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Will Fifteen Million Older Workers Lower Your Wages? OLDER WORKERs—RETIREMENT Will Fifteen Million Older Workers Lower Your Wages? Teresa Ghilarducci n the next seven years, an extra Robert Treist, and Richard Johnson, fifteen million people could be com- conclude it is likely that the increasing peting for jobs in the U.S. labor supply of older workers will lower the Imarket. These unexpected entrants pay for experience, and that people born are not immigrants, or young in large cohorts earn a wives, or newly minted high significantly lower wage school and college grads. The The labor force than members of smaller new workers are “domestic immi- participation cohorts. grants,” older people, who in the If more older workers rates of those Older workers conundrum past would have otherwise been work or seek work, the retired and not seeking work. ages 55 and • More people age 55 and older are working labor force participation than ever before because there are more The expected influx of millions older is higher of 55- to 64-year-olds in- older people in the population. of older workers rivals that of creases by 25 percent and • Some older workers continue to work by other periods of American history than ever before. that of 65- to 74-year-olds choice, others because inadequate retire- when large increases in the la- increases by 33 percent ment resources leave them no choice. bor supply reduced workers’ bargaining (Gary Burtless from Brookings predicts • Elected officials and policymakers should power and leverage they used to achieve make new laws and enact new policies to a doubling of labor force participation reflect the realities and meet the needs of wage growth or improvements in work- rates), and the numbers of workers in today’s and tomorrow’s older workers and ing conditions. that age group increases by 17.5 percent. retirees. Fifteen million new workers represent In comparison, the number of black • Ghilarducci proposes Guaranteed Retire- an almost 10 percent increase in the workers in the North increased by an ment Accounts (GRAs) for workers whose employers do not offer retirement benefits. labor force, which is an increase that average of 17.4 percent per year between GRAs, run by the federal government, would could rival the effect of the great black 1910–1940, and the annual increase in invest workers’ contributions in safe, low- migration from the American South to the number of women in U.S. labor mar- fee accounts that earn secure, modest, the North on northern workers’ wages. guaranteed rates of return and preserve kets from 1950–2000 was 1.8 percent savings for retirement benefits paid out in The increase in the supply of older work- (see the graph on the following page). a lifelong annuity—a fixed, incremental, ers could have a larger effect than the monthly return on investment, on top of negative wage effect that a greater supply The Size of the Domestic Supply of Social Security. of educated women workers had on less New Workers educated men after 1950, or the negative More people age 55 and older are work- effect the number of Baby Boomers had ing than ever because there are more on their own wages since they entered people that age and because the share of the workforce in the early 1960s. the working population has increased. Economists at Boston College and the More than 40 percent of the popula- Urban Institute, Margarita Sapozhnikov, tion growth since the mid-1980s has 22 PERSPECTIVES ON WORK / 2015 been among people over age 55. The competing in the labor market to number of people ages 55–74 will work or look for work. increase by 23 percent between 2012 The Washington-based think-tank, and 2022. Employment Benefits Research Insti- And there will be more older tute (EBRI), reports workers’ expect- workers, because the labor force par- ed retirement age has been rising since ticipation rates of people ages 55 and 1991, when 11 percent of workers ex- older is higher than ever before. Be- pected to retire after age 65. In 2015, tween 1985 and 2013, the labor force the highest percentage of workers ever participation rate for women ages 55 measured—36 percent—say they will and older increased from 22 percent retire after age 65. to just over 35 percent. Men’s partici- Non-existent and too-small 401(k) pation rate rose from 41 percent to account balances give less bargaining nearly 47 percent. power to older workers to either quit The future of the labor force par- a job or find a job they love. The av- ticipation rates of older workers is in erage Social Security benefit is about dispute, as all predictions are bound $15,000 per year; the median income to be. The Bureau of Labor Statistics from IRAs and 401(k) plans will yield (BLS) predicts a modest increase in $2,400 per year, which barely meets the percentage of workers ages 55– the federal poverty standard for liv- 74, to 60 percent, so the BLS predicts ing in a chronic state of want and the workforce for 55–74 will grow by deprivation. 17 percent in the ten years between Older people will have to take low- 2012 and 2022. wage jobs with poorer working condi- The BLS takes a conservative view tions than they want, and what would that the economic and social factors be worse than having a poor-quality, affecting retirement decisions But there is strong evi- low-wage job? Sadly, not having a job will not change significantly. In 2015, the dence that older workers will at all. The stick of poverty could raise These factors include tax work more and that the fac- labor force participation rates. highest percentage laws, retirement income, So- tors affecting work longevity, Also, policymakers and advisers are cial Security and Medicare of workers ever such as pension security, will clamoring for policies to increase the rules, and current cultural measured— drastically change. A lack of labor supply of older workers. If these and personal preferences for confidence in their retirement policies are implemented, the BLS pre- work, as well as employer de- 36 percent—say income and living standards dictions may underestimate the increase cisions about wages, hours, they will retire after could propel older people in older workers’ labor supply. The pro- work policies range from what Brookings and working conditions. age 65. who wouldn’t otherwise be economist Henry Aaron calls “mugging” policies to the other end of the range, to Older Workers’ Labor Supply Shock Could Be One of the Biggest in American History what are called “bribing” policies. Redesigning Social Security commu- nications to emphasize the large benefit hikes from delaying payments may boost work effort and reduce benefits. Some Republican presidential candidates have suggested that raising the Social Secu- rity full retirement age and the Medicare eligibility to age 70 would boost work effort among older workers. PERSPECTIVES ON WORK / 2015 23 Will Fifteen Million Older Workers Lower Your Wages? Scenario 1: Increase in labor supply by age if there are no Scenario 2: Increase in labor supply where workers in the older changes in labor force participation rates in any age category age groups increase their work effort. This scenario assumes an #s in millions 2012 2022 Change % Change increase in labor force participation of 25 percent for workers of ages 55–64, and 33 percent for workers of ages 55–74. 25–54 Noninstitutional Population 124.31 127.47 3.16 3% Labor Force Participation 81.40% 81.40% 0.00% 0% #s in millions 2012 2022 Change % Change Labor Force 101.19 103.76 2.57 3% 25–54 Noninstitutional Population --------------No changes---------------- 55–64 Noninstitutional Population 38.32 41.94 3.63 9% Labor Force Participation --------------No changes---------------- Labor Force Participation 64.50% 64.50% 0.00% 0% Labor Force --------------No changes---------------- Labor Force 24.71 27.05 2.34 9% 55–64 Noninstitutional Population 38.32 41.94 3.62 9% 65–74 Noninstitutional Population 23.65 34.25 10.59 45% Labor Force Participation 64.50% 80.63% n/a 25% Labor Force Participation 26.80% 26.80% 0.00% 0% Labor Force 24.71 33.814 9.1041 37% Labor Force 6.34 9.18 2.84 45% 65–74 Noninstitutional Population 23.65 34.25 10.6 45% Total Noninstitutional Population 186.29 203.66 17.37 9% Labor Force Participation 26.80% 35.64% n/a 33% Labor Force 132.25 139.99 7.75 6% Labor Force 6.34 12.208 5.8681 93% Total Noninstitutional Population --------------No changes---------------- Labor Force --------------No changes---------------- Sources: Gihoon Hong and John McLaren, “Are Immigrants a Shot in the Arm for the Local Economy?” Working Paper 21123, http://www.nber.org/papers/w21123. Nikolaj Malchow-Møller, Jakob R. Munch, and Jan Rose Skaksen,“Do Immigrants Affect Firm-Specific Wages? ” Scandinavian Journal of Economics, 114(4), (2012): 1267–1295. Spencer R. Crew, “The Great Migration of Afro-Americans, 1915–40,” Monthly Labor Review 100 (1987). Priscilla Murolo (Author), A. B. Chitty (Author), Joe Sacco (Illustrator), From the Folks Who Brought You the Weekend: A Short, Illustrated History of Labor in the United States (New York: The New Press, 2003). Margarita Sapozhnikov and Robert K. Triest, “Population Aging, Labor Demand, and the Structure of Wages,” Center for Retirement Research at Boston College, working paper, 2007-14. Released: October 2007. Therefore, if older workers boost their markets, but will the effect be large The second camp argues older people labor force participation, the wave of enough to make a difference? The an- working will only be positive—posi- 5.3 million new older workers predicted swer is most certainly yes.
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