Aging and the Macroeconomy Long-Term Implications of an Older Population (2012) / Chapter Skim
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5 Labor Force Participation and Retirement
5 Labor Force Participation and Retirement
Pages 75-105
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From page 75... ...
The macroeconomic implications of these demographic trends will depend in large part on the future growth of the labor force and on how long people stay in the labor force. Working longer can provide more resources to pay for the higher Social Security and health care costs associated with population aging.
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From page 76... ...
The total labor force participation rate (people aged 16 and over in the labor force as a percent of the civilian noninstitutional population aged 16 and over) fluctuated between 58 and 60 percent in the 1950s and the first half of the 1960s.
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From page 77... ...
Since the mid-1990s, however, the partici 100 90 Men, 25 to 54 years 80 70 Women, 25 to 54 years 60 Percent 50 Men, 55 years and older 40 30 20 Women, 55 years and older 10 0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 FIGURE 5-2 Labor force participation rates for four broad age-sex groups, 19502011. SOURCE: Bureau of Labor Statistics.
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From page 78... ...
The combination of economic growth and changing social norms produced a surge in female labor force participation rates during the second half of the twentieth century; the participation rate for women aged 25-54 doubled between 1950 and 2000, before declining slightly in the first decade of the 2000s. The participation rate for older women, unlike that for older men, rose from 1950 to 1970 and was essentially stable during the following two decades.
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From page 79... ...
and the Census Bureau's Current Population Survey were used to add a race/ethnic group component to the population projections. The resulting labor force projections suggest that the growth rate of the labor force will be essentially flat from 2010 to 2015 and will then resume the downward trend seen in Figure 5-1.
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From page 80... ...
. Female Labor Force Participation and Fertility Long-term projections of the size and composition of the nation's labor force depend on several key variables, including female labor force participation (FLFP)
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From page 81... ...
A negative relationship between FLFP and childbearing has been well documented in many countries. However, in spite of less generous family policies, the United States has relatively high levels of fertility and female labor market participation compared with other developed nations.
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From page 82... ...
. Legislative changes have sought to ease restrictions on older employees' receipt of pension benefits, and a congressional research report indicated that 41 percent of men and 35 percent of women aged 55-64 who reported receiving pension income in 2005 were employed in 2007 (Purcell, 2007)
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From page 83... ...
calculated average retirement ages of 62.6 years for men and 62.5 years for women in the early to mid-2000s using Social Security data and somewhat lower ages (61.6 and 60.5 years, respectively) using labor force data from the Current Population Survey, a joint effort between the Bureau of Labor Statistics and the Census Bureau.
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From page 84... ...
These occupations can be aggregated into 10 major groupings and 2The OECD calculates the average effective age of retirement as a weighted average of net withdrawals from the labor market at different ages over a 5-year period for workers initially aged 40 and over. In order to abstract from compositional effects in the age structure of the population, labor force withdrawals are estimated based on changes in labor force participation rates rather than labor force levels.
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From page 85... ...
economic situation during 2009-2011 might affect any absolute numerical forecasts of job growth, it seems likely that the projected changes in job mix are realistic. Technology and Changing Job Requirements More detailed data from the 2008-2018 BLS projections illustrate the dual impact that technology and population aging are likely to have.
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From page 86... ...
labor force grew rapidly from the mid-1990s to the mid-2000s, mainly because global changes in technology generated new market opportunities and demand for advanced skills. TRENDS IN EMPLOYMENT BY HEALTH The combination of increasing life expectancy and large numbers of people moving into traditional retirement ages -- and until the mid 1990s the decline in the LFPRs of men in particular (Figure 5-3, top panel)
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From page 87... ...
Nonetheless, the committee also would like to explore the relationship between mortality and another later, in 2007, the mortality rate was only 1.5 percent. That is to say, for the employment rate to be 50 percent in 2007, men "had to be" much healthier (by the mortality measure)
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From page 88... ...
The committee first compares SAH and future mortality in the United States. Second, it compares mortality-equivalent ages over time with SAH-equivalent ages over time.
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From page 89... ...
"SAH-equivalent ages" are defined similarly but are based on self-assessed health rather than mortality. Figure 5-7, which compares these two measures, shows that a person aged 67 in 2007 had about the same mortality rate as a person aged 60 in 1977, 8 30 1970s SAH fair-poor 7 2000s SAH fair-poor 1970s Mortality 25 Fair -Poor Health Rate (Percent)
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From page 90... ...
The observed labor force participation, which is affected by Medicare eligibility and Social Security provisions, is compared with the 4 The data points for France and the United Kingdom use different measures of health; the latter reports the percent in bad health and the former reports the average of a 10-point scale of health status.
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From page 91... ...
For both education groups the simulated labor force participation is substantially higher than the observed rate -- 53 versus 35 percent for the high school or less group and 60 versus 38 percent for the any-college group. In other words, the capacity to work 60 53 38 35 11 8 5 1 High Schoool or Less Any College Labor Force Observed Labor Force Simulated Disabled Observed Disabled Simulated FIGURE 5-9 Labor force participation and disability rates for men aged 65-69, by education, 2000-2003.
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From page 92... ...
Major impairment is defined as having limitation in one or more activities of daily living (ADL) or instrumental activities of daily living (IADL)
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From page 93... ...
In short, the evidence suggests that there is substantial potential for increased labor force participation at older ages. There has been a large decline in death rates over the past three or four decades and a corresponding improvement in self-assessed health.
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From page 94... ...
Effect of Social Security Plan Provisions on the Incentive to Retire Very strong evidence on the effect of pension plans on retirement is provided by cross-country comparisons of social security programs, which often have incentives like those inherent in employer-provided DB pension plans. The evidence presented is based on a coordinated set of studies conducted by analysts in each of the 12 countries in the International Social Security Project (e.g., Gruber and Wise, 1999 and 2007)
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From page 95... ...
An equally important result from this early project work is that when thinking about incentives to retire, it is critical to include disability insurance and special unemployment insurance programs as well as social security programs per se, because disability and special unemployment programs often serve as early retirement programs before the social security early retirement age. The "Fixed Number of Jobs" View of the Labor Market The original impetus for plan provisions that encouraged older persons to leave the labor force is unclear.
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From page 96... ...
The greater the tax force to retire, the greater is youth unemployment. Further, a greater tax force to retire is associated with a lower youth employment rate.
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From page 97... ...
Before this reform, the youth employment rate had been rising while the youth unemployment rate changed little since 1975. Hence it seems unlikely that the reform was precipitated by a decline in the employment rate or an increase in the youth unemployment rate.
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From page 98... ...
Thus, in some countries the incentive effects inherent in these plans can also have a large effect on labor force participation (Stock and Wise, 1990a and 1990b; Gustman and Steinmeier, 2002)
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From page 99... ...
Thus, the plans impose a large implicit tax on work, just like the implicit tax described above for social security defined benefits. Indeed, the analysis of retirement incentives inherent in employer-provided DB plans in the United States led to the international comparison project that produced the results discussed above.
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From page 100... ...
and Keogh plans from Internal Revenue Service, Statistics of Income. one reason for the increase in the labor force participation of older workers since the mid-1990s.
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From page 101... ...
Reducing the Cost of Employing Older Workers It is not well known that older workers in the United States face higher effective tax rates than younger workers. For instance, the 15.3 percent Social Security and Medicare payroll tax is often a pure tax on work for those aged 60 and over (Goda, Shoven, and Slavov, 2011)
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From page 102... ...
This question may be particularly important in light of the health reforms enacted in 2010, which if implemented will weaken the connection between employment and health insurance by making group coverage available to all regardless of work status. 7It should be noted that while a policy involving paid-up workers could help to raise labor force participation among older persons, it might have a deleterious effect on the imbalance in the Social Security trust fund.
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From page 103... ...
Chapter 3 explained that mortality rates have declined and life expectancy has increased substantially in industrialized countries. This is the achievement.
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From page 104... ...
Figure 5-16 shows the percent increase in life expectancy at age 65 together with the percent decline in the labor force participation of men aged 60-64 in the 12 countries participating in the International Social Security Project. In all of the countries life expec tancy has increased and in all of the countries labor force participation has declined, although there is substantial variation across countries.
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From page 105... ...
and other personal retirement accounts. But DB pension plans are still common for state and local employees, who typically have very generous plans with strong inducements to retire early.
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