The issue of population ageing is currently high on the policy agenda in the UK as it is elsewhere. In the UK it is projected that between 1994 and 2006 there will be an increase of 2.2 million in the number of people aged 35±54 and 0.8 million among people aged 54 and over. This contrasts with a fall of 1.5 million people aged under 35 years (Ellison, Butcher and Melville, 1995). In response to these predictions, successive UK governments have implemented polices aimed at reducing the long-term ®nancial consequences of this ` greying'' of the population. For instance, during the 1980s the Conservative government under Margaret Thatcher linked increases in the basic state pension to in ation rather than growth in incomes. As a result, the basic state pension will be worth only 7 per cent of average male earnings by the middle of the next century (Dilnot, Disney, Johnson and Whitehouse, 1994). However, during the previous two decades, governments also played a major role in increasing this burden of dependency. For example, the UK's Job Release Scheme introduced in 1977, accentuated the trend towards early exit for those below of®cial retirement age, further reducing the levels of older worker participation in the labour market Alongside these policy considerations, it is clear that the restructuring of the economy over the previous two decades has had a considerable impact on activity rates among older people. Whilst one would ®nd it hard to argue against increasing early retirement which resulted from a growth in real incomes, there has been a growing recognition that older individuals who wish to return to the labour market may face barriers to employment. Thus, in recent years the issue of age discrimination has received increasing attention from commentators and policy makers in the UK. There are convincing economic arguments against discrimination on the grounds of age and against early exit policies (World Bank, 1994). The continuing fall in participation rates among older workers, coupled with a reduction in the number of younger workers entering the labour market, may encourage employers to review employment practices as the UK faces the possibility of labour shortages. By retaining older workers, employers will also be holding on to invaluable experience and facilitating the passing on of this knowledge (Taylor and Walker, 1995). The changing pro®le of the customer base, which could result in signi®cant changes in consumption patterns, may also impact on employers' policies (Urwin, 1996). Against this backdrop this article examines the labour market situation of older workers as the UK emerged from recession in the early 1990s and offers an assessment of the impact of