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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Drop Deferred Retirement Option Plans

| Posted: May 31st, 2011

Earlier this month I visited Philadelphia for the Pension Research Council’s annual conference at Wharton. There, experts presented new research on how the economic downturn has hurt pension plans and retirees. But the most interesting pension debate in town that week took place behind closed doors at city hall, not within the ivy-covered walls of a preeminent business school. In those quiet deliberations, which will lead to public hearings next month, the dilemma facing local officials grappling with the city pension plan’s early retirement incentives became all too clear.

Like nearly every other US city, Philadelphia provides its employees with a generous pension that encourages them to retire early. Municipal employees who began their city careers at age 25 can begin collecting full pensions at age 60 equal to 72 percent of the average salary they earned in their top three years. However, their lifetime pension benefits fall if they work past 60 because they lose a month of benefits for every extra month they work. As I’ve complained before, these plans push many workers to retire early, depriving cities of experienced civil servants.

Philadelphia thought it found a way out of this dilemma back in 1999—a deferred retirement option plan. DROP lets employees approaching retirement freeze their pension benefits while they continue to work for up to four more years. The city deposits their pension benefits into special interest-bearing accounts and continues to pay their full salaries. Once they stop working, they collect their account balances as a lump sum (often totaling six figures) and begin receiving the same monthly pension they would have collected had they simply retired on cue.

DROP works—more city workers are delaying retirement. But the program is expensive. Because employees no longer have to forfeit a month of pension benefits when they work a month past retirement age, lifetime benefits have soared. One study puts the 10-year tab for the city at about $250 million, a hefty sum when revenue shortfalls are forcing service cuts. Not surprisingly, outraged voters are crying foul, accusing DROP participants of double dipping by collecting salaries at the same time they’re banking pensions.

Philadelphia’s city council vows to cut costs by reforming the program even though many of its members participate. Reducing the interest rate earned on DROP accounts and tightening eligibility requirements are ideas floated so far, but others want the program eliminated.

Stay tuned to find out what happens in Philadelphia. It may be time to rewrite the city’s traditional pension plan along with DROP. Or maybe it’s time to drop both. And expect the furor there as the city tries to square its need for experienced civil servants with a retirement plan that promotes early exits to spread to other metros soon.

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Keeping Older City Workers at Work

| Posted: April 27th, 2011

My last blog described an overlooked but pressing flaw in the retirement plan that Los Angeles offers its workers. Like nearly every other U.S. city, LA offers traditional pensions that pay retirees regular monthly benefits until they die. But it penalizes employees who work past their late fifties or early sixties by making them forfeit a month of benefits for each month worked past the retirement age. As I noted, pushing these experienced and skilled civil servants into early retirement will backfire once the economy recovers and changing demographics make younger workers increasingly scarce.

The solution for cities like LA is to switch from traditional pensions to cash balance plans, hybrids combining features from both traditional pensions and 401(k)s. In these plans—first embraced by private firms in the 1990s—employers create retirement accounts for their workers and credit them with a certain percentage of pay each period. The accounts accumulate interest, generally at a rate tied to 10-year or 30-year U.S. Treasury bonds. At retirement, workers gain access to their account balance, which they can collect as a lump sum payment or in lifetime monthly installments. Account balances keep growing as long as workers remain employed, even beyond the retirement age, so nobody gets dinged for staying on the job.

The figure below shows the difference that a cash balance plan would make. For an LA city worker hired at age 25 under today’s plan, the value of future benefits falls each year she works past age 55. Working into her early sixties would reduce her take-home pay by nearly a third. No wonder that city workers in LA and around the country retire so early.

INCREMENT TO FUTURE RETIREMENT BENEFITS FROM WORKING FIVE MORE YEARS, AS PERCENTAGE OF SALARY EARNED (CITY OF LOS ANGELES EMPLOYEE HIRED AT AGE 25)

Consider instead the trajectory of future retirement benefits if the city paid 11 percent of salary into a cash balance plan. As the blue bars in the figure make clear, future retirement benefits climb by a steady 11 percent of pay throughout the municipal employee’s career, no matter how long it lasts.

Restructuring compensation to reward work at older ages is not on the agenda in LA or anywhere else. Instead, the public pension debate swirls around costs and financing—how to trim benefits and require employees to contribute more toward their pensions. That’s the fix hammered out by the Los Angeles mayor and city union leaders last month. The union rank and file had until yesterday to decide if they’ll go along.

Most likely, the City of Angels will continue to be the city of early retirement for now. But there is a way for metros to keep their best civil servants from retiring too soon and taking their valuable skills and experience with them.

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The Real Problem with Local Pensions

| Posted: March 28th, 2011

Late last week, Los Angeles mayor Antonio Villaraigosa and union leaders agreed to nearly double the amount city workers must contribute to their retirement plans. Forcing workers to contribute more toward their pensions lets the city pay less. This change, along with other cost reductions, would cut spending by more than $400 million, according to city officials.

Like cities across the country, LA is struggling to close a gaping budget deficit. Even though pension contributions amounted to only 3 percent of state and local government spending in 2008, many cities (and states) are looking to save money by trimming employee retirement plans or requiring workers to pay more of the costs themselves.

Reforms like the one hammered out in LA will indeed cut city retirement costs, but they don’t address a much larger problem with government pensions. The traditional defined-benefit pension plans paid to public-sector workers create strong incentives to retire early. That might not seem like a problem today, with unemployment at 8.9 percent nationally and 12.2 percent in California. But as the economy recovers, baby boomers retire, and the size of the working-age population flat-lines, talented workers will become relatively scarce. Today, a third of all state and local government workers are between 50 and 64 years old, up from just a fifth in 1990. As these workers are pushed into retirement by pension plans that penalize work at older ages, local governments stand to lose valuable skills and experience, and it will become increasingly difficult to replace retirees.

To understand how government pensions push people into early retirement, consider a woman who begins working for the LA city government at age 25. In return for her hard work each year, she receives future retirement benefits along with her current salary and health benefits.

Once she retires, she’ll receive a pension each month until she dies that’s equal to 2.16 percent of her final salary multiplied by her number of years on the job. So after 10 years of service, her pension would replace about a fifth of her salary, and after 20 years it would replace more than two-fifths. If she stays for 30 years, she can begin drawing her pension at age 55 (instead of having to wait until 60), and she would receive nearly two-thirds of her age-55 salary. These additional benefits significantly increase her compensation each year. The increment to future pension benefits equals a third of her salary in her forties and actually exceeds her salary at age 55.

But this pattern reverses after age 55.  Every month she delays retirement, she’s passing up a month of pension benefits she could have collected. Her future monthly benefits will keep increasing, but not enough to offset the benefit payments she’s giving up by working longer. By her early sixties, this loss in lifetime pension benefits adds up to a fifth of her salary every year.

Faced with such sharp cuts in total compensation, it’s no surprise that many public workers choose to retire in their fifties and early sixties, depriving taxpayers of their skills and experience.

By raising employee pension contributions, Mayor Villaraigosa doesn’t address this problem at all. In fact, the deal he negotiated with the union makes it worse. If LA and other cities want to encourage valued workers to stay on the job longer, they’ll need to switch to a pension design that doesn’t rob workers of pension benefits when they work beyond the plan’s earliest retirement age.

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