The Consequences of Long-term Unemployment for 4.6 Million Americans

| Posted: April 26th, 2013

Tuesday morning’s hearing of the Joint Economic Committee highlighted the continuing challenge of long-term unemployment, which remains a persistent and pernicious problem nearly four years after the economic recovery began.

Last month, 4.6 million Americans had been unemployed for more than six months. Many of them have experienced devastating financial losses, and their job prospects remain grim. No one, not even the distinguished witnesses at Tuesday’s hearing, has been able to find the magic bullet to get them back to work.

Our recent study tallies the financial impact of extended job loss:

• Between August 2008 and December 2011, 6 percent of workers age 25 or older were unemployed for at least six consecutive months.
• Half of them experienced income declines of 40 percent or more, and more than a quarter fell into poverty.
• Long-term unemployment reduced incomes most for African Americans, unmarried workers, men, and college graduates. High school dropouts, African Americans, unmarried workers, and adults age 25 to 34 were most likely to fall into poverty when out of work for six months or more.

The financial toll would have been even worse without the social safety net and help from spouses. Half of the long-term unemployed collected unemployment insurance benefits, which for the typical recipient replaced 43 percent of lost earnings. Spousal earnings also cushioned the financial effects of job loss for many married workers, a form of insurance that wasn’t available to unmarried workers.

However, critical gaps in the safety net are obvious. Half of unemployed workers did not collect any unemployment insurance benefits six months after losing their jobs, primarily because they didn’t earn enough or work long enough to qualify. Coverage rates were lowest for African Americans, workers who did not complete high school, and those younger than 35, groups whose precarious finances even while working make them especially vulnerable during bad times.

For most of the long-term unemployed, other income sources didn’t change much six months after they lost their jobs. Few got financial help from family or friends in those first six months or tapped their retirement savings, and few spouses of the unemployed began working more. Few began receiving Supplemental Nutrition Assistance Program benefits (still known to many as food stamps), disability benefits, or other types of government assistance.

Most unemployed workers age 62 or older, however, did begin collecting retirement benefits. Social Security was a vital lifeline for out-of-work seniors, but collecting Social Security early has permanent consequences because it lowers their monthly benefits for the rest of their lives. This can create financial hardship near the end of life when health care costs typically soar.

How can we get the long-term unemployed back to work? No one really knows. The obvious solution is to kick start the economy and spur job creation, but there’s no elixir for slow economic growth. People talk about more education and training, but it’s not clear how much that really helps. Perhaps the best advice at yesterday’s hearing came from AEI’s Kevin Hassett, who recommended a series of employment experiments across the country to test what works and what doesn’t. At the very least, it would help researchers find jobs.

Unemployment line image from Shutterstock

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Why President Obama's Social Security Fix Is Not Enough: Five Alternatives That Could Do More

| Posted: April 9th, 2013

The Obama administration told reporters last Friday that when the president unveils his budget later this week, he will propose trimming Social Security by slowing down the rate at which benefits increase annually to keep pace with inflation.

Flickr Photo by SalFalko used under Creative Commons license (CC-BY-NC 2.0)

While changing cost-of-living adjustments (COLAs) might make sense as part of a broader effort to fix Social Security’s long-term financing shortfall, it won’t do as a stand-alone solution. In the end, the oldest Americans, and those disabled longest, would bear the brunt of this budget-cutting method.

But matters are urgent. The White House and Congress need to act soon to fix Social Security, because the system is currently paying more benefits than it receives in taxes. The trustees’ latest projections indicate the trust fund that makes up the difference will run out in 2033 under current rules. After that, Social Security would be able to fund only about three-quarters of scheduled benefits.

The sooner action is taken, the better. Most benefit-cutting proposals would protect existing retirees and those near retirement, while spreading the pain over numerous generations, so that a relative few don’t have to shoulder the burden alone. And it’s best to give people time to adjust to the new retirement rules, by working longer or saving more before they take effect.

Looking at the budget proposal’s approach, cutting COLAs would save money, but at the expense of some of the most vulnerable Americans.

The rationale for tweaking the COLA is that the existing formula is too generous. Social Security currently ties benefit increases to the change in the consumer price index (CPI-W). However, the CPI-W overstates inflation because it doesn’t fully account for quality improvements in consumer goods or consumers’ ability to shift to less costly substitutes when prices rise.

The chained CPI, an alternative measure created by the Bureau of Labor Statistics, corrects for these problems. It generally rises 0.3 percentage points slower each year than the CPI-W. That may not sound like much, but it adds up over time. The Social Security trustees project that switching to the chained CPI could reduce benefit payments by about $550 billion over the next 20 years (in constant 2011 dollars).

Those cost savings, of course, would come out of benefit checks, and the oldest retirees and long-term disabled workers would get hit hardest. Switching to a COLA based on the chained CPI would reduce benefits for an 87-year-old who began collecting at age 62 by about 7 percent, a potentially painful cut considering that half of beneficiaries in their 80s collect less than $12,000 a year.

However, the chained CPI ignores another problem with the existing COLA: it doesn’t reflect the spending patterns of older Americans. The CPI-W is based on the typical purchases of sampled wage and clerical workers. But older Americans spend more on medical care and housing.

The Bureau of Labor Statistics has constructed an experimental price index based on the spending patterns of consumers age 62 and older, but Social Security doesn’t use it. Between 1983 and 2011, that price index rose each year about 0.2 percentage points faster than the CPI-W because medical inflation surged. So the chained CPI sometimes understates the price increases that retirees experience.

But there are fairer ways to fix Social Security than changing how COLAs are determined. Adjusting the payroll tax is one option. Subjecting earnings up to about $200,000 a year to the Social Security tax would eliminate more than a third of the long-term financing gap.

Taking this step would cover about 90 percent of the nation’s wages, the same share covered in 1983 when Social Security last underwent major changes. Only about 84 percent of wages are taxed under the current system. By way of contrast, taxing all wages would eliminate nearly the entire long-term financing gap.

Other policy changes being discussed include

• expanding the tax base to cover other types of compensation, such as the value of the health benefits;
•  raising the retirement age;
• bringing more state and local government employees into the system; and
• restructuring the benefit formula to favor low-wage workers even more so than under the current system.

We’ll see what we find when the president releases his budget proposal. But if the only suggested change to Social Security is a new approach to determining COLAs, we’ll still have quite a bit of work cut out for us.

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Which Communities Contribute Least to Social Security?

| Posted: May 18th, 2012

Last month’s report from the Social Security trustees reminds us that we must soon fix the system’s finances to safeguard future benefits. One option that would help balance the system would be to raise the ceiling on earnings subject to Social Security’s payroll tax. Recently released data show that Social Security taxed only 82 percent of all earnings received in 2009. And in some of the nation’s wealthiest communities less than half of earnings were taxed.

Today workers and their employers each pay Social Security payroll taxes on annual earnings up to $110,100. That ceiling increases each year with the growth in average earnings. In 2009, the limit was $106,800. Because the tax base is capped, low-wage workers pay taxes on all of their earnings, whereas high-wage workers typically pay taxes on only part of their earnings.

This pattern is evident across communities. Wealthy New York County (better known as Manhattan) paid taxes on only 47.7 percent of all earnings received in 2009, the lowest proportion in the 100 counties with the most workers. More than half of earnings received that year in Manhattan, then, went to people who earned more than $106,800. Fairfield County in Connecticut, home to many of New York’s affluent bedroom communities, paid taxes on only a slightly larger share. Other counties in the bottom tenth include those that straddle Silicon Valley and those in some of the nation’s largest metropolitan areas, such as Chicago, San Francisco, Atlanta, and Boston.

Large Counties with the Lowest Share of Earnings Taxed by Social Security, 2009

Source: Author's calculations based on Social Security data.

Note: Restricted to the 100 largest counties in terms of 2009 employment.

On the opposite end of the spectrum, more than 9 out of 10 dollars earned in some other large counties were taxed by Social Security. The highest shares were paid by New York’s Bronx and Queens Counties, each separated by only a river from Manhattan, the county paying the lowest share. Counties in the Detroit metropolitan area (Macomb and Wayne), Indianapolis (Marion), Kansas City (Jackson), and Tucson (Pima) also paid disproportionate shares of their earnings to Social Security.

Large Counties with the Highest Share of Earnings Taxed by Social Security, 2009

Source: Author's calculations based on Social Security data.

Note: Restricted to the 100 largest counties in terms of 2009 employment.

These numbers highlight how unequally earnings are distributed across the nation. Inequality was even higher a few years earlier, before the financial crisis depressed pay received by the highest earners in 2009. Despite that slight improvement, inequality is much worse today than 30 years ago. Back in 1983, nearly 90 percent of all earnings were subject to Social Security taxes. But that share has plunged over time—even though the earnings cap rises with average wages—because earnings at the very top have surged.

Growing inequality matters for Social Security. The Social Security Administration estimates that setting the earnings cap to cover 90 percent of all earnings would eliminate between about a third and a half of the system’s long-term actuarial imbalance, depending on whether benefits were credited for the additional taxes paid. But the effects on individual taxpayers would vary widely across the nation.

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Why Are Older Workers Getting All the Jobs?

| Posted: April 13th, 2012

To hear the media tell it, you’d think this is the perfect time for seniors to be looking for work. Last week, just before the March employment numbers came out, USA Today trumpeted the news that 65 percent of all jobs created in February went to workers age 55 or older. That statistic is perfectly accurate—or as accurate as figures based on a household survey can be—but what does it mean? Are employers now embracing mature, experienced workers? Or, more ominously, has the financial crisis so depleted our nest eggs that no one can afford to retire anymore? Those explanations might make good copy, but neither one holds much water. Dig deeper and a more mundane explanation emerges: the number of seniors with jobs is growing because there are more older people and fewer younger people.

Let’s turn to the data. You can’t learn much about older workers from looking at a single month because the numbers are so volatile. For example, the Current Population Survey—the government household survey used to compile the official employment stats—shows that employment among Americans age 55 and older increased 277,000 in February but fell 47,000 in March. Instead, let’s consider trends over the past 12 months. And let’s ignore employment swings among those younger than 25, many of whom are in school and only marginally attached to the labor force.

What we find is that between March 2011 and March 2012, the number of employed adults age 25 or older increased by 1.9 million. Nearly five of six (1.6 million) were age 55 or older. Only 332,000 of the additional employed workers were age 25 to 54. This sounds consistent with the media’s storyline, but here’s the rub: over the same period, the number of adults age 55 and older grew by 2.8 million, while the number age 25 to 54 fell by 321,000. Simply put, over the past 12 months there were more 54-year-olds (born in 1957 or 1958, near the peak of the baby boom) turning 55 than 24-year-olds turning 25. This confirms what those of us following the workforce’s shifting demographics have been saying for years. As the population ages and the pool of younger workers shrinks, firms will increasingly turn to older workers to meet their employment needs.

Because population sizes are changing, we need to compare employment-to-population ratios to really assess how different groups are faring in the recovering labor market. Viewed through that lens, outcomes have improved somewhat over the past 12 months for adults on both sides of 55.Between March 2011 and March 2012, the share of adults employed rose by the same half a percentage point at both ages 25 to 54 and 55 and older. The employment-to-population ratio remained about the same at ages 55 to 61, increased by more than half a point at ages 62 to 64 and 70 and older, and declined by nearly a point at ages 65 to 69. All in all, younger workers seem to be sharing in the recent employment gains about as much as older workers.

Seniority still matters, so older workers are less likely than younger ones to lose their jobs. But when laid off, seniors take much longer to become reemployed. And once they find a job, it usually pays much less than their previous position. That’s the story that needs to be told today about older workers.

Employment-to-Population Ratios by Age, March 2011 and March 2012

Source: Author’s calculations from Bureau of Labor Statistics data.

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The Shifting Retiree Migration

| Posted: February 13th, 2012

My mailbox this past holiday season included greetings from several well-wishers describing their future retirement plans. These notes startled me because my friends—still nearly two decades from traditional retirement age—seem to be bucking the trend of working longer. But I wasn’t surprised about where they’re planning to spend their golden years. Like the latest wave of retirees, they’re forsaking Florida, the traditional retirement haven, and scouting locations elsewhere, including the Georgia coast and the Tennessee hills. These shifting retiree migration patterns matter a lot to local communities.

Back in 1990, more than one in four retirees age 55 to 65 who relocated across state lines moved to Florida. More than 1 in 20 moved to Tampa, about twice as many as relocated to Phoenix, the second most popular destination. Seven of the top 10 cities for migrating retirees were located in Florida.

Fast forward to today, and the patterns are quite different. Florida is still the most popular destination for relocating retirees, but it attracted only one in seven of those age 55 to 65 who crossed state lines between 2005 and 2010. Only three metros in the state now rank among the nation’s top 10 magnets for retirees. These days Americans are moving to cities around the country when they retire. The most popular destinations now include Phoenix, Atlanta, Las Vegas, and Dallas, fast-growing metros in the Sunbelt. But older, colder cities like New York, Washington, DC, and Chicago also attract many retirees.

Top Metros For Retirees Age 55 To 65 Who Relocated Across State Lines, 2005-2010

Source: Author’s calculations from the American Community Survey

Shifting mobility patterns matter because retirees help magnet cities prosper. Americans who relocate when their careers end are generally wealthier and healthier than those who stay put. Their home purchases and other spending invigorate the local housing market and broader economy. They pay local property and sales taxes but don’t use many government services, at least in the short-run before they need long-term care. Many retirees serve their communities by volunteering at local nonprofits.

As my colleague Howard Gleckman points out, many states try to woo wealthy seniors with tax breaks, such as by exempting pension income from taxes. It’s not clear that this strategy works, but it seems likely that the competition will heat up as the wave of retiring boomers intensifies.

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Why 7 Billion Isn’t Enough

| Posted: November 14th, 2011

Last month’s announcement by U.N. demographers that the world’s population had reached 7 billion reignited fears that our overcrowded planet is running out of space, food, and other resources to support us all. It’s a replay of the doomsday scenario made fashionable more than 200 years ago by Thomas Malthus and popularized by Paul Ehrlich’s 1968 bestseller, The Population Bomb. But in many places—including the U.S.—the real problem is too few births, not too many people, making it hard for nations and communities alike to support their oldest citizens.

There’s no doubt that the world’s population is soaring. It took nearly all of human history—until the early 1800s—to amass the first billion people. The second billion took only about 100 years. Lately we’ve been adding a billion humans about every dozen years.

The population is expanding because people are living longer nearly everywhere, not because they’re having more kids. Life expectancy in the U.S. now stands at 78, up from 68 in 1950. It’s even higher in places like Japan (83), Australia (82), and France (81).

As longevity has increased, birth rates have fallen. Back in 1960, the total fertility rate—the average number of children born to a woman over her reproductive years—was 3.65 in the U.S. Today American women average just 2.1 kids, the minimum needed to replenish the existing population without immigrants. The fertility rate is even lower in most other wealthy countries, including Korea (1.1), Italy (1.4), and Japan (1.4). Only a handful of high-income countries (Iceland, Israel, and a few oil-rich states in the Middle East) can boast birth rates high enough to expand their populations. Birth rates are even declining in lower-income countries. In India, the fertility rate fell from 4.6 to 2.7 over the past three decades.

With people living longer and having fewer kids, societies around the world are growing older. Here at home, 13 percent of Americans are age 65 or older, up from 8 percent in 1950. Twenty years from now nearly one in five Americans will have celebrated his or her 65th birthday. Certain counties are already much grayer. Seniors now make up 34 percent of residents in Charlotte County, Florida, for example.

The growing domestic imbalance between the young and old creates several challenges. At the national level, Medicare and Social Security taxes paid by a stagnating workforce must fund benefits for a growing number of retirees, threatening to bankrupt those programs. Local and state governments need to fund more services that enable seniors to age in private residences, like home care, home-delivered meals, and transportation for people who can’t drive to supermarkets and doctors’ offices. And if more young people aren’t on the horizon, we’re going to have to push back the start of old age to keep more adults in their sixties and seventies productively employed, paying taxes, and off the pension rolls.

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Retirement Isn’t Dead Yet

| Posted: October 7th, 2011

In the saga of the US financial crisis, usually one chapter recounts how the stock-market and housing crashes ended retirement. As trillions of dollars in retirement savings and housing wealth disappeared, who could afford to stop working? This story rings true, and most older workers surveyed say they plan to keep working long after they “retire.”

It turns out, though, that reports of the death of retirement are greatly exaggerated. Older workers, our new analysis shows, were more likely to retire between 2008 and 2010 than in any earlier two years in the past decade. Using data on older Americans from the Health and Retirement Study, we find that 17 percent of employed adults age 62 and older in 2008 had stopped working and described themselves as fully retired in 2010. Between 2006 and 2008, only 15 percent of older workers retired.

These results may contradict conventional wisdom, but they shouldn’t surprise us. As this morning’s unemployment report reminds us, working into old age, even if you’re healthy, isn’t in the cards for all when jobs are scarce. Fourteen million Americans are unemployed four years into the recession. Yes, older workers are less likely to be pink-slipped than younger workers, but the brutal job market hasn’t spared seniors. Today, the unemployment rate for adults age 62 and older is about twice as high as it was four years ago. And when older workers lose their jobs, they take about twice as long as younger jobless Americans to find work.

If you dig deeper, however, you find—as the figure here shows—that college grads aren’t retiring early. Their two-year retirement rate held steady between 2004 and 2008 while increasing 2 percentage points for high school drop outs and 3 points for high school grads. Partly that’s because college grads had enough savings to feel the stock market crash while most lower on the education ladder didn’t. Not only did they resist retirement when jobs became scarce, college grads were also less likely than those without BAs to lose their jobs during the recession.

Percentage of Workers Age 62 and Older Retiring Over a Two-year Period, By Education and Year

This retirement surge may hearten younger workers by freeing up jobs in the weak economy, but it’s bad news for seniors. Workers pushed into early retirement earn less and save less and must make their nest eggs  last longer. And if they claim Social Security benefits early, their income is permanently reduced.

End of story? Not at all. We’ll keep tracking these reluctant retirees to see how they fare in the recession.

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Helping Graying Job Seekers

| Posted: September 9th, 2011

Needles in the haystack of last week’s job report are statistics on how much older the unemployed are today than in previous weak job markets. Workers age 55 and older made up about 15 percent of the unemployed last month, up from just 7 percent in 1982, when the unemployment rate was similar. As the ranks of the unemployed gray, many metros also need to “gray” the services they offer to get people back to work.

More older Americans are unemployed today mainly because the population is aging. One in five workers is at least 55 now, the highest proportion since recordkeeping began in 1948. But older workers are also more likely to get laid off than they used to be. True, they are still 15 percent less likely than the age 25 to 54 set to be jobless. (See the latest numbers.) But in 1982, they were 37 percent less likely to be unemployed.

It takes older workers who lose their jobs longer than younger workers to find work. Last month, 55 percent of older unemployed workers had been out of work for more than six months, compared with 43 percent of all the unemployed. These disappointing job searches don’t reflect lack of effort, at least from jobless Americans too young to draw Social Security retirement benefits. No, as our research shows, unemployed workers age 50 to 61 search just as hard as their younger counterparts.

Sometimes searches are feckless because older workers lack up-to-date job search skills—and here’s where local communities can help. Every metro has one-stop career centers run by local workforce investment boards with federal, state, and local funds. These centers combine employment, training, and education services in a single location for unemployed workers. But some such services don’t help older job searchers much. Too few career centers train seniors to find jobs in the internet age, for instance. Yet, older workers who haven’t job-hunted for decades don’t know how to conduct internet job searches or join the professional networking sites. And too few centers offer computer-focused job training that could help older unemployed workers acquire or hone the latest spreadsheet, database, and word processing skills.

There’s more to re-engaging seniors than helping them update their job and job-search skills: some barriers limiting services for older displaced workers also need to go. Right now, the U.S. Department of Labor evaluates one-stop centers and their staff by looking at whether they’ve found good jobs for the unemployed. But since older displaced workers are much less likely than younger job-seekers to find new  jobs that pay what their old job did, the incentive for centers is to help younger unemployed workers first. To give the older unemployed a fair shake, then, DOL should reset its evaluation standards to take account of the age mix of the center’s clientele.

As traditional employer pensions fade away and retirement savings become harder to count on, few older workers can afford to put their feet up and retire when they lose their jobs. Instead, many must keep pounding the pavement to find jobs that will help make ends meet and a comfortable retirement possible. It’s time for local career centers to adapt to this new reality.

Percentage of Unemployed Workers Age 55 or Older

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It Takes a Village to Help Seniors Stay in Their Homes

| Posted: August 8th, 2011

Nearly all seniors want to stay at home as they grow older instead of moving to retirement communities, assisted living facilities, or nursing homes. But it isn’t easy. With limited transportation options, it’s hard to shop and get to the doctor. Many communities lack housing suited for seniors who have trouble getting around, and trudging upstairs or trying to wedge a wheelchair into a narrow bathroom can be daily ordeals. Often, home health care is expensive and hard to find too. With the population aging rapidly, US metros are struggling to create more livable communities so older adults can, as gerontologists put it, “age in place.” Most have a long way to go, and shrinking government budgets magnify the challenges.

One innovation that doesn’t rely on public funds emerged 10 years ago this month. That’s when Beacon Hill Village was incorporated in Boston. There,  the nation’s first nonprofit organized by neighbors started helping provide each other with the services and supports  needed to remain in the neighborhood instead of relocating to old-age homes. Its success spawned more than 50 other retirement villages nationwide, and hundreds more are on the drawing boards.

The retirement village concept is simple. Members must live in the neighborhood and generally be at least 50 years old. For the dues they pay they receive help with everyday activities. Services vary by village, but most include rides to doctor offices and supermarkets, advocates at medical appointments, and help with household chores—whether routine paper work, simple repairs, or meal preparation. Without these basic services, many members might have to move from homes and neighborhoods they know and love to drab institutions.

Topping the list of benefits villages provide is a lifeline when emergencies strike. The “Rise and Shine” program in the retirement village in Washington, DC’s Capitol Hill neighborhood pairs members who then check in on each other every morning with a phone call. The village office follows up if nobody answers the scheduled call.

Villages often refer members to professionals, such as home health care agencies, plumbers, and electricians, who provide paid services. But many village services are offered by volunteers, who are often members themselves. And that develops a real sense of community, village advocates say. It’s good to get your sink unclogged, but even better to link up with your neighbors and feel like part of a larger community.

Retirement villages can’t single-handedly make our metros work for aging Boomers. For one thing, nearly all villages so far are in affluent neighborhoods. At Beacon Hill, annual dues are now $640 per person or $925 per household. It’s not clear how well these villages would work in lower-income neighborhoods (though advocates claim that foundations could help underwrite some costs). Even so, retirement villages show one way  neighbors can come together to keep aging from meaning moving.

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