Directors Research Paper, 2000). Back
Quarterly Report on Small Business Statistics, October 2000
(Domestic Finance Division Bank of England), p35. Back
R Wilson, The Rise in Unemployment Among Older People: Causes
and Solutions, p18. Back
Ibid, p23. As will be seen later, though a majority of IoD members
do support legislation to prohibit age discrimination. Back
Ibid, p21. Back
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
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
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
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
A Profit's Warning-the macroeconomic costs of ageism, EFA 1998-see
Reed Skills Index 2000. Back
ACAS, Annual Report 1999-2000, p56. Back
Typical legal costs for defending a case before an employment
tribunal amount to £5,000 (The Engineer, 7 January
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
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