“When I’m 64”
How Aging U.S. Baby Boomers Have Begun to Carry That Weight
Here Comes the Sun
One of the primary reasons why retirement rates have dropped is the change in the skill composition of the workforce. Educated people work more because they are paid more, have more fulfilling jobs, and face fewer physical demands. Another reason for longer working lives has been the rise of dual-earner families, with husbands working longer to accommodate the careers of their wives and with women gaining incentives to extend their work lives to qualify for more retirement benefits.
Yet another reason is the changing nature of work itself. Technological advancement since 1960 has favored cognitive and analytic skills over manual and routine skills, a shift that appears to have favored women especially. As technological change has made jobs less physically demanding and as the Americans with Disabilities Act has required employers to provide reasonable accommodations for those with disabilities, it has become more possible than ever to work in the presence of health limitations.
Educated people work more because they are paid more, have more fulfilling jobs, and face fewer physical demands.
Figure 3 — Across the Developed World, Growing Percentages of Men and Women Between the Ages of 55 and 64 Are Working
SOURCE: Organisation for Economic Co-operation and Development (OECD) Employment and Labour Market Statistics, LFS by Sex and Age.
NOTE: The OECD average participation rate is the population-weighted average of the participation rates in Canada, France, Germany, Italy, Japan, the Netherlands, Norway, Spain, and the United States.
Figure 4 — Population Aging Will Be Less Severe in the United States Than in Many Other Developed Countries
SOURCE: OECD Employment and Labour Market Statistics, LFS by Sex and Age; OECD Factbook 2008, Population 65 and Over.
Perhaps the main area in which the United States faces greater challenges than do the other countries is its health care system.
The United States is not unique with respect to changes in the ages at which workers retire. Across the developed world, the average labor force participation rate of older women has climbed dramatically since the 1980s, and the downward trends for older men reversed between 1994 and 2004 (see Figure 3). The similarity of these patterns across time and space points to common factors — such as the growth in educational attainment, technological change, and labor force participation among married women — as the primary driving forces; and to reforms in U.S. Social Security, private pensions, and employment protection law, the form and timing of which have been unique to the United States, as secondary forces.
The prospect for future increases in workforce participation at older ages is quite good. Workers may not only want to work longer, but they may need to work longer to support consumption over a longer lifespan. The steady increase in life expectancy that has been seen over the past 150 years or so has shown no imminent limit to human lifespan.
Perhaps surprisingly, reforms to the U.S. Social Security program were not a major force behind the turnaround in labor force participation by older men in the 1990s, but the reforms will likely be a force in the future. Many of the reforms that increased the return to work at older ages were not effective until 2000, and the phased-in increase in the Social Security full retirement age will not be fully implemented until the 1960 birth cohort turns 62 in 2022.
Older workers are also becoming closer skill substitutes for younger workers. In 1990, a retiring 65-year-old had on average 10.9 years of schooling, while an entering 25-year-old had 13.5 years of schooling, a gap of 2.6 years. In 2010, a retiring 65-year-old will have on average 12.6 years of schooling, while an entering 25-year-old will have about 13.9 years, halving the education gap to 1.3 years. By 2030, a retiring 65-year-old will have 13.5 years of schooling, while, if current trends continue, an entering 25-year-old might have around 14 years, further closing the gap to just half a year. For the first time in history, labor force entrants will not be substantially more educated than those retiring. This trend should raise the demand for older workers, particularly in jobs where the productivity return to experience is high.
AP IMAGES/LAS CRUCES SUN-NEWS/NORM DETTLAFF
Sisters and coworkers Garnett Crooks, 73, and Cora Farmer, 70, greet customers at Sonic Drive-In in Las Cruces, New Mexico. Whether it is the effects of the recession, the need for extra cash, or the search for social interaction, more elderly are rejoining, or staying in, the workforce.
Perhaps the biggest constraint on employer demand for older workers in the future will be health care costs. The rising prevalence of disease, chronic conditions, and obesity among people aged 65 to 69 suggests that an aging workforce will surely increase the cost of providing health care to older workers. Even when an employee is eligible for Medicare, the employer is the primary payer and Medicare is the secondary payer.
Population aging will be less severe in the United States than in many other developed countries for the simple reason that fertility rates in the former fell only half as far as in the latter following the baby boom. Figure 4 shows how several developed countries compare on two dimensions: population aging and capacity for labor force adjustment. In terms of aging, the United States is in the middle, on course to experience a moderate increase in the percentage of its population over 65 through 2030. The U.S. economy is also well positioned for labor force adjustment, having already attained elderly participation rates well above those for most developed countries.
In contrast, many European countries, including the largest, will face moderate to high population aging, yet virtually no one over 65 in those countries works. While this leaves ample room for adjustment in Europe, it might be particularly difficult given the mutually reinforcing social norms and social insurance systems that encourage early retirement. Perhaps the main area in which the United States faces greater challenges than do the other developed countries is its health care system, with its high costs and its mixture of private-sector insurance with Medicare.
U.S. policymakers could promote greater labor force participation among older Americans by abolishing the remaining work disincentives that are built into private and public pensions and by promoting information campaigns that help older Americans understand the rules governing their pension and Social Security benefits. Encouraging work at older ages would counteract the slowdown in labor force growth while helping to shore up the finances of Social Security and Medicare. As men and women extend their working lives, they will enhance their own retirement income security while easing the strain of an aging population on economic growth.