Closing the Deficit: How Much Can Later Retirement Help? - Brossura

Brossura

ISBN 10: 0815704038 ISBN 13: 9780815704034

Casa editrice: Brookings Institution Press, 2013

Riassunto

As the average age of the population continues to rise in industrialized nations, the fiscal impacts of aging demand ever-closer attention. Closing the Deficit examines one oft-discussed approach to the issueencouraging people to work longer than they now do.
Workers would spend more years paying taxes and fewer years drawing pension and health benefits. But how much difference to spending and revenues would longer working lives make? What steps could be taken to make longer working lives attractive? And what would happen to older Americans not in a position to prolong their work lives? Leading scholars examine these issues in Closing the Deficit, edited by Brookings economists Gary Burtless and Henry Aaron.

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Informazioni sugli autori

"Gary Burtless is a senior fellow in Economic Studies at Brookings and a former economist with the U.S. Department of Labor. His previous books include A Future of Lousy Jobs? and Does Money Matter? (both Brookings), and he is a former editor of the Brookings-Wharton Papers on Urban Affairs. Henry J. Aaron is a senior fellow in Economic Studies at the Brookings Institution and the author or editor of numerous books, including Using Taxes to Reform Health Insurance (with Leonard E. Burman), The Problem That Won't Go Away, and Behavioral Dimensions of Retirement Economics, all published by Brookings."

Gary Burtless is a senior fellow in Economic Studies at Brookings and a former economist with the U.S. Department of Labor. His previous books include A Future of Lousy Jobs? and Does Money Matter? (both Brookings), and he is a former editor of the Brookings-Wharton Papers on Urban Affairs. Henry J. Aaron is a senior fellow in Economic Studies at the Brookings Institution and the author or editor of numerous books, including Using Taxes to Reform Health Insurance (with Leonard E. Burman), The Problem That Won't Go Away, and Behavioral Dimensions of Retirement Economics, all published by Brookings.

Gary Burtless is a senior fellow in Economic Studies at Brookings and a former economist with the U.S. Department of Labor. His previous books include A Future of Lousy Jobs? and Does Money Matter? (both Brookings), and he is a former editor of the Brookings-Wharton Papers on Urban Affairs. Henry J. Aaron is a senior fellow in Economic Studies at the Brookings Institution and the author or editor of numerous books, including Using Taxes to Reform Health Insurance (with Leonard E. Burman), The Problem That Won't Go Away, and Behavioral Dimensions of Retirement Economics, all published by Brookings.

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Closing the Deficit

How Much Can Later Retirement Help?

By Henry J. Aaron, Gary Burtless

Brookings Institution Press

Copyright © 2013 THE BROOKINGS INSTITUTION
All rights reserved.

ISBN: 978-0-8157-0403-4

Contents

Preface....................................................................
vii
Introduction Gary Burtless and Henry J. Aaron.............................
1
1 Who Is Delaying Retirement? Analyzing the Increase in Employment among 
Older Workers Gary Burtless...............................................
11
2 Future Labor Force Participation among the Aged: Forecasts from the 
Social Security Administration and the Author Gary Burtless...............
36
3 Impact of Higher Retirement Ages on Public Budgets Simulation Results 
from DYNASIM3 Karen E. Smith and Richard W. Johnson.......................
46
4 Nudged, Pushed, or Mugged: Policies to Encourage Older Workers to Retire 
Later Henry J. Aaron......................................................
72
5 Thoughts on Working Longer and Retirement John B. Shoven................
121
Contributors...............................................................
137
Index......................................................................
139

CHAPTER 1

Who Is Delaying Retirement? Analyzing theIncrease in Employment among Older Workers

GARY BURTLESS

Americans past age 60 are delaying their withdrawal from the workforce.This development reverses a trend toward early retirement that lastedlonger than a century. The trend toward earlier labor force exit came to an end forU.S. men between the mid-1980s and mid-1990s. After reaching a low point inthe 1985–95 decade, the labor force participation rate of 60–64-year-old men hasincreased more than 6 percentage points (about one-eighth), and the participationrate among 65–69-year-old men has increased about 13 percentage points(more than half ). Participation rates among American women in the same agegroups have increased even faster, especially when the change is measured in proportionalterms.

One explanation for this reversal is the change in incentives for work in laterlife, a result of reforms in the U.S. Social Security system, the gradual evolutionof the nation's employer-based pension system, and the increasing expense ofhealth insurance outside employer-provided group plans. Compared with the1970s and early 1980s, Social Security retirement benefits now provide fewer andsmaller disincentives to work after workers reach the benefit-claiming age.Employer-sponsored retirement plans are now more likely to offer defined-contributionpensions rather than defined-benefit pensions. The latter type ofplan can create powerful incentives for workers to leave career jobs after they haveattained the earliest benefit-claiming age. In contrast, defined-contribution plansprovide stronger incentives for older workers to keep working. Finally, the eliminationof many employer-funded retiree health plans combined with steepincreases in the cost of health insurance has made it riskier for workers too youngfor Medicare to leave jobs that provide a health plan.

The goal of this chapter is to identify the groups in successive birth cohortsthat have delayed their retirement in the era since the retirement age began to rise.It aims to answer a handful of questions about the trend toward later job exit inthe past quarter century: How big is the delay in retirement compared with jobexit patterns observed in the late 1980s? Do groups delaying retirement earnabove-average wages? Do the workers retiring at later ages have more schoolingthan average, or do they have below-average educational credentials? Does laterretirement primarily take the form of part-time work, or have aged workers alsoseen an increase in full-time employment? Have older workers delayed theirdeparture from their career jobs? Or have they taken "bridge jobs" that have lessresponsibility, fewer hours, or worse pay than their previous jobs?

The analysis was performed using Current Population Survey (CPS), whichprovides detailed monthly data on the labor force status of adults in approximately60,000 households every month. The available monthly files cover 1977to the present. During the first decade of the period, the average retirement agedeclined; during the most recent two and a half decades, the average age at retirementhas increased. Each section of this chapter addresses one of the questionsmentioned earlier. The chapter concludes with a summary of findings.

How Much Has Workforce Participation Increased at Older Ages?

At the beginning of the twentieth century, retirement was uncommon but notunknown. Just one out of three men past age 65 was outside the paid workforce.By 1950 retirement was more common. Only about 46 percent of men 65 andolder held a job or were actively seeking work. The labor force participation rateof aged men continued to decline and reached a low point in 1991, when lessthan 16 percent of men over 65 were employed or actively seeking a job. The proportionof women over 65 who were employed also fell during much of the twentiethcentury, but the reduction was far smaller than among men because the percentageof older women in paid work had always been modest.

Changes in Age-Specific Participation Rates

The decline followed by the increase in participation rates among aged Americansin the post–World War II era can be clearly seen in the Bureau of Labor Statistics(BLS) estimates of labor force behavior over the past six decades (seeappendix table A-1). The statistics for people 65 and older can be somewhatmisleading, however, because the ages they cover include both 65–74-year-olds,who tend to have higher workforce participation rates, and people who are pastage 75, nearly all of whom have left the workforce. The percentage of the olderpopulation in the labor force is affected by both age-specific participation ratesand the age profile of elderly Americans. As survival rates have improved, thenumber of people living past 75 has increased. Conversely, the entry of the largebaby boom generation into its retirement years is temporarily increasing the proportionof the aged population that is older than 65 but younger than 75. Toeliminate the effect of the changing age composition of the elderly population,we can examine the trend in labor force participation rates at specific ages. Figure1-1 shows participation rates at ages 60, 62, 65, and 68 during the forty-fiveyears after 1965. The figure shows participation rates for women and men,respectively. The tabulations, performed by the BLS based on monthly CPSdata, show a decline in participation rates through the early to mid-1980s amongwomen and a drop through the early 1990s among men. For both men andwomen, participation rates have increased in the past two decades. They havealso increased by proportionately larger amounts at older ages. Among 68-year-oldmen, for example, the participation rate increased by more than half between1991 and 2010. Among 68-year-old women, the participation rate increased byabout two-thirds.

The estimates of male participation rates in figure 1-1 can be compared withthose of Ransom, Sutch, and Williamson (1991) for 1910, derived from thedecennial census for that year. Between 1910 and 1991 there were sizeable dropsin male participation rates at ages 60, 62, 65, and 68. At age 65, for example, themale participation rate shrank 46 percentage points, falling from 77 percent in1910 to 31 percent in 1991. At age 60, the male participation rate continued todecline, although very slightly, after 1991. At ages 62, 65, and 68, however, participationrates have rebounded since 1991, erasing about one-quarter of theparticipation-rate drop that had occurred between 1910 and 1991. Participationrates at older ages remain far below their levels at the beginning of the twentiethcentury, but at ages past 62, participation rates have increased substantially abovethe low point they reached in the early 1990s.

Persistence in the Labor Force

Another way to interpret age-specific participation rate trends over time is to calculatethe rate at which workers who were in the labor force in a given year andat a given age (say, age 57) remain in the workforce at successively higher ages. Forexample, men who were age 57 in 1972 had a labor force participation rate ofabout 87 percent. When they attained age 62 in 1977, men in this cohort had aparticipation rate of 60 percent, or about 68 percent of their participation ratewhen they were 57. By age 65 their participation rate fell to 35 percent, or justfour-tenths of their participation rate when they were 57. I define the ratio of acohort's participation rate at ages over 57 to their participation rate at age 57 asan indicator of the cohort's labor force "persistence" at the later age. A higher rateof persistence at a given age after 57 indicates a slower rate of exit from the laborforce.

I estimated cohort labor force participation persistence rates at successive agesbetween 60 and 80 separately for women and men. Figure 1-2 shows my estimatesfor four cohorts of workers for ages 62 through 74. The estimates wereobtained using BLS-supplied tabulations of monthly CPS files covering calendaryears 1976–2010.5 For each calendar year, BLS analysts calculated the participationrate for persons at each year of age between 60 and 80. The cohort persistencerate at a given age is simply the participation rate at that age measured as apercentage of the participation rate of persons in the cohort when the cohort was57 years old. The second part of figure 1-2 shows the results of these calculationsfor four cohorts of men. The oldest cohort was age 60 in 1975; the youngest was60 in 2005. The other two cohorts were 60 in 1985 and 1995, respectively. Eachline in the chart shows the rate of labor force withdrawal of a cohort at successiveyears of age from 62 through 74. For example, when the youngest male cohortwas 62 years old, the participation rate of men in that cohort was 74 percent ofthe participation rate of the cohort when it was 57 years old (see figure 1-2). Atage 63, the participation rate of this same cohort was 70 percent of the cohort'sparticipation rate when it was 57 years old. Not surprisingly, the participation rateof a cohort generally falls in successive years. For the youngest cohorts, I displayonly four years of labor force persistence rates, because persistence rates in thefifth and later years could not be calculated with data available when the calculationswere performed.

The crucial point in figure 1-2 is that labor force persistence has increased inrecent cohorts compared with earlier ones. For example, in the oldest malecohort, which was 60 in 1975, the participation rate at age 66 was 33 percent ofthe cohort's participation rate at age 57. In the male cohort that was 60 in 1995,the participation rate at age 66 was 43 percent of the cohort's participation rateat age 57. Thus the participation rate fell considerably more slowly between ages57 and 66 for the younger cohort compared with the older one. The persistencerates through age 65 for the cohort that attained 60 in 2005 suggest that thistrend continues and, in fact, has become more pronounced between ages 62 and65. The results in figure 1-2 imply that men who are in the labor force in their late50s are now leaving the workforce at a slower pace than twenty years ago. In otherwords, the younger cohort is more persistent in remaining in the labor force. Thesame pattern of delayed retirement is evident among women (see figure 1-2);recent cohorts have been more persistent in remaining in the workforce than wascommon two decades ago.

Figure 1-3 shows how much labor force persistence has increased at variousages between 60 and 79. I have calculated the increase in the participation rate atsuccessive ages measured as a percent of the cohort's participation rate at age 57.The calculations are performed at individual ages between 60 and 79. After tabulatingthe persistence rates in 1988–90 and 2008–10, I calculated the increase inpersistence at the indicated ages between the two sets of years. (I averaged the persistencerates for three years at the start and the end of the analysis period toreduce the impact of year-to-year variability in measuring cohorts' persistencerates.) The top panel in figure 1-3 shows the increased persistence of old-agelabor-force participation among women. The bottom panel shows the same set ofresults for men. For both women and men, the trends in persistence are comparable.The increase in persistence is modest at ages 60 and 61, peaks at age 65,remains relatively high through age 72, and then declines. Except at ages 60 to 61and 77 to 79, the increase in labor force persistence has been greater among menthan among women.

Do Workers Postponing Retirement Earn Below-Average Wages?

The tabulations in figures 1-1 through 1-3 show unambiguously that both laborforce participation and the persistence of labor force engagement has increased inthe past quarter century. The statistics do not, however, shed any light on thekinds of workers who are postponing retirement. The next two sections attemptto provide some answers to this question. This section shows how the relativewages of the older working population have changed over time. I focus on wageand salary earners who are 62 years old or older, because these are the older workerswho have seen the largest proportionate increases in participation and laborforce persistence (see figure 1-3).

To perform the analysis, I estimated the age profile of hourly wages separately forcalendar years 1985–91 and 2004–10 using wage data reported in the monthlyoutgoing rotation group (ORG) CPS files. The files contain about 25,000 workerrecords per month, or approximately 300,000 per calendar year. Given the largesample size, it is possible to estimate average and median earnings within narrow agegroups. I divided each year's 25-to-74-year-old male and female samples into ninefive-year age groups plus two age groups—60–61 and 62–64—that separate peoplein their early 60s on the basis of their potential eligibility for Social Security retiredworker benefits. The first seven years of the analysis period, 1985–91, represent thefinal years of the trend toward early retirement. The last seven years, 2004–10, representrecent years in which old-age labor force participation rates have rebounded.Even though the second period includes one of the worst recessions since WorldWar II, the average unemployment rates in the two sets of years are similar. Thecivilian unemployment rate averaged 6.2 percent between 1985 and 1991 and6.4 percent between 2004 and 2010.

Table 1-1 shows estimates of the change in a variety of indicators of women'sand men's old-age labor supply between 1985–91 and 2004–10. (These estimateswere derived from tabulations of all the monthly CPS files in 1985–91 and2004–10 rather than just the ORG files.) Labor supply changes are shown separatelyfor women and men between ages 62–64, 65–69, and 70–74. In the nearlytwo decades between the two sets of estimates, labor force participation ratesincreased between 6.4 and 13.2 percentage points in the case of older women andincreased between 6.9 and 9.1 percentage points in the case of older men. Theother indicators of labor supply increased in these age groups as well, and theincreases were proportionately as large, relative to baseline labor supply, as theincreases in labor force participation.

Figure 1-4 shows the age profiles of relative hourly earnings in the two sets ofyears. In each narrow age group, the average wage is measured relative to themean wage of women or men who are between 35 and 54 years old. Clearly, therelative hourly earnings of older women and men have improved compared withthose of prime-age workers. In all three of the older age groups, women's hourlywages in 1985–91 were below the average wages earned by 35-to-54-year-olds. In2004–10 they remained below the average hourly wage of 35-to-54-year-oldwomen, but the discrepancy was significantly smaller. The improvement in relativewages of 62-to-74-year-old women was about 8 percent. The improvementin older men's relative earnings compared with 35-to-54-year-old men was evengreater (see lower panel of figure 1-4). In all three of the older age groups, men'shourly wages in the earlier period were below the average wages earned by 35-to-54-year-oldmen. By 2004–10 earnings of 62-to-64-year-olds were slightly higherthan those of 35-to-54-year-old men, and the earnings of 65-to-74-year-olds weremuch closer to the hourly wages of 35-to-54-year-olds. The relative earnings ofolder men improved 8 percent among 62-to-64-year-olds, 20 percent among 65-to-69-year-olds,and 26 percent among men between 70 and 74. Thus, theincrease in the labor supply of older workers was accompanied by an improvementrather than a decline in their relative hourly wages.

Are Workers Who Postpone RetirementBetter Educated than Average?

One reason that the average hourly pay of older workers has improved comparedwith that of prime-age workers is that older workers are now relatively better educatedthan older workers in the past. Among male wage earners between 62 and 74,the proportion who have graduated from college increased about one-seventhbetween 1985–91 and 2004–10 and the fraction who failed to complete high schoolfell about one-fifth. The improvement in educational credentials among older femaleworkers was smaller but still impressive. The gains in college education and the dropin the proportion of older workers who are high school dropouts are relatively largerthan the changes seen among prime-age workers. Thus, some of the relative wagegains of older workers are traceable to the fact that gains in schooling among prime-ageworkers were smaller between 1985–91 and 2004–10 than they were amongworkers who are between 62 and 74 years old. In part this reflects the rapid gains inschooling attainment that occurred after World War II, when people who are now 62to 74 years old were enrolled in secondary school and college. In some measure it alsoreflects the divergence between retirement patterns among older Americans withgood educational credentials and those who have less schooling.

(Continues...)

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Dettagli dell?edizione

• Editore: Brookings Institution Press
• Data di pubblicazione: 2013
• Lingua: Inglese
• ISBN 10: 0815704038
• ISBN 13: 9780815704034
• Rilegatura: Copertina flessibile
• Numero edizione: 1
• Numero di pagine: 151
• Redattore: Burtless Gary
• Contatto del produttore: non disponibile
• Persona responsabile: non disponibile