During the past quarter century, we barely talked about whether we had enough jobs in America. With unemployment rates comfortably in the single digits there were plenty of jobs to go around. This world came to an abrupt end with the financial crisis in 2008, as the monthly unemployment rate spiked. It has since remained stubbornly high, and many of the jobs lost in the Great Recession have not come back. In response, some have suggested that older workers "step aside" as a way to free up jobs for younger workers.
Why are people singling out older workers? One reason is the sharp increase in the number of older Americans over the past decade, a product of the aging baby boomers. According to the Bureau of Labor Statistics, the number of people aged 65 and older in the labor force (i.e., working or looking for work) increased from 4.2 million in 2000 to 6.7 million in 2010. Over the same time period, the number of people aged 16 to 19 in the labor force declined from around 8.4 million to 5.9 million, largely because of increases in school enrollment. Some have interpreted these data and concluded that older workers are crowding out younger ones as they both compete for a scarce resource-jobs.
This logic is not flawed on the surface. For a given firm at a given point in time, if an older worker decides to retire, all else equal, the firm will need to hire someone to fill this slot. This hiring of a new worker starts a chain reaction as each new hire frees up their previous job for the next qualified person. The progression continues to the point where a position eventually opens up for the youngest and least experienced worker. In this "boxed-economy" view, there is a one-to-one relationship between new retirees and new jobs for younger workers.
The logic of the boxed economy breaks down when one looks beyond a single employer at a point in time. Economies grow. Jobs are constantly being lost and created, as outmoded ways of production make way for new ones. The transition can be a bumpy ride, but in the end society is better off as living standards rise. As economies grow, the demand for goods and services increases, which creates and supports new jobs. This is why, as Jonathan Gruber, Kevin Milligan, and David Wise have pointed out, the huge influx of women into the workforce in the post-World War II era did not lead to large increases in unemployment among men, as the boxed-economy view would have predicted.
Sadly, economies can also shrink, sometimes substantially, as we experienced during the recession; and they can grow very slowly, as seen in the first two quarters of 2011. When that happens, there may be lots of people competing for a fixed number of positions. But to choose younger workers over older workers as a solution to free up jobs is arbitrary and, at a minimum, unfair. It's also a slippery slope--why not also require single workers to "step aside" so that those with children can work to support their families? And who decides?
Rather than go down this road, the focus should be on economic growth, which will lead to job creation. That's the best way to ensure that everyone who wants a job can have one.
When we have solid economic growth, there are enough jobs for older workers and younger workers alike. During much of the 1990s and up until 2008, when the number of older workers was increasing, annual real GDP growth was strong, at 2 percent or more, and even exceeded 4 percent in several years. This growth generated more than enough jobs to sustain the influx of older workers. Annual rates of unemployment were 6.0 percent or less from 1995 through 2008 and even hit a low of 4.0 percent in 2000, a rate not seen since the late 1960s. Older workers were not displacing younger ones.
Another reason why asking older workers to "step aside" in the name of benefiting younger ones is that, ironically, younger generations would be strapped with the cost of financing the earlier retirements of older workers. The traditional three-legged stool of retirement income - Social Security, employer-provided pensions, and savings - is wobbly for most older Americans. Social Security faces a shortfall in its 75-year budget window and some form of revenue increases or benefit cuts will be necessary to maintain program solvency. Employer-provided pensions have experienced a dramatic shift over the past 30 years, away from traditional defined-benefit plans to defined-contribution plans, like 401(k)s, so older workers now bear the investment risk associated with their assets, which could be substantial in light of the recent volatility in financial markets. Finally, savings rates have been low for much of the past decade, despite a recent uptick.
Because of this wobbly three-legged stool, many older Americans either have to continue working, or will look to their children and extended family for financial support. Others will rely on social programs. The latter outcome is especially problematic given already-strained government budgets. Younger workers would then face higher tax rates to fund the shortfall. So younger workers will "pay" for the earlier retirements of older workers in one way or another.
How, then, do we address the fact that both older and younger workers need jobs now? Our advice is to see past the short term and avoid introducing a market distortion - asking older workers to "step aside" - that is premised on the number of jobs in the economy being fixed. Instead, we should acknowledge that as economies change, job opportunities change. The fact that older workers want to remain working longer is good news - for individuals, businesses, and society as a whole. The fact that younger workers want to work is also good news. Their work experience forms the foundation for the years ahead. The way to take advantage of both is to promote economic growth, not asking older workers to step aside.
Vivian Diller, Ph.D.: Fashion for the Ages
R/ PRONESE
If we focus on the too-many-workers side of the argument, we end up with all kinds of market distortions, resentment, and, in the end, poor outcomes. Rather, let’s focus our attention on the real problem – job creation. By identifying the problem correctly we can then work effectively toward a solution.
For those who are interested in reading more on the topic of older workers crowding out younger ones, I highly recommend the NBER analysis conducted by Jonathan Gruber, Kevin Milligan, and David Wise. It’s a little technical but very convincing. See the link in my original blog; it will point you to their article.
Thank you all once again.
With much appreciation,
Kevin
No, it had been going on for 27 years but was papered over with Government debt and consumer debt. With the advent of Reaganomics the Government began running up large structural deficits. This was based on the false paradigm of “supply side economicsâ€. That was just a cover up for letting the very wealthy avoid paying their share of the cost of running the Nation. They after all received the most from the Government in terms of an educated work force, National defense and an economic system that provided the sustenance for their investments. While good jobs vanished by outsourcing, downsizing and hiring the undocumented wages stagnated to feed corporate margins. Consumers foolishly made up for their declining real incomes with debt. This expansion of debt was accommodated by Wall Street freed of the regulations that had provided 65 years of sound investment practices.
It was only after this corporate driven and Government sanctioned free for all that created the largest disparity in wealth in 80 years that we woke up to this nightmare. It has nothing to do with demographics or three legged stools and everything to do with a corrupted system whereby a disproportionate share of the wealth created by all is concentrated in the hands of the few. Until the control of Government is wrested from the oligarchs anything else will be tantamount to rearranging the deck chairs.
I agree growth strategies are what's needed. People aren't working past retirement age because they want to. It's a necessity for them since much of their savings was erased by the 2008 financial crisis.
This is the result.
Just a thought
1) Those that are well off should be the first to retire, pass the baton down to those that need it.
2) One main "bread winner" per household.
3) Downsize homes
4) Share time positions and no overtime for any individual while others starve
5) Train the youth
The argument posted says, since something is broken, let's not fix the problem -let's just do cosmetic makeup - it's too laughable to add too much time - but, the lack of respect for everyone's rights is pretty amzing. I wonder if the same views are shared by this writer for eliminating gays and lesbians from the workforce too. Oh no - that would be disrespectful and politically incorrect.
Looks like the far left press is starting to slam the senior citizens- wow- no class!
If you ever went to college or stepped foot in a library, then it clearly went over your head since you can't even read.
Nice reply tho!
If we were more intelligent, then we would figure out a way so that most people could lead very nice lives without anyone having to do much work at all, because that is what robots and other "labor saving" devices are for.
So where do we go from here? An extended social welfare network? In an environment of fiscal austerity I doubt that will happen. I believe the best they will offer will be slogans and calls for positive imaging: 'Imagine yourself at work, or back at work in a career and it will happen.'