Elderly employees have emerged as a significant engine of economic growth in the United States, accounting for about 60% of all gains in employment in the United States throughout the decade of the 2010s.
However, following the outbreak of the COVID-19 pandemic in February 2020, more than one in every fifteen older workers has left the country’s labor force.
In the short term, the drop in older labor-force participation is putting a damper on the present economic recovery. Long-term, if the reduction is sustained, it might exacerbate the already difficult economic, fiscal, and retirement security prospects for an aging America, which is already problematic.
Everyone is aware that the epidemic resulted in a significant increase in unemployment. Not widely known is that it also resulted in a significant decrease in labor-force participation – that is, the number of people who are either employed or actively seeking employment.
When compared to a year ago, during the height of the pandemic, the unemployment rate has decreased as the recovery has advanced and is beginning to approach its pre-pandemic level. The labor-force participation rate, on the other hand, has remained virtually unchanged since then.
There are a variety of reasons why the labor force participation rate has been slow to recover in recent years. As a result of pandemic-related caregiving obligations, many women were driven to leave the workforce, and others may have chosen to remain out of the workforce permanently.
Some workers may have been able to abandon the labor market, at least temporarily, as a result of government stimulus cheques and soaring asset prices, while the health consequences of lengthy COVID may have kept others at home.
However, the most significant factor is the increase in early retirements.
According to the Bureau of Labor Statistics, the labor-force participation rate of adults aged 65 and over in the United States was 7.2 percent lower in November 2021 than it was in February 2020, while the rate of “prime-age” adults aged 25 to 54 was down 1.3 percent.
Based on prior-year trends, the Federal Reserve Bank of St. Louis estimates that around 3 million more workers have retired since the start of the epidemic than would have been expected to retire.
It is possible that migration is motivated by factors other than simple health and safety concerns.
Although a large proportion of these additional pandemic-era retirees are lower-income workers, which is to say, people who are least likely to be able to work from home, higher-income individuals have also been retiring in far greater numbers than projected throughout the past few decades.
However, it is probable that the widespread death and disruption produced by the epidemic is causing a “life is brief” reevaluation of the trade-offs between ongoing employment and retirement.
While the reasons for this are not completely understood, it is possible that the drop in older labor-force participation, if this is the case, could prove to be more than a one-time shock.
The additional tax money that longer working lives provide may be used to assist offset the rising cost of old-age benefits spending, which is a concern.
Let’s hope not because extended working lives would have numerous benefits for an older population in the United States.
In economic terms, they have the potential to significantly mitigate the negative impact that a slower population increase during the conventional working years would normally have on economic growth.
The Congressional Budget Office predicts that employment will rise at a pace of only 0.3 percent per year by the 2030s and 2040s, resulting in a slowing of GDP growth to 1.5 percent per year — about half of the rate that it has been rising since World War II.
Additionally, increased tax money from longer working lives may be used to assist offset the rising cost of old-age benefits, which is a concern for the federal government in terms of fiscal policy.
Individuals would also reap significant benefits as a result of this. In terms of retirement security, for starters, things would be better.
The income-replacement rate of the 401(k) or comparable defined-contribution retirement plan would be approximately one-third higher if workers contributed for five more years to the plan and consequently received benefits for five fewer years, all other things being equal.
Aside from that, studies have shown that ongoing productive involvement has a significant favorable impact on the physical health of older persons, as well as their cognitive performance and emotional well-being.
Working longer hours as the population of the United States grows older is both natural and essential. It is only reasonable, given that both life lengths and health spans have increased considerably since retirement homes were first established in the early twentieth century.
Also required is that those same institutions become unsustainable as a result of an equally substantial slowdown in economic development, which has been attributed in large part to population aging as a whole.
Getting your life back on track
Prior to the outbreak of the pandemic, older American employees were moving in the correct direction. Following a rapid decline from the 1950s to the 1970s, the elderly labor-force participation rate reached a low point in the 1980s and 1990s before beginning to rise again.
The United States must immediately resume its normal operations once the pandemic has passed.
Several relatively few policy adjustments could make it more appealing for those older workers who are able to do so to stay on the job for a longer period of time, while at the same time protecting those who are unable to continue working. These are some examples:
- The payout formula for Social Security should be revised to take into account employees’ complete work history as opposed to only the 35 most productive years.
2. Taking advantage of Social Security’s delayed retirement credit, which currently expires at the age of 70 and can be used up to the age at which benefits are claimed.
3. Lowering FICA tax rates for older workers, who often do not receive any greater benefits as a result of the additional taxes they pay.
4. Making Medicare the principle payer for all employees who qualify for Medicare.
Employers can also assist by increasing the number of options for partial retirement, phased retirement, and “unretirement” available.
It should not be the goal for everyone to work for the rest of their lives if they can avoid it. It should not even be necessary for them to work longer hours. Some people will be unable to do so, while others will choose not to do so for a variety of reasons.
In the meantime, the economic and financial issues that the United States is presently facing will only increase unless a considerably bigger number of adult Americans continue to be constructively engaged long into their senior years.
It is possible that whether or not America succeeds in prolonging work lives will determine whether or not the country prospers as it matures.