Arnold Kling  

Brad Plumer, meet Bill McBride

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Plumer writes,


while part of the story is clearly that the labor force is shrinking because the bad economy is driving workers out, another significant factor is that baby boomers are beginning to retire early -- a trend that has worrying implications for future growth.

This squares with my intuition, which is that the decline in labor force participation has a large secular component, driven by the aging of the population. Unfortunately, this story runs into a little bit of difficulty when confronted by the facts. Thus, McBride wrote,

The participation rate for the 'over 55' age group has been rising since the mid '90s (purple), although this has stalled out a little recently (perhaps cyclical).

...The participation rate is generally trending up for all older age groups. The '65 to 69' age group hit a new record high in March!

Follow the link to his post, which tells the story in graphs.


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CATEGORIES: Labor Market



COMMENTS (7 to date)
KLO writes:

There is a tendency to believe that old people stay in the workforce, because they need to do so to survive. Think of the old Wal-Mart greeter. This is generally false, as old people are the largest recipients of transfer payments and can generally survive without working. What instead happens -- and we have seen this in Japan -- is that a person is likely to stay in a job until an advanced age when that job is rewarding and not physically demanding. Think of the tenured college professor. As a result, most of the plum jobs experience little demographic changeover now, with those occupying them becoming older and older. At the same time, increased competition and other trends in the labor market demand lower wages and increased worker flexibility. Typically, these demands have a much greater effect on new or less established entrants to the labor market than on incumbent players. Thus, all things being equal, younger workers will have less incentive to participate in the labor force than more protected older workers. This causes long term declines in the participation of younger workers at the same time that older workers' participation is increasing.

Tony N writes:

I didn't read the entire McBride piece, so I may have missed something, but wouldn't Plumer's observation still ring true if the increase in the 'over 55' group's participation was offset by the larger rate of exit by that same group?

It stands to reason that there can be more 55+ workers in the labor force than ever, but more 55+ retirees than ever as well, just because the population is aging so dramatically. So long as the latter outweighs the former, other factors aside, won't the labor force necessarily shrink?

Glen Smith writes:

Not being able to work is a very depressing. A friend of my parents was so excited to retire but soon went back to work because he was bored. Also, during a short period of time in my life where I did not NEED to work for someone else, I got a low pay job and never enjoyed a job more in my life.

Ironman writes:

Arnold writes:

This squares with my intuition, which is that the decline in labor force participation has a large secular component, driven by the aging of the population.

Except, as we'll show here tomorrow (10 May 2012) in the third and final part of this series, Baby Boomers aren't retiring at any faster a rate than the members of the preceding Silent Generation were five years ago. Nearly all of the decline in the numbers of the U.S. workforce by age group since 2006 is on the other (lower) end of Age 55....

Arnold Kling writes:

Ironman,
Please consider reading a post before commenting on it.

Dan Hill writes:

If the following are assumptions hold (I believe they do):

1. the participation rate for over 55s is (and has been for the entire period under consideration) lower than for the rest of the working population

2. the proportion of the working population comprising over 55s has increased during the period under consideration (consistent with long established demographic trends)

Does that not contribute to a decrease in the average participation rate for the entire working population?

Ironman writes:

Touché, Arnold!

That said, as I should have continued, what's more interesting is the most likely reason behind the change in the age distribution of the U.S. workforce, which is what the post really gets into. There's much more behind the story than pure age demographics.

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