Economic Policy Institute discusses a troubling pattern. Historically, when the economy went south, a larger proportion of workers retired early. It isn’t clear whether they were offered packages, were sacked, or left for other reasons (say their job was redefined and they no longer enjoyed it), but the point is they left the workforce.
Now we see a change: the laborforce participation of older workers increases in bad times. And since underemployment still counts as employment, some of this cohort no doubt includes individuals who lost their jobs and still need a paycheck, but are bringing in less income than before.
From Monique Morrissey at Economic Policy Institute:
Younger workers struggling to find a job now have something else to worry about: older workers with little choice but to keep working, even in a weak labor market.
The decades-long postwar trend toward earlier retirement reversed itself in the 1990s, as fewer workers found themselves covered by traditional defined-benefit pensions or had access to retiree health care benefits.
In the past, cyclical downturns in the economy prompted an increase in early retirements. As the chart shows, increases in the unemployment rate during the recessions of the early 1980s and 1990-91 were associated with upticks in the share of 60-64 year olds not in the labor force. Thus, retirees made way for younger workers entering the labor force when jobs were scarce.
But with 401(k)s replacing traditional pensions, early retirement may no longer be tied to labor market weakness. Instead, retirement decisions appear to be increasingly affected by gyrations in the housing and stock markets. Take, for example, this clear break from precedent—the uptick in early retirement during the late 1990s, a period when labor markets were actually very tight, but the stock market was booming. Early retirements subsequently declined after the stock market bubble burst and ushered in the 2001 recession.
This new trend toward later retirement is unlikely to reverse any time soon, as a recent survey showed a sharp drop in the share of workers confident they would be able to afford retirement, due to concerns about health care costs, the weakening economy, and declining home values.
6 comments
Comments are closed.
The underlying reality is that the retirement age is advancing. Longevity is coinciding with a drop in savings (and the extinction of traditional pension plans) to push more people to work longer.
It’s about time politics reflected this reality. Every time there is a discussion of pushing back retirement benefits, it’s labeled as “cutting benefits for retirees.” Total nonsense, 60-somethings are not retired, they’re still working. Not long before 70 will be the new retirement age. Time to push benefits back.
But as you also highlighted, this is bad news for younger workers. Older workers staying put will reduce vacancies, especially for higher-paying positions, which will mean fewer promotions. Ossification of the corporate structure will be the result, and younger workers will pay the price by being perpetually stuck at entry-level positions.
This chart is probably the best economic news I have read in a very long time. It’s about time we saw this. I only hope the 46% of 60-64 year olds not in the labor force in 2008 drops to around 20% in upcoming years. Should such a reality come to pass, all the doomer prophesies on the US economy will be wrong.
I also disagree with the notion that ‘making room for younger workers’ is a problem. The reality is there are a tremendous number of jobs where young worker productivity WILL ALWAYS be vastly higher than old worker productivity (most careers in healthcare come to mind). If the labor markets are allowed to efficiently adjuct to this reality, and are not overly burdened with ‘seniority protection’ rules, these productivity differences will continue to be reflected in the employer hiring preferences and employee salaries.
This is very good news indeed.
One of the things that my father said to me often in my youth was “you will never make more money and have more disposable income than when you are young.” And he would talk about how far his income would go before he had kids, and he was only 21 when I was born and he never finished high school.
Well, my experiences never had an ounce of comparison to his experiences. I didn’t think my wages were that great in my youth. Certainly they would not lead to saving for home or purchasing one. I got kicked around in a low income workforce for about 5 years out of high school before I went to university. At the time my father’s wages were more than 3 times my wages and he was complaining that they were declining. He never finished high school yet he had high paying jobs.
There were tons in my age group that could do his job and were willing to do it for about 60% of his wages. My father had a history of changing good paying jobs often and he got caught in the down turning economy and found that he couldn’t find another high paying job as he was used to and he started complaining about how the market was discriminating against older workers.
I look back and I see no discrimination, just younger workers willing to do the same job for far less.
And, in a convoluted sort of way I am getting to the point. Twenty to 30 years ago older workers who managed their money had had so much better paying jobs than I ever saw. They also had much more affordable housing and they had the opportunity to retire early with very nice and secure lifestyles. My 80 odd year old neighbour that I talk to about investments has about 3-4 houses and a mixture of stocks. I’d be mentioning I thought something was going to crash and I’d get a response “I can never spend all I have so it doesn’t really matter and I think I will just hold it and watch…”
I am in the same occupation as this man and at the rate I was going I might have had my first home paid off around age 60, and that is without paying for the cost of raising a family. It was too much and too many years of being house poor so I sold the home this year.
So, what have, and I believe this trend started in the early 80s in Vancouver and probably in the 90s in quite a few places in the US, is an overall decline in income and with that, disposable income over a life time. I knew many that were able to pay off homes by age 40, with raising 2-4 kids, when I entered the job market yet I see people only saving enough for a down payment in their 30s today.
So, no wonder older workers aren’t retiring. They’ve had less opportunity to accumulate the required wealth to live through retirement years, and it is getting drastically worse as you go down the declining age cohorts.
Throw in a marriage break-up or another set back and it is a disaster in terms of people working in professions making ends meet. I know people in their 30s who haven’t made a dent into student loans from 10 years ago and that is about the decline in wages and disposable income.
But, like I said, this trend started in Vancouver in the early 80s whereas data for the US shows that wages and disposable income were keeping up until somewhere in the 90s for most of the US. I think the data would show that if you use realistic cost of living numbers disposable income has been declining for 10-15 years now for a great part of the US.
So, this is contributing to a slow down in early retirement and I know that when I talk to people in my age group they question if they will ever retire.
“…As the chart shows, increases in the unemployment rate during the recessions of the early 1980s and 1990-91 were associated with upticks in the share of 60-64 year olds not in the labor force. Thus, retirees made way for younger workers entering the labor force when jobs were scarce…”
I thought this -the pie is only so large, there’s only so much to go ‘round, etc.- argument has long since flowed under the bridge, downstream, and has been sitting at the bottom of the ocean for many years. I’m no economist but it seems that when more people choose to continue to work (as opposed to retiring) they continue to be productive and increase the size of the pie if on average they delay retirement for extended period of time. Granted, the “choice” may not be one they expected, as the article explains, because of a lack of financial wherewithal. So while it may be bad news for some of the folks who were looking forward to exiting the workforce ASAP, it’s not automatically bad news for the yougins.
So obviously I disagree with PV’s statement “…Older workers staying put will reduce vacancies, especially for higher-paying positions, which will mean fewer promotions. Ossification of the corporate structure will be the result, and younger workers will pay the price by being perpetually stuck at entry-level positions…” Companies that allow this to happen just won’t be around very long.
Actually, while I may start to scale back at some point, I’m planning to continue to work for as long as I can. I think it’s healthier, especially if you find personal reward and satisfaction in what you do.
ps- I’ll expect to see Yves still blogging when W’s daughter gets ‘lected governor of Texas.
Don’t you love the glossing over of facts.
The reality is as in my life–I’ve stuck with small business as the freedom is there but the benefits are less. And reality in general: the engine of employment in the last 30 years has been low benefit small business enterprises accounting for approx. 80 per cent of new jobs. Major corps have been cutting back on employment preferring to subcontract to smaller firms with less benefits. Relatively few people have any pensions anymore in the private sector. And 401Ks since 2000 have been a joke. The average job match with employee is down to 8 years a term of employment vs. 13 years only a decade ago. When that employee moves on to his or her next job it is usually one with less or no benefits.
Retirement is only a entitlement for the well-off and conservative lucky ones in the relatively few corporate jobs or govt. positions who can rave about ‘increasing longevity’. Frankly, they don’t know the working life that most Americans are living now. We work ’til we drop as they’re really isn’t an alternative. Fortunately, govt. employees and teachers have strong unions that have kept some semblance of a “pension”. But in the general private sector with more and more smaller LLCs and entrepreneurs, pensions and sound private welfare schemes to benefit employees are falling by the wayside. It’s competition you know! And perhaps a race towards the bottom?
However, I look forward to working into my 70s as it will keep me fit and also despite what some people say, older people are more efficient and have a stronger work ethic. (Even studies of rats have shown older middle aged rats do more work with less energy consumed…as they know how to…)