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Demography of Aging (1994) / Chapter Skim
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3 Retirement and Labor Force Behavior of the Elderly
Pages 50-101

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From page 50...
... In the United States, for instance, recent legislation has outlawed mandatory retirement, banned the cessation of service year credits in pension calculations after a particular age, and increased the Social Security credit for delayed retirement after the age of 65. One intent of these changes is to make the The authors thank Philip de Jong, Lee Lillard, Linda Martin, and Samuel Preston for helpful comments on an earlier draft.
From page 51...
... Below, we first document some worldwide trends in labor force participation at older ages and review the literature that has attempted to explain them. We find that although most workers have a choice with respect to retirement age, the choice is constrained by personal health factors, government retirement and disability policies, and employer pension plans.
From page 52...
... _ ~A ~0 By- ~ O ~ ___ -_ ~ \/ N/ Do=-O O O O O O 0 _ . ~ _ ~ 1 1 1 1 1965 1970 1975 1 1 1 1 1 1 1 1 1 1 ~ 1980 1985 1990 Year Age 45-49 ° 60-64 ~65-69 50-54 + 55-59 ° 70+ FIGURE 3-1 United States male labor force participation rates by age, 1964-1992.
From page 53...
... 100 90 80 70 1 60 50 40 30 20 10 o Percentage ;==~ := ; = _ A ~-0 0 -- 9 0 O- O O O 1 1 1 1 1 1 1 1 1 1 1 1 1 1970 1975 1980 Year 1985 1990 Age 60 ^ 61 1 62 o 63 x 64 o 65 FIGURE 3-3 United States male labor force participation rates, ages 60-65, 19641990. SOURCE: Unpublished data, U.S.
From page 54...
... Women's retirement trends are being offset by a rising tide of female labor force participation in general. Other Organisation for Economic Co-operation and Development (OECD)
From page 55...
... ; for women aged 65 and over, participation rates are in the single digits for all 16 countries, except Norway and Japan.
From page 56...
... 56 DEMOGRAPHY OF AGING TABLE 3-1 The Employment-to-Population Ratio for Men Aged 55 and Over (in percent) Year Australia Canada Finland France Germany Ireland Italy Japan 1966 42.6 60.3 69.7 17.7 1967 57.0 42.8 59.6 53.4 28.5 1968 56.8 42.5 54.7 58.4 52.5 27.6 70.4 1969 56.1 42.8 52.9 57.5 47.3 0.0 70.1 1970 56.3 52.2 61.3 54.2 48.6 25.3 68.5 1971 55.5 50.6 59.3 52.3 45.1 67.3 24.7 68.0 1972 55.1 49.6 55.8 50.2 41.9 21.8 66.7 1973 54.0 49.0 54.5 47.7 39.9 21.2 66.7 1974 51.4 48.5 54.5 46.0 36.5 21.7 65.5 1975 48.7 48.4 50.2 44.5 33.7 57.5 21.2 63.9 1976 46.4 46.2 44.3 43.4 32.3 19.8 62.6 1977 45.2 45.3 40.8 43.4 31.4 55.6 21.6 61.3 1978 42.2 45.0 38.3 42.5 30.3 20.1 60.8 1979 40.8 45.2 38.3 42.3 29.8 54.6 18.2 60.6 1980 40.0 44.7 39.0 41.7 29.9 18.7 61.0 1981 38.9 43.7 38.7 40.8 29.7 52.5 18.2 60.8 1982 36.8 41.9 38.8 38.5 29.5 14.8 60.4 1983 33.9 40.5 36.0 35.2 29.1 49.1 17.5 59.9 1984 34.1 39.7 35.1 33.9 28.2 47.6 18.5 59.4 1985 33.1 38.9 34.3 33.1 28.0 44.7 18.3 58.9 1986 33.2 37.9 33.9 32.0 28.5 45.7 18.1 58.8 1987 32.3 36.9 31.9 30.6 31.6 44.5 17.2 58.4 1988 31.8 36.7 30.5 30.1 44.7 16.8 58.9 1989 32.7 35.9 29.8 29.8 43.4 16.2 59.2 1990 35.3 30.2 28.4 10.9 60.0 NOTE: indicates data not available.
From page 57...
... RETIREMENT AND LABOR FORCE BEHAVIOR New United United Norwaya Netherlands Zealand Portugal Spain Sweden Kingdom States 57 66.6 53.1 66.0 53.2 65.2 - 53.5 62.9 53.3 61.7 55.4 52.3 39.0 - 60.0 52.5 51.1 57.7 37.5 - 54.6 58.4 51.2 50.0 56.2 36.5 - 52.9 56.9 50.2 48.4 53.5 35.0 61.8 46.0 55.5 49.1 47.8 53.6 33.5 - 56.8 46.5 54.4 48.2 45.7 53.9 33.4 - 56.0 47.6 52.0 46.4 44.4 53.9 33.0 55.8 46.5 50.2 45.2 44.3 53.3 32.6 55.2 44.6 49.6 43.4 44.5 52.0 30.5 54.6 43.3 49.6 41.8 44.0 49.5 29.3 51.6 41.6 49.4 40.3 43.0 50.4 26.4 47.4 40.2 48.1 37.3 41.9 48.1 24.9 46.5 38.4 47.4 34.4 41.6 47.7 22.3 47.2 36.8 46.0 33.8 39.6 45.9 21.3 44.9 34.7 45.1 33.5 38.9 42.7 21.5 41.8 32.9 44.6 32.4 38.4 42.4 20.0 40.6 38.8 34.7 31.7 39.8 39.7 40.5 41.4 42.0 31.7 30.9 29.8 30.1 29.8 44.8 44.6 45.5 45.8 44.3 30.8 30.6 31.4 32.3 33.0 37.9 38.0 37.6 37.4 37.0
From page 60...
... 60 DEMOGRAPHY OF AGING TABLE 3-2 The Employment-to-Population Ratio for Women Aged 55 and Over (in percent) Australia Canada Finland France Germany Ireland Italy Japan 1966 12.0 50.0 25.4 4.1 1967 13.2 13.7 48.7 18.4 6.6 1968 13.4 13.9 49.1 28.7 18.4 6.2 32.2 1969 13.0 14.5 45.4 28.6 18.2 0.0 32.0 1970 13.0 16.6 44.4 27.3 16.5 5.1 31.6 1971 13.7 17.3 45.6 25.3 15.0 23.6 5.0 31.1 1972 13.6 16.3 42.9 24.8 14.2 - 4.2 29.8 1973 13.4 16.9 43.4 23.3 13.7 4.2 30.7 1974 13.4 16.2 43.0 22.2 12.8 - 4.2 29.4 1975 13.1 16.8 41.9 21.8 11.9 19.6 4.0 29.1 1976 12.7 17.0 39.8 21.7 11.7 3.9 29.0 1977 12.8 17.1 39.5 22.1 11.5 17.4 5.3 29.2 1978 11.6 17.3 37.8 21.6 11.4 - 4.8 29.8 1979 10.3 17.7 39.0 21.9 11.3 16.5 4.4 29.6 1980 11.3 17.6 41.1 22.1 11.3 4.6 29.5 1981 10.9 17.7 42.2 21.7 11.0 16.0 4.4 29.2 1982 9.3 17.2 43.3 21.0 10.9 4.8 29.4 1983 10.0 16.8 44.1 19.7 10.5 15.6 4.2 29.9 1984 9.9 16.7 43.5 19.4 9.9 13.4 4.5 29.3 1985 9.3 16.7 42.7 19.0 9.3 13.1 4.4 29.2 1986 9.7 16.1 39.1 18.6 9.4 12.6 4.6 28.7 1987 10.4 16.4 37.1 18.5 10.1 12.4 4.4 28.8 1988 10.6 16.8 37.2 18.4 12.3 4.1 28.9 1989 10.3 16.2 37.8 18.4 11.4 4.2 29.4 1990 11.0 16.5 38.2 17.6 4.2 30.0 NOTE: indicates data not available.
From page 61...
... RETIREMENT AND LABOR FORCE BEHAVIOR 61 New United United Norwaya Netherlands Zealand Portugal Spain Sweden Kingdom States 28.6 23.1 - 28.1 23.3 - 28.3 - 23.4 - 29.3 23.8 28.7 20.7 23.5 - 6.6 - 28.1 20.7 23.2 24.4 6.6 - 14.2 28.3 20.2 23.0 23.5 6.4 15.3 28.2 19.6 22.4 20.3 6.2 21.3 13.0 28.3 19.4 21.5 22.3 5.9 20.6 13.4 29.3 18.9 21.2 25.1 5.9 20.2 13.8 30.2 18.9 21.1 26.0 5.7 19.2 13.2 29.7 18.8 21.0 26.4 5.7 19.8 12.9 30.0 18.0 21.5 25.5 5.9 19.7 12.1 30.2 17.2 21.6 22.9 5.9 19.0 11.3 30.5 17.0 21.2 24.8 5.2 17.7 10.6 31.7 16.8 21.0 24.9 5.3 17.4 10.2 32.0 15.8 21.6 24.5 5.5 20.2 10.3 32.1 15.0 20.5 26.1 5.1 19.2 9.7 31.5 15.4 20.4 24.5 4.8 18.4 9.4 31.0 14.5 20.2 24.5 4.4 16.4 17.7 8.9 31.4 14.0 20.4 24.9 15.5 17.3 8.9 33.2 14.1 20.4 15.9 17.9 9.1 34.0 14.2 20.8 14.5 17.8 8.9 34.2 15.6 21.3 14.3 18.3 8.6 34.5 15.7 21.4
From page 62...
... The vast majority of the older Americans working part-time say they are doing so voluntarily (Bureau of Labor Statistics, 1992:Table 331. Among older Americans, the proportion working part-time has been growing over time: for men aged 65 and over, from 38 percent in 1970 to 49 percent today; for women, from 50 to 60 percent.2 In this sense, the early retirement trend may still be under way, but through hours rather than labor force participation.3 Other OECD Nations Part-time employment also appears to be on the rise in other developed nations.
From page 63...
... For those aged 55-64, we are at the low end of the spectrum, not because our labor force participation rates are particularly low, but because relatively few of those employed work part-time. By age 60-64, however, the United States, with 12 percent of the population working part-time, is much more typical.
From page 65...
... 6The discussion of the determinants of the retirement decision draws on the extensive literature review in Chapters 2 and 3 of Quinn et al.
From page 66...
... Survey responses and circumstantial evidence suggested that financial incentives might be important in the retirement decision. Retirement and early retirement rates rose dramatically in the United States as Social Security and employer pension systems expanded.
From page 67...
... women aged 58-63 in 1969, he found that current labor force status (in or out) depended on health, the presence of dependents, asset income, local labor market conditions, certain job characteristics, and most important for our purposes, eligibility for Social Security and/or employer pension benefits.
From page 68...
... Recent research has established that Social Security and many defined benefit pension plans contain strong retirement incentives (work disincentives) at specific ages.
From page 69...
... With samples of men from one of their pension plans and from the RHS, they calculated total lifetime income (from age 60 on) for hypothetical retirement ages between 60 and 68 the sum of the present values of earnings, Social Security, and pension benefits.
From page 70...
... found the same for both Social Security and pension wealth changes. We concluded that at least half of what looked like a mandatory retirement effect at age 65 was really due to the financial incentives that occurred at the same time.
From page 71...
... Exit Patterns from Career Jobs Researchers have recently begun to analyze the exit routes that older Americans take between full-time work on a career job and complete labor force withdrawal. Although many still make this transition in one step, many utilize one or more bridge jobs between the two.
From page 72...
... This research shows that dichotomous definitions of retirement, no matter what the definition used (e.g., labor force participation, a large decline in hours worked, receipt of pension or Social Security benefits, or selfdefined status) , miss much of the story.
From page 73...
... More importantly, changes in plans were correlated with changes in the environment, in particular, with the unanticipated increases in real Social Security benefits in the late 1960s and early 1970s, with changes in individual health status, and with changes in local labor market conditions. Increases in Social Security wealth and health deterioration increased the probability of retiring earlier than planned and decreased the likelihood of retiring later; an increase in local unemployment rates did just the opposite.
From page 74...
... Using personnel data from a large Fortune 500 firm, they find that discontinuities in actual retirement rates correspond closely with the incentives of the pension plan, and predict that changes in the pension plan (such as a delay in the early retirement age or a switch from defined benefit to defined contribution) would have dramatic impacts on retirement patterns impacts much larger than those predicted in other papers for Social Security reform.
From page 75...
... Demand-Side Analysis Most of the recent retirement literature has taken a supply-side perspective workers are assumed to choose which of several options to take, based on their preferences and the financial incentives they face. But there has also been a revival of demand-side interest, reminiscent of the early literature on involuntary retirement, asking whether older workers face restricted job opportunities as they age.
From page 76...
... This theory offers an explanation for both mandatory retirement, which has since been outlawed, and pension plans that penalize workers who stay on the job "too long."
From page 77...
... Disability Benefits as a Means of Retirement The decline in male labor force participation begins well below the earliest age of eligibility for public retirement benefits in the United States and in other industrialized countries. These declines and a simultaneous increase in the disability transfer rolls have generated a growing literature on disability policy that parallels the retirement research discussed above.
From page 78...
... They use trends in self-reported disability to infer the impact of disability transfer programs on the labor force attachment of older working-age men. They argue that about one-half of the 5 percentage point drop in the labor force participa
From page 79...
... published the first study of the labor supply effects of disability insurance based on individual microdata. He estimated labor force participation as a function of the ratio of Social Security disability benefits to wages (the replacement rate)
From page 80...
... All of these studies find that disability transfer programs do affect labor supply decisions. However, with different data sets, different measures of health, and different methodologies, they yield dramatically different elasticities of labor supply to disability benefits.
From page 81...
... The fact that many unsuccessful applicants do not return to work does not mean that work decisions are unaffected by disability policy. Substantial time can elapse between the onset of a health condition, its first impact on work performance, and its subsequent influence on job exit and application for disability benefits.
From page 82...
... As the previous discussion has shown, why the overall work experience of the disabled population is so poor is not known. By definition, such workers have health conditions that impede their ability to work to some extent.
From page 83...
... o .~ In 5-1 =^ to ~ En DO ~ In ~ ~ o ·_I In ~ o cd c)
From page 84...
... Reduced access appears to have reduced these populations in the 1980s. But providing sophisticated empirical evidence of the precise relationship between disability policy and labor force participation decisions has been difficult.
From page 85...
... Although the direction of the impact of some of these changes is clear, a significant unknown remains whether private sector defined benefit pensions will go along with Social Security and reduce their work disincentives or, alternatively, whether they will increase their work disincentives to make up for the loss of the Social Security effect. Mandatory Retirement Provisions Mandatory retirement rules once covered about half of the working population in the United States.
From page 86...
... emphasized that age 65 was also the age at which important Social Security and employer pension retirement incentives went into effect, and estimated that at least half (and probably more) of what looked like a mandatory retirement effect was actually due to concurrent financial incentives.
From page 87...
... Most analysts think that pension changes are potentially much more important. Employer Pensions Several important trends are under way among employer pension plans.
From page 88...
... , and then declined to 40 percent by 1988.27 Since workers with pension coverage are more likely to retire early, a decline in coverage may contribute to delayed retirement (Quinn et al., 1990:195-200~. In addition, the relative importance of defined benefit and defined contribution plans is changing.
From page 89...
... analyzed the incentives in some specific private pension plans over time. They found that during the 1970s, when the earliest legal mandatory retirement age was changed from 65 to 70 and momentum for eliminating it altogether was increasing, "the companies with plans that enhanced early retirement incentives by 1980 were the same companies that had made retirement mandatory at a relatively early age in 1970" (Mitchell and Luzadis, 1988:1071.
From page 90...
... In addition, Social Security internal records were appended, including information on past earnings and precise measures of potential Social Security benefits. A major drawback of both, however, was the paucity of details on employer pension plans.
From page 91...
... The HRS will prove to be an important resource for researchers in the l990s because it is newer and because it combines better information on health with more detailed information on economic characteristics. It will also contain employer data on pension and health insurance, along with Social Security earnings records, and has the potential to link other SSA records such as Supplemental Security Income and Social Security benefits.
From page 92...
... But it is not a substitute for investigating the labor force participation rates of people with disabilities. The need for these data remains unmet.
From page 93...
... They also contain limited information on employer pension plans. However, this is not as great a drawback for studies of retirement as it would be in the United States because most of these European data sets contain good information on their social security retirement and disability benefits.
From page 94...
... The experiences of older women are more varied and combine the earlier retirement trend with the increased labor force participation of women in general. Considerable research on retirement in the United States has shown that strong incentives to retire are embedded in many of our public and private retirement systems, and that these penalize workers who stay on their career jobs too long.
From page 95...
... But there is no reason to assume that current retirement patterns must or will continue. Research has shown that retirement decisions are endogenous.
From page 96...
... Kim, and G.A. Slotsve 1992b Modelling Application for Disability Insurance as a Retirement Decision: A Hazard Model Approach Using Choice-Based Sampling.
From page 97...
... Industrial and Labor Rela tions Review 44:733-745. 1992 The stampede toward defined contribution pension plans: Fact or fiction?
From page 98...
... 1979 The Social Security Disability Program and Labor Force Participation. Working Paper No.
From page 99...
... 1980 The decline in male labor force participation. Journal of Political Economy 88: 117133.
From page 100...
... 1984 Ruhm, C.J. bal~sbury, eds., Employer Pensions in a (~hanging Economy.
From page 101...
... Salisbury, eds., Employer Pensions in a Changing Economy. Washington, D.C.: Employee Benefit Research Institute.


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