By Teresa Ghilarducci, University Of Notre Dame | 22-23 January 2004
"Can the elderly work longer?" may seem an absurd question for a rich country. "Why can't my thirteen year old get a job? We'll give him flextime and job training."
What we are really discussing this afternoon is what our social customs and expectations about work and retirement leisure should be. Economist John Maynard Keynes thought that economic growth would take care of the balance between work and leisure and predicted we would never have this debate [[as in so may things, he has been proved wrong! : normxxx]]. He predicted, instead, that our fundamental economic question would be how we should use our leisure time best, since we would be working only 2 hours a day.
In his 1928 essay "Economic Possibilities for Our Grandchildren" (we are the age his grandchildren would be)— he writes, "Let us for the sake of argument suppose that a hundred years from now we are eight times better off than we are in the economic sense than we are today." Assuming he meant per capita, The United States gross domestic product is, in fact, 6.5 larger now than in 1928 [[this was also in his pre-Crash & Depression years, when he was considerably more optimistic and conservative: normxxx]]. Keynes predicted that real economic deprivation would be solved and when
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It's a wonder that Keynes could have been so right about many other things and miss our current predicament so thoroughly; where overwork, rather than the problem of using our leisure time "wisely, agreeably, and well” is arguably our major problem.
The United States has a distinctive complementary consumer and work culture. American families routinely borrow money for mundane consumption and often spend more than their incomes— then work long hours to pay off their debt. Wage growth for most men has not kept up with inflation since the 1970s (Ellwood 2000) and family income has maintained its buying power because more family members are working and are working for more hours (Mishel 2000).
The average annual hours worked in the U.S. are now, famously, higher than for every other nation. The average annual hours worked in the U.S. in 1998 were 1,966; the nation with the next highest number of annual hours worked was Japan, followed by France, Germany, and the U.K. The Japanese worked 1,889 hours per year and the Germans, the fewest, at 1,560. Just forty years ago, the rankings were quite different. The Germans worked an incredible 2,372 hours per year, the French 1,926 and the Americans, a relatively leisurely 1,867, fewer hours than any of the other four nations (Phillips 2000, 63).
If Keynes had lived until 1985 he might have been a bit smug, there were great gains in leisure for men up until 1985. Quinn's findings bear repeating; but, I'll express his data a bit differently. Instead of labor force participation, I'll call the trends "leisure gains." Quinn shows that men over age 65 experienced a 60% decline in labor force participation, read: a 60% gain in leisure) from 1950-1985 (from a huge 72% 1950 labor force participation rate). Men over age 70, experienced a 70% gain in leisure; their labor force participation rate in 1950 was 50% and 16% in 1985.
But the reverse has been true for women, who have been markedly increasing their labor force participation since the sharp drop immediately post-WWII. More women age 65-70 are now working than at anytime since 1971. As Quinn says "century old trends have come to a screeching halt. All Americans are participating in the workforce more since 1985 than ever before."
Keynes could have been wrong for either of two reasons:
1. We Americans actually like work more than Keynes ever imagined we would, or,
2. Economic output was steered away from leisure for reasons other than what workers wanted.
My read of the evidence is that the latter proposition seems truer than the former— or, at least, holds for a far greater number of workers. The reason why older workers are working longer is the decline in retirement income security; this means I am rejecting the idea that work is becoming more attractive for older workers. I present evidence that work becoming more attractive to the older worker is not the reason older workers are working more.
There are three major pieces of evidence that the elderly prefer leisure to workforce participation.
1. Almost all economists' models of retirement behavior that explain why people voluntarily retire even if income drops is that the "taste for leisure increases with age" (Parsons 1980; Gustman and Steinmeir 1984, 1985; Leonesio 2000). Asking the elderly directly what they do with their leisure time also suggests that the value of leisure increases with age. Time use studies show that elderly spend more time, and I will use a technical term, "dinking around," which embraces the categories of grooming, watching TV, eating, cooking, hobbies, and sports— activities they repeatedly cite as preferential to work (Godbey and Robinson 1999).
2. The acquisition of new skills, respect, authority, raises and the self esteem that come with these job attributes are not as available to elderly workers (Hutchens 1986), even if outright discrimination is not an issue (see Neumark 2000 for a review of the age discrimination literature).
3. A recent study by Kevin Neuman (2004) shows that older men slow down their rate of health degeneration when they retire and older women actually improve their health when they retire. The Neuman study takes advantage of the Health and Retirement survey of individuals over a ten year period, some of whom have retired and some who have kept on working [[likely biased, since those marginally disabled would likely be a disproportionately higher number of those who retire early: normxxx]]. His finding suggests that longevity trends and retirement trends are not unrelated and that as elderly work more their health expenses could grow and the longevity trends reverse.
Who Loses When the Elderly Work Longer?
The huge decline in men's work effort before 1985 really came about for political economy reasons. Workers used to be more or less equal winners with employers, from the '30s on (before the '30s, each labor victory was hard won, often in lives and disabled). The labor movement, using their power as citizens won pensions and legitimacy in retiring when a person was healthy. Richard Burkhauser once remarked on how we far have come, because the retirement debate used to revolve around the capacity of the elderly to work— he assumed that is why retirement occurred, for humane reasons. I think he is only partially right: the debate in the larger world was always, like the famous fight for the 8-hour day and 40-hour week (reduced to as little as 35 hours in many white collar jobs), about how much leisure time can be had. Without reprising the fascinating history of the politics of work-hours in the U.S. workplace, I'll show you a way to look at the data to see the huge victories American labor garnered over time, through a history of old age leisure.
There are two ways to get more leisure: live longer and work less. Workers have gained in life expectancy, which implies they have more retirement leisure. Age-65 life expectancy for men in 2000 was 16.3 years and in 1950 only 12.8 years [[it was perhaps around 6 years in 1900; but far fewer men reached 65 in 1900! : normxxx]]. Likewise, female age-65 life expectancy increased 22.7% from 15 years in 1950 to 19 years in 2000 (Arias 2002). Up until 1985 total work effort declined, too, but has since leveled off. The large increases in leisure came in the mid 1970s with big increases in Social Security, maturing defined-benefit pension plans, and the introduction of Medicare in the early 1970s. Plot the number of total leisure years expected for each age group at any point in time by the different age groups, for both men and women. The total leisure years expected is the product of multiplying the leisure rate of participation [1.00 minus the labor force participation rate] times the number of years each cohort was expected to live after age 65. The increasing trend sharply changes in the '80s and flattens as we approach today, when defined-contribution (or no) pensions have largely replaced defined-benefit pensions and people are working more and longer.
The lesson to be learned from this review, at least in the antebellum U.S. is that "leisure gains" has become something of an empty phrase. Making the elderly work longer and making retirement income more risky means that elderly workers have lost something of value and are working more/longer because pension income is smaller and riskier— and that represents a loss. Let us not pretend that foul is fair and fair is foul because foul is retirement and fair is work.
Whether the trend of elders working more/longer is a "win-win-win" (workers win, employers win, and the government wins), or whether the trend signifies a "win-lose-win" depends mightily on the distribution of economic power between employers and their employers.
Here are four pieces of evidence to suggest that the employment terms for older workers strongly favor the employers:
1. The slight decline in the December unemployment rate showed a disturbingly sharp increase in the elderly's unemployment rate; in fact the AARP report on older workers and other reports find that despite the decline in blue collar jobs and the improvement in self-reported health, there is no evidence that age discrimination has diminished or that the elderly face fewer work limitations.
2. There is considerable evidence that wages increase more slowly for older workers and may even fall (in fact, almost all wage determination studies show that the coefficient of age-squared is negative).
3. There is no evidence that workers are getting the flexible schedules they repeatedly say they want, nor that job satisfaction is high or rising among the elderly; quite the converse.
4. There has been a severe decline in pension income and security for Americans (Ed Wolff and Dallas Salisbury). This loss of pension suggests that the terms the elderly will face in the labor market must lean towards employers' preferences, since employment will become a necessary way in which the elderly can supplement their failing, non-labor earnings. Research does show that the winners in the decline in pension income may be employers who have experienced a decrease in pension expenditures, especially when they have adopted a defined-contribution or no pension plan (Ghilarducci and Sun 2003) [[Wal-Mart famously prefers 'the elderly' as employees: normxxx]].
Do the Elderly Have More Capacity to Work Longer?
Let us not easily accept the proposition that the decline in blue collar work means that there is a better match with the abilities of the elderly, or even children for that matter, and that there are no personal or societal costs in 'letting' them work more. The debate on the socially optimal retirement age is couched in terms of balancing the economic costs of retirement with the workers' ability to work. The ability of the elderly to work, though they are working more and seeking more work, is something of a paradox. There is no indication that people's work limitations have been reduced or that technological change has made the actual jobs that the elderly perform any easier.
Just as many older people say they are unable to work now as twenty years ago. A full 11.3% of those between the ages 55-64 report they can't work two years in a row and that number has been trending up slightly for twenty years (Clark, et al 2004, 23). Older workers are often less than adequately trained and have less hope for pay increases (Hutchens 1986; Hu 2003); workers retire earlier from jobs with the worst characteristics (Deaton and Case 2003; Petri and Filer 1988) and jobs that require more computer training (Friedberg 2001).
Little attention has been paid to those who are able to work, but because of their early mortality (not everyone is living longer), die earlier and never get much retirement leisure. According to new analysis of the HRS, 11% of men die before 65 and 7% of women do. Many of these die before they can retire. Moreover the people who retire early are more likely poor and nonwhite— and likely retire because of disablement. That is the bad news, but the good news is that we still have Social Security disability and an early retirement age (~62) and they may get some retirement leisure (Ghilarducci and Neuman 2004). Studies show that those who take early retirement end up with less Social Security because they die earlier, 12% less, but they would have had 19% less if they had had to wait to collect normal early retirement (Wolff 1983).
Should the Elderly Work More?
This is a question about quality of life. Most evidence points to the elderly preferring to retire, but they are working more because of lost pensions. The outcome is clearly worse for workers, but it may be good for employers wanting to keep wage growth down and who resist investments in worker training (Lofgren et al 2003; Ellwood 2001).
Either Keynes was wrong, because our fundamental economic problem will never be too much time because we love work— in Keynes words, work being the way we "pluck the hour and the day virtuously," or, because when Keynes made his address, his timing was off. I think he was wrong because he couldn't foresee our present, resource limited political economy where workers would lose personal retirement income even as we got richer as a nation [[but not enough richer?: normxxx]]. A more important question than whether the American worker is able to work more and longer is what future do we envision as as a possibility for our grandchildren— live to work, or work to live?
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Resources
Arias, E. 2002. "United States Life Tables, 2000." National Vital Statistics Reports 51(3).
Clark, Robert L., Richard V. Burkhauser, Marilyn Moon, Joseph F. Quinn, and Timothy M. Smeeding. 2004. The Economics of Aging. Oxford: Blackwell Publishing.
Deaton, Angus and Anne Case. 2003. "Broken Down by Work and Sex: How our Health Declines." NBER Working Paper #9821.
Ellwood, David. 2000. "Winners and Losers in America." In David Ellwood and Karen Lynn-Dyson, eds., A Working Nation: Workers, Work, and Government in the New Economy. New York: Russell Sage Foundation.
Ellwood, David. 2001. "The Sputtering Labor Force of the 21st Century: Can Social Policy Help?" NBER Working Paper 8321. June.
Filer, Randall K., and Peter A. Petri. 1988. "Job Characteristics Theory of Retirement," The Review of Economies and Statistics. 10(1): 123-29
Friedberg, Leona. 2001. “The Impact of Technological Change on Older Workers" NBER working paper. 8297. May.
Ghilarducci, Teresa, and Kevin Neuman. 2004. "The Distribution of Early Retirement Leisure: Evidence from the HRS" Submitted to Journal of Human Resources. February 18, 2004.
Ghilarducci, Teresa, and Wei Sun. 2004. "Employer Pension Contributions and 401(k) Plans." Forthcoming in Industrial Relations, April 2004.
Godbey, Geoffery, and John P. Robinson. 1999. Time for Life: The Surprising Ways Americans Use Their Time. University of Pennsylvania Press.
Gustman, Alan, and Thomas Steinmeier. 1984. "Partial Retirement and the Analysis of Retirement Behavior." Industrial and Labor Relations Review. 37(3): 403-15.
Gustman, Alan, and Thomas Steinmeier. 1985. "The 1983 Social Security Reforms and Labor Supply Adjustments of Older Individuals in the Long Run." Journal of Labor Economics. 3(2): 237-53.
Hu, Luojia. 2003. Industrial & Labor Relations Review. Vol. 56, Issue 4, p663, 19p.
Hutchens, Robert. 1986. "Delayed Payment Contracts and a Firm's Propensity to Hire Older Workers" Journal of Labor Economics. 4:4 pp. 436-457.
Keynes, J.M. 1928. "Economic Possibilities for Our Grandchildren" in Essays in Persuasion. In Volume 1X of the Collected Writing of John Maynard Keynes. 1972 edition. MacMillan, St. Martin’s Press, pp. 32-334.
Leonesio, M. Vaughn and Wixon. 2000. Early Retirees and Social Security. In Social Security Bulletin. 64(4): 1-16
Lofgren, Eric, Steven Nyce, and Sylvester Schieber. 2003. "Designing Total Reward Packages for Tight Labor Markets" in Benefits for the Workplace of Tomorrow. University of Pennsylvania Press.
Mishel, Lawrence, et al. 2000. State of Working America Ithaca, Cornell University Press.
Neuman, Kevin D. 2003. "Does Retirement Affect the Health of Older Workers? Evidence from the Health and Retirement Study." University of Notre Dame Working Paper.
Neumark, David. 2000. “Age Discrimination.” NBER Working Paper
Parsons, Donald. 1980. "The Decline in Male Labor Force Participation." Journal of Political Economy. 88(1): 117-34.
Phillips, Kevin. 2000, Wealth and Democracy. New York. Prentice Hall. p. 163.
Quinn, 2004, this volume
United States Department of Labor, U.S. Bureau of Labor Statistics. Current Population Survey. Series ID LFS1603301, LFS21003301, LFS1604901, LFS1604901Q, LFS21004901, LFS1606501, LFS1606501Q, LFS21006501, LFS1603302, LFS21003302, LFS1604902, LFS1604902Q, LFS21004902, LFS1606502, LFS1606502Q, LFS21006502. http://www.bls.gov/data/home.htm.
Wolfe, John R. 1983. "Perceived Mortality and Early Retirement," in The Review of Economics and Statistics. 65(4): 544-551.
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Normxxx
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