By Teresa Ghilarducci
Older workers need a good fallback position as leverage for a better job offer. As retirement income erodes, older workers lose bargaining power. A universal pension plan, like proposed Guaranteed Retirement Accounts, is a policy that strengthens the fallback position of older workers and improves older adults’ jobs. An Older Workers Bureau at the U.S. Department of Labor should be established to investigate older workers’ working conditions, to formulate standards and policies to promote the welfare of wage-earning older people, and to advance their opportunities for profitable and decent employment.
The news is filled with heroic stories of impressive older people working for pay. In a heart tugger of a profile, “Alice Pirnie of Broken Bow, Nebraska, keeps herself pretty busy” (Feldman,2018), we read about a 90-year-old woman who worked as a greeter and cashier at McDonald’s for 26 years. And, perhaps, around a holiday dinner table, your grandmother’s brother—Dr. Derek, age 79—could credibly say he continues to see patients because he likes it: the money does not matter.
These stories pop up not because the idea of older people working is novel—the share of older workers in the labor force has doubled from 10 percent in the early 1980s—but because these people really love their jobs.
A journalist with an economics background would have asked Alice about her fallback position, her situation if she did not work. “If you didn’t work at McDonald’s, in what state would your finances be?” If Alice answered, “Oh, I don’t need the money, I have a large pension and Social Security,” it would mean her fallback position wasn’t poverty or a meaningful decline in her living standards. Her choice to work was probably a genuine move toward engagement and passion.
But, if Alice answered, “Without my wages from McDonald’s, I would skip dinner most nights,” we would assume she works for money, not for love. Her fallback position would be grim, which results in low bargaining power.
How many older people are—and will be—working for money rather than love because of eroding retirement income (Ghilarducci, Webb,and Papadopoulos, 2017)? Will older workers have bargaining power if more older people work (and at older ages) because without wages, they face dire economic need and food insecurity?
America's Older Workers: Working Longer, With Less Benefit
Older Americans already work more, and longer,and have less “retirement time” (my terminologyfor the time between retirement and death) thanin most other G7 countries (i.e., Canada, France,Germany, Italy, Japan, and the United Kingdom). And, despite the markedly distinct sacrifice of leisure, or retirement time, in old age, Americans face the highest risk of old-age poverty of any other G7 nation. (See further explanation of this in the sidebar above.)
High rates of poverty despite high work effort suggest that many people manage to stay above the poverty line by working. Because poverty is more likely a fallback position in the United States, American older workers are less likely to have leverage to improve their wages, hours, and working conditions than are older workers from other G7 nations.
The link between high rates of old-age poverty in the United States and greater work effort among older adults dates back to the American public policy push in the 1980s to get older people to work, which originated in slow-moving but predictable cuts in employer pensions and Social Security (McCarthy, 2017). In 1983, President Reagan’s deputy labor secretary Malcolm R. Lovell Jr. told Congress that older Americans would need to work longer because Social Security benefits would gradually fall (on average by 13 percent) as the “normal retirement age” increased— from 65 to 67 for people born in 1960 and later. Moreover, employers were stepping back from funding workplace retirement plans and switching to do-it-yourself defined contribution accounts. Lovell was not an economist, but he understood fallback positions (Lain, 2018).
Who Works for Love, and Who Works for Money?
About 50 percent of people older than age 65 have adequate retirement income and assets; adequate meaning the ability to maintain living standards in retirement and-or have income three times the poverty level (according to preliminary results from the Health and Retirement Survey, 2019 [hrsonline.isr.umich.edu/; see Author’s Note on page 19]). The flip side is that 50 percent of Americans older than age 65 do not have adequate incomes. Of the half of workers older than age 65 who are working, approximately 25 percent have a grim fallback position, meaning they are working for money because they do not have adequate resources.
Because about 50 percent of the population that is older than age 65 have adequate retirement income, they likely can make an authentic choice between retirement and work. So about 20 percent of the older-than-age-65 population is working for love, because they would have adequate income if they retired. They are more likely to be white and professional and have longer life expectancies (these people are your Dr. Dereks, as referred to in the opening example).
The rest of the 80 percent are either retired comfortably or among the 20 percent who are retired and live in de facto poverty. This group of older Americans who do not work and do not have sufficient assets has the lowest income and the worse health. They tend to have shorter life spans and the kinds of lives and jobs that would make working damaging to their health (Moore, Ghilarducci, and Webb, 2018) because they were either pushed out of their jobs or cannot perform them due to physical or cognitive issues.
It is a rare situation when someone cannot do something—(about 4 percent of couples with members older than age 66 cannot perform certain activities of daily living). Some researchers have proposed examining the population to see which cohort older than age 62 has the “ability to work.” This kind of standard would change who is deemed a legitimate retiree: only the fragile and infirm would be deserving of retirement, as they would be “unable” to work. Following this line of thinking, Alstott (2016) argues that policies should peg age 76 as the full retirement age in Social Security.
About 30 percent of the population that is older than age 65 is working and cannot afford to retire. The remainder of this article focuses on this particular group and its bargaining power. Bargaining power cannot be measured directly; but must be inferred by labor market conditions and outcomes, such as wages and other forms of compensation.
The Bargaining Power of America’s Older Workers
Baby boomers will continue to exert an outsized impact on labor markets into the future. Of the 11.4 million net new jobs that will be created by 2026, 6.4 million are projected to be filled by workers older than age 55. In 2017, 35 million older workers constituted 24 percent of the labor force, up from 12 percent in 1990. By 2026, 40 million older workers will make up 25 percent of the labor force (of note here is that the sheer size of the older worker cohort and their eroding bargaining power could likely spill over to younger workers). Seventeen million older workers have been newly employed since 2000, and the net increase in jobs was 17 million (Lacey et al., 2017).
Bargaining power is the relative capacity of someone in a negotiation to come to an agreement on his or her terms. If workers can walk away from a job, they are in a better position to push for higher wages, better working conditions, and more security. The fallback positions of each party determine the equality of bargaining power. If the worker needs the job more than the employer needs the worker, the worker loses more by not accepting the job than the employer loses in not hiring the worker. Thus, the older worker has less bargaining power.
There is mounting evidence that older American workers are losing bargaining power because their fallback positions are getting worse. Wage stagnation for older workers partially captures the loss of bargaining power of workers, and so does the increase in “bad” jobs for older workers.
The number of jobs held by older workers increased by 6.6 million between 2005 and 2015, according to my and colleagues’ calculations from federal government data (U.S. Bureau of Labor Statistics and Current Population Survey). More than half of this increase—3.4 million, or 52 percent—was in bad jobs, which are defined by low wages and-or precarious work arrangements: Twenty-eight percent was in low-paying jobs (less than $15,000 a year, or two-thirds the median wage) with traditional work schedules; 10 percent was in on-call jobs; 10 percent was in temp or contract agency jobs; and 4 percent was in gig jobs. The growth in these bad jobs outpaced the remaining 48 percent, or 3.2 million traditional jobs paying more than $15,000, or independent contractor jobs (Ghilarducci, Papadopoulos, and Webb, 2018a).
Worsening wages and worker benefits
Since 2000, wage repression has been more severe for college-educated older men than for college-educated prime-age men. Between 1990 and 2017, real median hourly wages for full-time male workers older than age 55 who had a high school degree dropped 7 percent, while wages for the same age group, but for those with a bachelor’s degree, decreased by 8.1 percent. Older and prime-age women with high school degrees experienced similar wage trends, while older women with bachelor’s degrees have always had lower wages compared to their prime-age counterparts (Farmand and Ghilarducci, 2019).
Working conditions and pension and health insurance coverage for older workers are not improving to compensate for stagnant relative wages. Older workers ages 55 to 64 are losing retirement and pension plans. Fewer older workers are offered a plan at work; in 2014, only 55 percent were offered a plan at work and, in 2017, this decreased to 50 percent. Coverage rates in health insurance and retirement plans have fallen from 1990 to 2017. For full-time non-self-employed workers older than age 55, health insurance coverage has fallen from 90.4 percent to 87.4 percent, and retirement plan coverage has decreased from 55.5 percent to 43.9 percent (Farmand and Ghilarducci, 2019).
In 1980, 46 percent of workers older than age 55 reported being covered by a workplace retirement plan (Farmand and Ghilarducci, 2019). By 2013, that rate fell to just 41 percent. Moreover, within this time span, many firms switched from providing defined benefit plans to providing defined contribution plans. Workers born from 1946 to 1950 could expect an average of $6,375 annually (in 2018 dollars) from defined pension benefits; for people born between 1961 and 1965, this number was $3,750 annually. Although income from defined contribution plans increased for the latter group, expected overall retirement income from sources other than Social Security is still $1,000 lower for later baby boomers (Butrica, Smith, and Iams, 2012).
Since 1992, the share of workers ages 55 to 62 that reported physical demands at work decreased only slightly. In 1992, 40 percent of older workers reported that their jobs required “lots of physical effort.” In 2014, this decreased to 34 percent, a statistically significant decrease of 6 percentage points. However, other dimensions of physical work, including “lifting heavy loads” and “stooping/kneeling/crouching,” saw no statistically significant changes (Moore, Ghilarducci, and Webb, 2018).
Monopsony and other reasons for lost and waning bargaining power
There are seven reasons why older workers have lost bargaining power relative to prime-age workers, and five of those reasons relate to older workers increasingly being exposed to monopsony conditions—conditions in the labor market where the employer has more ability to set wages, hours, and working conditions than they would in competitive markets. In monopsony, the worker is relatively stuck and cannot leave the employer.
Becoming “stuck” and having less ability to negotiate higher pay can be caused by five factors. First is eroding retirement income security (discussed above). Second, union losses mean less leverage. Since 2004, older workers have suffered a sharper decline in their union membership (from 16.7 percent in 2004 to 12.6 percent in 2017) compared to prime-age workers.
Third, more insecure employment relationships make workers increasingly replaceable. In 1987, the median older prime-age man (ages 45 to 54) had been with his current employer for 12.7 years. By 2018, median older prime-age male job tenure fell 36 percent to 8.1 years. For older workers ages 55 to 64, men’s job tenure fell 16 percent during the same time period (16.8 years to 14.1 years), a drop that likely reflects older male workers leaving the labor market.
The sample of workers who are older is special; they are the workers who stayed in the market and are likely to have longer tenure (Ghilarducci, Webb, and Papadopoulos, 2018). Workforce rationalization can also disproportionately impact older workers. Gosselin (2018) estimated that in the downsizing of 2010, which continued for five years, IBM eliminated more than 20,000 of its American employees who were ages 40 and older, about 60 percent of its estimated total U.S. job cuts during those years.
Fourth, age discrimination (James, Besen, and Pitt-Catsouphes, 2011) persists, which makes older workers struggle to get raises and jobs. Age discrimination seems especially intense for older women, as the U.S. Equal Employment Opportunity Commission found in 2018 (Lipnic, 2018). In another study, a majority of employers surveyed by Transamerica Center for Retirement Studies answered that age 64 was too old to be considered for employment (this was the median age given by employers, though most refused to give an age—wisely, as it is against the law to consider age in hiring, promotion, and pay). On the other hand, the median age that workers gave as too old to work was 75 (Collinson, 2018).
Fifth, because older workers own homes and have more connections to the community, they are less likely to leave a geographical area for better jobs. Older workers are more likely to be stranded in stagnant regions earning low wages— they are only 17 percent as likely to move for a job when compared to younger workers (Schwarz Center for Economic Policy Analysis, 2018).
The sixth reason for a loss in bargaining power for older workers is an unintended consequence of the Earned Income Tax Credit (EITC). The EITC helps eligible workers—primarily single mothers—raise their living standards by supplementing low wages and encouraging higher labor force participation among low-income women (Nichols and Rothstein, 2015). Because EITC recipients compete in the same labor markets as others who are ineligible for the credit, wage declines extend to many workers who do not receive off-setting EITC payments, including older women. Men are hardly affected by the EITC because they earn more than women.
The seventh reason older workers are losing their pay and bargaining power is that older workers are more likely to work for smaller firms, which have lower profit rates and pay less. Thirty-two percent of workers in large firms are older than age 50, and 35 percent of employees in small firms (fewer than 100 employees) are slightly older.
Bottom line: Older workers (as do all workers) need a good fallback position, which would be the employer knowing the older worker could get a better job offer or retire. As retirement income erodes, older workers lose bargaining power.
Policy Recommendations to Improve Work for Older Workers
If policy makers aim to induce work at older ages, policies should be oriented toward the development of well-paying, non-hazardous jobs, rather than allowing the proliferation of low-paying, more physically taxing jobs.
Two sets of policy recommendations can help to advance the status of older workers. The first step is to gather more information about older workers so that working conditions and the extent of age discrimination can be assessed and corrected. Policies that strengthen the fallback position of older workers, such as enhanced unemployment benefits for laid-off older workers, or programs such as a universal pension plan like Guaranteed Retirement Accounts (GRA), which help workers accumulate retirement savings, would improve older adults’ jobs (Ghilarducci and James, 2018).
An Older Workers Bureau at the U.S. Department of Labor, similar to the Women’s Bureau formed in the 1920s, should be established (which may be inevitable because of the surge in older workers) to investigate the conditions of older workers and to formulate standards and policies to promote the welfare of wage-earning older people and advance their opportunities for profitable employment.
I propose a pension-for-all plan (Ghilarducci and James, 2018). This GRA proposal is a bold plan that provides adequate and universal retirement income security that could produce quadruple wins for the economy. Secure retirement income provides bargaining power for older people—a good pension is “walking-away” money, which would allow people to bargain for a good job.
Second, adequate pensions through an expansion of Social Security and the implementation of the universal pension system would mean older workers could be more choosy about their employers and employers more solicitous of them. This equal footing helps make better matches.
Third, adequate pensions and a choosy labor force pressures employers to boost labor productivity and the overall economy benefits.
Fourth, and most importantly, good pensions may prevent a humanitarian disaster. Without robust off-ramps from work to retirement or to part-time jobs that are appropriate for elders, the only option this cohort will have is downward mobility and old-age poverty. In the next ten years, if nothing is done, more than 8 million older American workers will move from being middle class to being poor or near-poor adults. The number of 65-year-olds per year who are poor or near poor will increase by 146 percent between 2013 and 2022 (Ghilarducci, Papadopoulos, and Webb, 2018b).
Older workers gaining bargaining power affects the entire workforce because more than 6.4 million of the 11.4 million jobs expected to be created in the next ten years will go to workers older than age 55. If this worker cohort is badly treated, younger workers may also have less leverage in the labor market.
Teresa Ghilarducci, Ph.D., is a labor economist and nationally recognized expert in retirement security. She is the Bernard L. and Irene Schwartz professor of economics at The New School for Social Research and director of the Schwartz Center for Economic Policy Analysis and The New School’s Retirement Equity Lab (ReLab), all in New York City.
The Health and Retirement Study (HRS) is a longitudinal panel of heads of households ages 50 and older and their spouses (of any age), surveying a wide range of topics including study participants’ physical health, work and retirement outcomes, financial assets, and social support systems. The study, which is fielded every two years, includes households where the head of household is at least age 50. There are currently thirteen waves (1992 to 2016) of the HRS (HRS, 2019).
Alstott, A. L. 2016. A New Deal for Old Age. Cambridge, MA: Harvard University Press.
Butrica, B. A., Smith, K. E., and Iams, H. 2012. “This Is Not Your Parents’ Retirement: Comparing Retirement Income Across Generations.” Social Security Bulletin 72(1): 37–58.
Chomik, R. and Whitehouse, E. 2010. “Trends in Pension Eligibility Ages and Life Expectancy, 1950– 2050.” OECD Social, Employment and Migration Working Papers, No. 105. Paris: OECD Publishing. tinyurl.com/y5ykavfn. Retrieved May 19, 2019.
Collinson, C. 2018. Striking Similarities and Disconcerting Disconnects: Employers, Workers and Retirement Security: 18th Annual Transamerica Retirement Survey. Los Angeles: Transamerica Center for Retirement Studies. tinyurl.com/yxlch cqh. Retrieved May 19, 2019.
Farmand, A., and Ghilarducci, T. 2019. “Why American Older Workers Have Lost Bargaining Power” (Working Paper). New York: The New School Schwartz Center for Economic Policy Analysis, Department of Economics, School for Social Research.
Feldman, J. 2018. “What a 90-Year- Old Who Works at McDonald’s Can Teach Us About Happiness.” Huffington Post, May 22.
Ghilarducci, T., Webb, A., and Papadopoulos, M. 2017. Inadequate Retirement Savings for Workers Nearing Retirement. tinyurl.com/ yxgqgp8e. Retrieved May 21, 2019.
Ghilarducci, T., Webb, A., and Papadopoulos, M. 2018. The Growth of Unstable and Low-wage Work Among Older Workers. tinyurl.com/y5y54c95. Retrieved May 21, 2019.
Ghilarducci, T., and James, T. 2018. Rescuing Retirement. New York: Columbia University Press.
Ghilarducci, T., Papadopoulos, M., and Webb, A. 2018a. “Unstable or Low-wage Jobs Make Up More than 1/2 Older Workers’ Job Growth.” tinyurl.com/y4wcy2g6. Retrieved May 21, 2019.
Ghilarducci, T., Papadopoulos, M., and Webb, A. 2018b. “40% of Older Workers and Their Spouses Will Experience Downward Mobility in Retirement.” Policy Note. New York: The Schwartz Center for Economic Policy Analysis (SCEPA), Department of Economics, The New School for Social Research.
Gosselin, P. 2018. “If You’re Over 50, Chances Are the Decision to Leave a Job Won’t Be Yours.” ProPublica, December 28. tinyurl. com/ybr2wuk7. Retrieved May 21, 2019.
Health and Retirement Study (HRS). 2019. Ann Arbor: University of Michigan Institute for Social Research. hrsonline.isr.umich. edu/. Retrieved May 21, 2019.
James, J. B., Besen, E., and Pitt- Catsouphes, M. 2011. “Resilience in the Workplace: Job Conditions that Buffer Negative Attitudes Toward Older Workers.” In B. Resnick, L. P. Gwyther, and K. A. Roberto, eds., Resilience in Aging: Concepts, Research, and Outcomes. New York: Springer.
Lacey, T. A., et al. 2017. “Projections Overview and Highlights, 2016–26.” Monthly Labor Review, October. tinyurl.com/y62rfcvc. Retrieved May 21, 2019.
Lain, D. 2018. Reconstructing Retirement: Work and Welfare in the UK and USA. Bristol: Policy Press and University of Bristol.
Lipnic, V. A. 2018. “The State of Age Discrimination and Older Workers in the U.S. 50 Years After the Age Discrimination in Employment Act (ADEA).” Washington, DC: U.S. Equal Employment Opportunity Commission. tinyurl.com/ yyweslnz. Retrieved May 31, 2019.
McCarthy, M. A. 2017. Dismantling Solidarity: Capitalist Politics and American Pensions Since the New Deal. Ithaca, NY: ILR Press.
Moore, K., Ghilarducci, T., and Webb, A. 2018. “The Inequitable Effects of Raising the Retirement Age on Blacks and Low-wage Workers.” Policy Note. New York: SCEPA. tinyurl.com/y2dcb2t4. Retrieved May 21, 2019.
Nichols, A., and Rothstein, J. 2015. “The Earned Income Tax Credit (EITC)” (Working Paper 21211). Cambridge, MA: National Bureau of Economic Research. tinyurl. com/yxj64exu. Retrieved May 21, 2019.
Organisation for Economic Co-operation and Development (OECD). 2011. Pensions at a Glance 2011. Paris, France: OECD.
OECD. 2015. Ageing and Employment Policies—Statistics on Average Effective Age of Retirement. Paris, France: OECD.
SCEPA. 2018. “Stranded in Stagnant Regions, Older Workers Left with Low Wages.” tinyurl.com/ yynlb575. Retrieved May 17, 2019.