Retirement Equity Lab
SCEPA's Retirement Equity Lab, led by economist and retirement expert Teresa Ghilarducci, researches the causes and consequences of the retirement crisis that exposes millions of American workers to experiencing downward mobility in retirement. As a result, SCEPA has developed a policy proposal known as Guaranteed Retirement Accounts Guaranteed Retirement Accounts (GRA) to provide stable pensions to the 63 million workers who currently have none.
The average unemployment rate is down. But it is up for older workers. Today’s jobs report from the Department of Labor reports an unemployment rate of 3.7% for workers over 55 in January, up from 3.2% last month, an increase of 0.5 percentage points. The overall unemployment rate went down by 0.1 percentage points from 5.0% to 4.9%.
Last month, we reported that unemployed older workers took longer to find a new job than younger workers. Drilling down to the different experiences of men and women, we find that that the long-term unemployment rate - defined as being unemployed more than 27 weeks - increased faster for older women.
In 2007, before the recession, a larger share of jobless men ages 55 to 64 (26%) were long-term unemployed than jobless women of the same age (21%). By 2015, well into the recovery, 37% of unemployed men and 35% of unemployed women were long-term unemployed. The share of unemployed women who are long-term unemployed increased 14 percentage points compared to an increase of 11 percentage points for men. For comparison, in 2015, 22% of unemployed 20- to 24-year-olds were unemployed long term.
Other studies confirm that older women face a harsh labor market. The National Bureau of Economic Research (NBER) found that older, college-educated women face more discrimination finding work than both younger women and older men. The Federal Reserve Bank of St. Louis also found that after the Great Recession, older job seekers, especially women, were hit hardest and longest by both unemployment.
It’s no surprise that long-term unemployment decreases bargaining power by increasing a worker’s willingness to accept a less desirable job. Older women nearing retirement already experienced a lifetime of wage disparity that makes it harder to adequately save for retirement during their working years. For women ages 50-64 without enough retirement income, cutting Social Security by raising the retirement age makes the situation worse. They will be forced to work or look for work longer in a labor market characterized by both age and sex discrimination.
Rather, we need to provide Americans with an adequate, secure income in old age. This will level the labor market playing field, allowing all older Americans to choose between retiring with dignity and taking the time to look for decent jobs that best match their skills. Guaranteed Retirement Accounts (GRAs)are one means of achieving this goal.
NOTES: The share of unemployed workers who are long-term unemployed by sex and age is calculated by dividing the number of women and men that are unemployed for 27 weeks or longer by the number of all unemployed workers. The Bureau of Labor Statistics provide the data for the denominator and numerator. The denominator is the number of unemployed men and women aged 55-64 and the numerator is the numbers of long-term unemployed men and women aged 55-64.
Older Unemployed Workers Take Longer to Find Jobs than Younger Workers
The unemployment rate is falling for workers in all age groups. For workers over 55, today’s jobs report from the Department of Labor shows an unemployment rate of 3.2% in December, a decrease of 0.5 percentage points from last month.
While this is good news overall, if an older worker is out of a job, it will take 10 weeks longer to find a new one than their younger counterparts. In 2007, the average time spent unemployed for workers 55+ was 23 weeks, compared to 20 weeks for younger workers, a gap of three weeks. In 2015, the gap increased three fold to ten weeks, with older workers spending 36 weeks looking for a job compared to 26 weeks for younger workers.
Whatever the cause, be it age discrimination or biased job training programs, older workers are less able to recover from the shock of losing a job. As their time looking for work stretches out, many turn to early retirement as an escape, paying a high price in decreased standards of living due to inadequate savings. Cutting Social Security benefits by raising the retirement age will fuel the increase in older workers’ income vulnerability. Systemic change requires a comprehensive program in the form of Guaranteed Retirement Accounts to ensure older workers have the retirement income needed to leave the labor market when they chose.
On January 1st, 2016, The New York Times published an oped by SCEPA Director Teresa Ghilarducci and Blackstone President Tony James, "A Smarter Plan to Make Retirement Savings Last." The article was mentioned in January 4th news updates by Daily Kos and Politico.
In the piece, Ghilarducci and James call for the creation of a mandatory savings plan as a necessary solution to the coming retirement crisis:
"We need a bolder plan, which we are calling the guaranteed retirement account (G.R.A.). Under our proposal, all workers and employers will have to make regular payments into a G.R.A., which builds until retirement age, then pays out a supplemental stream of income until that person and his or her beneficiary die.
The current system - a mix of 401(k)s and individual retirement accounts (I.R.A.s) - is broken."
Na Yin, Associate Professor at the School of Public Affairs, Baruch College CUNY and Faculty Associate at the CUNY Institute for Demographic Research will present "Work Limitation Reporting and Disability Programs in Europe and the U.S." at SCEPA's Retirement Equity Lab's (ReLab) Political Economy of Aging workshop on February 5, 2016.
Friday, February 5, 2016
11:00am to 12:30pm
The New School, Wolff Conference Room
6 East 16th Street, Room 1103
New York, NY
Dr. Yin studies social security, aging, and disability policies in the United States and Europe. Her research investigates the effects of specific policies on individuals' behavior and well-being. She uses dynamic structural models to simulate behavioral and fiscal effects of policy reforms. Dr. Yin also studies the measurement of work limitation in a cross-country setting.
The Political Economy of Aging workshops are a forum for academics and practitioners to share and engage in cutting edge research in social policy and the political economy of aging. The series is designed to forge interdisciplinary connections and leverage grant opportunities in the field of aging.
The Political Economy of Aging Workshops are sponsored by SCEPA's Retirement Equity Lab (ReLab). SCEPA's Retirement Equity Lab, led by economist and retirement expert Teresa Ghilarducci, researches the causes and consequences of the retirement crisis that exposes millions of American workers to experiencing downward mobility in retirement. As a result, SCEPA has developed a policy proposal known as Guaranteed Retirement Accounts (GRA) to provide stable pensions to the 63 million workers who currently have none.
Today’s unemployment report - while good news for the overall economy - reveals that the number of older people in the labor market continues to outpace population growth. While we all know the number of older people is increasing as the Baby Boomers hit retirement age, this isn’t a story about demographics. It’s about a larger percentage of older workers relying on the labor market.
You can see this trend in both the shrinking unemployment rate for older workers and the increase in their labor force participation rate. In November, the unemployment rate for older workers was 3.7%, one of the lowest since the beginning of the recovery in 2010. More people are working or looking for work.
The labor force participation rate, like the unemployment rate, includes both those looking for work as well as those who have jobs. In November, the participation rate for workers 55+ was about 40.2%, close to its peak of 40% in 2012. In 1995, only about 30% of workers over 55 participated in the labor force, an increase of 124% over the past 20 years. As a result, the labor market is flooded with 35 million older workers. In contrast, the number of prime-age workers (those between 25 and 54 years old) has not grown as fast as the prime-age population. The labor force participation rate of prime-age workers fell to about 80.7% from 80.8% in 1995.
Why are more older workers in the labor market? Given the crisis in retirement savings, some are unable to leave due to inadequate savings, the increase in 401(k)-type plans, and the lack of affordable health insurance.
Cutting Social Security benefits through raising the retirement age leaves work as the primary solution to the shortfall in retirement wealth. While it may look good to see an increasing demand for jobs among older people in an expanding economy, this rosy scenario doesn’t account for bargaining power. If the surge in older workers continues, the job market for all workers takes a hit in lower wages and increased competition between old and young.
The solution is to ensure retirement income through Guaranteed Retirement Accounts. This benefits both old and young. Older workers would have the choice to retire at their current standard of living and younger workers will see an increase in the supply of jobs.
SCEPA Director Teresa Ghilarducci and Christian Weller from the Center for American Progress (CAP) are working to address the retirement crisis by improving the federal government’s system of retirement savings incentives. On October 30th, they published a paper on The Inefficiencies of Existing Retirement Savings Incentives and hosted an event with academic and political experts to discuss the issue in depth. On November 18th, they released a second paper on Laying the Groundwork For More Efficient Retirement Savings Incentives that contains proposals for reform.
Ghilarducci and Weller’s research concludes that the federal government’s current policy to encourage retirement savings through the tax code is both inequitable and inefficient. The wealthy have higher marginal tax rates and therefore benefit more from tax deductions than the poor and middle class. Furthermore, research has shown that wealthy households would save anyways and tax deductions merely encourage them to shift their savings into retirement accounts to lower their tax bill.
The authors suggests five policy reforms to make the federal government’s retirement savings incentives more fair and effective:
- Make the Saver’s Credit fully available to lower-income households
- Establish and expand progressive savings matches
- Simplify retirement savings incentives by streamlining rules
- Limit the automatic increases of tax deductions
- Create simple, low-cost, and low-risk options for people to save for retirement outside of employer plans
On Wednesday, November 18, 2015, SCEPA Director Teresa Ghilarducci joined the Economists for Peace and Security's Symposium on Inequality, Austerity, Jobs, and Growth. The symposium featured a keynote address by Sarah Bloom Raskin from the Treasury Department.
Ghilarducci's presentation, "Wage and Retirement Time Inequality," was part of the first panel, "Jobs, Growth, Wages, and Inequality: What's the Agenda?," along with Allen Sinai (Decision Economics), Stephen Rose (Georgetown), and Heather Boushey (Washington Center for Equitable Growth and a New School Economics PhD).
The two other panels were on austerity and growth, and economics and global security, and will include Stephanie Kelton (Senate Budget Committee), Mike Konczal (Roosevelt Institute), and Josh Bivens (EPI), among many others.
Economic growth can be a rising tide to lift all boats, so we are told. Advocates for cutting Social Security benefits by raising the retirement age imply that economic growth will create jobs for older workers left to work longer. But the data debunks this myth: America’s fastest growing cities have the highest rates of unemployment for older workers.
Nationally, this morning’s job report from the Department of Labor reported an October unemployment rate of 3.5% for older workers (aged 55-64). But in the 10 cities with the highest gross metropolitan product (GMP) growth in 2014, the numbers are worse, with 5.6% of older workers unable to find jobs, as compared to a metropolitan average of 4.0%.
Economic growth is not a quick solution to the difficulties faced by older workers who can’t afford to retire. Why? The factors that drive economic growth – a booming tech and finance sector, for example - don’t necessarily produce jobs for older workers. In fact, industry specialization - a key driver of growth - could explain why older workers struggle in booming cities.
The 10 cities with the highest growth in output, over 5.5%, have a higher demand for technology jobs and significantly higher demand for finance, insurance and real estate jobs than the national average. For example, Austin, Texas, and San Jose, California, are home to expanding technology sectors, but recorded unemployment rates for older workers of over 12%. If high growth becomes dependent on jobs requiring knowledge of cutting-edge software at a time when firms are less willing to train workers, older workers will continue to be at a disadvantage in the labor market.
Instead of raising the retirement age, consigning older workers to an unfriendly labor market and increasing risk of old-age poverty, Americans need Guaranteed Retirement Accounts (GRAs), a reliable and effective method to save for retirement.
SCEPA co-hosted a conference with the Center for American Progress on How Tax Reform Can Address the Incoming Retirement Crisis. We discussed the erosion of American's retirement security and how the tax code can be used to encourage retirement savings.
Retirement tax expenditures are the second largest federal tax expenditure, costing roughly $100 billion per year and growing. They are ineffective and regressive. Rather than encourage savings, they incentivize the well-off to shift their savings to tax-exempt accounts. The top 20% of earners reap 60% of the benefits of these expenditures, while the bottom 40% of earners see only 3%.
In light of the crisis in retirement savings--one quarter of workers aged 50-64 have no retirement savings whatsoever--we believe this money could be put to better use. If it were converted to a credit and divided evenly among the population, it could provide over $600 per year to Guaranteed Retirement Accounts. Add to that state retirement tax expenditures, and you can make an impact in the retirement security of low-income and middle-class Americans.
In "Raising the Retirement Age: A Sneaky Way to Reduce Social Security Benefits" SCEPA Director Teresa Ghilarducci writes about how raising the eligibility age for Social Security is bad politics and bad policy. Employers wanting to hire from a larger labor pool and Republican hard-liners who reflexively support decreases in government spending have long-supported cutting Social Security. Recently, it's been trumpeted as a prudent centrist policy. It's not.
First the policy. Make no mistake, raising the retirement age is a cut in benefits. As it stands, the full retirement age is 70. If you start collecting benefits before 70, you receive a lower monthly payment for life. Raising the age at which Americans can start collecting benefits will likely push the benefit-maximizing age up to an unattainable level. In general, we should not expect Americans to work into their seventies.
Second the politics. Americans overwhelmingly don't support benefit cuts. The Pew Research Center found that Americans are opposed to Social Security cuts by a margin of two-to-one. This preference persists among millennials, despite endless misinformation that Social Security will be gone by the time this cohort retires. Republicans have tried to re-brand a cut to Social Security as raising the retirement age. This is misleading at best. Raising the eligibility age for Social Security is a reduction in benefits.
We should be talking about strengthening and expanding Social Security, not weakening it.