Older workers and the recession: Still good for a few more years
From The Economist print edition
Smaller nest-eggs enhance a long-term trend to later retirement
[Greg Ip] IN TERMS of output, America’s recession may be showing signs of ending; but it retains its painful grip on the labour market. Non-farm employment fell in August by the smallest amount in a year in absolute terms (though by a still-horrid 216,000); but the unemployment rate nevertheless rose, to 9.7%. That is up almost five percentage points since the recession began in December 2007.
One group, however, is so far looking a bit less gloomy. The number of people aged 55 and over who are in work has climbed almost 4%, or by nearly 1m, since the recession started, even as employment of young and middle-aged workers has fallen sharply (see chart). Gains have been even greater for those over 65, the usual retirement age. Why?
Older workers tend to do better in recessions. They have skills, experience and seniority, and are thus last to be sacked. But this does not explain much of the rise in employment; in fact the unemployment rate of those over 55 has actually risen too, though by less than the average.
Something else is going on. The labour force of over-55s—those either working or looking for work—has grown briskly since the recession began, by almost 8%. Some of this is due to an ageing population and some to a rising share of that population in the labour force: the so-called participation rate has jumped a percentage point, to 40%, while slipping for the population as a whole. In other words, higher employment of over-55s reflects not just relatively stronger demand, but more supply.
The most common explanation is that shattered stock and house values have forced many workers to delay retirement so as to rebuild their nest eggs. The importance of this factor is a matter of debate. A Federal Reserve study in 2003 concluded that for each $100,000 in unexpected gains in the 1990s, the typical shareholder retired seven months earlier. But a later one by Courtney Coile and Phillip Levine, both of Wellesley College, found that the stockmarket boom in the 1990s and its subsequent bust had no measurable impact on overall labour supply. They concluded that it did influence the retirement decisions of some workers, but most either had too little invested in the market to be affected or were wealthy enough not to care.
Karen Dynan, co-director of economic studies at the Brookings Institution, thinks the effect may be bigger this time round because of the decline in the value of houses, which for most families are a larger source of wealth than stocks. She calculates that for over-55s, median wealth fell from 5.7 times income in 2007 to 4.6 in 2008, returning to the level of 1995.
But while diminished wealth may keep more of the elderly in the office, it merely enhances an underlying trend towards later retirement. Joseph Quinn, an economist at Boston College, notes that workforce-participation rates for older male workers fell steadily from the late 19th century until the mid-1980s, then gradually began to turn up, while for women at that time they began to rise. He attributes this to several factors: the abolition of mandatory retirement in 1986, changes to the government pension that raised benefits for those retiring after 65, and the decline in defined-contribution plans which penalised late retirement in financial terms.
Furthermore, work has become less physically arduous and more pleasant and people tend to stay healthier in old age; so more people are either able or willing to work longer. A poll by the Pew Research Centre, released on September 3rd, found that 54% of those working over the age of 65 do so because they want to; just 17% do so because they need the money.
In the short term this is a problem. Younger workers are having a harder time finding and keeping a job because older workers won’t clean out their desks. But in the long term later retirement counters the trend to slowing labour force growth caused by an ageing population, more years spent in college, and a levelling out of women’s participation. So it boosts the economy’s potential growth rate. And as a side-effect, it should ease the task of paying the health bills of all those older people.
The original story is linked here.