By Teresa Ghilarducci and Siavash Radpour
Most workers filling new jobs in the next decade will be older than age 55. Improving their pay is the most effective way to encourage work and to not lower their income. Cutting social insurance benefits to incent elders to work longer can force many of them to job-search in a hostile market. Also, the collateral damages of disability and morbidity, which could be caused by older people working to age 70, must be acknowledged. Work is good, and many Americans like it, but working in a job with the benefit of a secure pension is obviously preferable to taking a job offering decreased benefits.
People older than age 55 will fill 7 million of the 10 million new jobs created between 2016 and 2026. Working longer seems to be the solution to many, if not all problems related to retirement—it is supposed to be good for older adults’ physical and mental health and to provide them with a community. It also could help compensate for inadequate retirement savings, and even fix future financial shortfalls in the Social Security system.
But many of these so-called advantages to working longer have been proven to be incorrect, and others are infeasible or harmful to at least parts of the older adult population. And even if these benefits were real, working longer negates the idea of retiring at all, shrinking the years during which people could be in retirement.
Eliminating retirement is not the same thing as solving retirement income security. In practice, telling someone to work longer ignores the fact that working at older ages is mostly a decision made by employers, not by workers. Most retirees say they left the labor force at a younger age than they had originally hoped they would (Gosselin, 2018; and see Johnson’s article in this issue, page 63). Experts and policy makers must come up with a better solution than merely to advise people to work longer so as to improve their quality of life in older age.
One oft-stated advantage to working longer is that people delay claiming Social Security and receive a guaranteed 6.75 percent to 8 percent increase in benefits for each year they hold off on claiming benefits. But this advantage is available only to those who can afford to wait—meaning those who are already financially well off. About 1 percent of Social Security claimants claim benefits at age 70, and 45 percent of older workers (authors’ calculation from the Health and Retirement Survey) claim benefits while working—possibly to give themselves a raise!
If working longer was such an obvious solution to retirement challenges, and yields substantial benefits for older adults, then why aren’t there more of them working until age 70 and claiming benefits? The answer is that the workplace may not be as friendly to older workers as advocates for working longer might have hoped.
Disincentives to Work Longer Are Plentiful
Much of the economic literature on work later in life concentrates on disincentives for older people to keep working. Specifically, this cohort will give up Medicare benefits and be exposed to an earnings test (below the age inaccurately called “full retirement age”—age 67 for those born after 1960), which places a high implicit cost on working. The literature, though, overemphasizes the impact of these “sticks,” or the negative impact Social Security benefits have on discouraging work. For one, Social Security benefits keep accruing past age 62, and benefits are based on average monthly income, which is based on the highest earnings in thirty-five years of work, no matter how long one has been employed.
In the United States, age 70 is the full retirement age, the age at which beneficiaries can collect their maximum benefits. Any claim before age 70 incurs a penalty. Collecting at age 62 reduces the benefit by 35 percent, and penalties decrease as claims ages grow. The idea behind this policy is that the penalties for retiring and claiming benefits prior to age 70 will encourage Americans to work longer.
But half of Americans retire at age 65, and only 71 percent of Americans claim their Social Security benefits when they retire. About one-fifth of workers claim benefits at earlier ages while they are still working, in order to boost their incomes. These workers never receive any benefit from delaying their claims (authors’ calculations). The increase in benefits (or penalties, in the case of early retirement) should provide enough incentives for older workers to stay in their jobs.
Changes in pension design also have encouraged more work among older adults, but shift some risk to workers. Defined benefit plans on balance encourage retirement because the ability to accrue benefits after, say, age 65, is limited. There are no limitations in 401(k)-type plans. Also, in 2000, the earnings test past full retirement age was eliminated. Eliminating mandatory retirement was also meant to keep older workers in the labor force for a longer duration.
In practice, however, these policies do not work as intended. Sticks to work longer are effective for some, but brutal to others. Employers have practically eliminated retiree health plans, which used to encourage work at older ages. Eroding pension security and increased housing and health expenditures encourage work at older ages for people who are too desperate to fully retire. And collecting Social Security at age 62, at a reduced benefit, could encourage some people to work longer. Unfortunately, age discrimination in those growing sectors offering good jobs, especially in finance and technology, has discouraged work and made working longer less rewarding than it would have been previously.
The most significant force pushing older people out of the labor market is not workers’ unwillingness to work (or labor supply side), but the industrial restructuring and downsizing that puts older people at risk (labor demand side).
Older workers face considerable obstacles to work in the form of ageism, age discrimination, lack of training, and flexible jobs. The United States does not have the activist, pro–older workers systems that some European countries provide, such as incentives for phased retirement.
Employer Policies that Can Keep Older Adults Working
Financial incentives and the current work environment in the United States would have to evolve to ensure older people would not be too expensive to hire. Older workers would need flexibility in work hours and continual training to keep skill sets current. Changes to social norms, especially ageism, and a determination to end illegal age discrimination would have to occur for older people to successfully work longer.
Some new policies—potential “carrots”—that could induce employers to hire older workers and induce older people to keep working include making it cheaper to hire older workers by reducing the Medicare eligibility age to 62, and making Medicare the first payer for employer health insurance. These strategies would allow employers to save thousands by including older workers in employee health plans.
Other policy recommendations to increase older adult labor force participation would be to protect older workers against age discrimination in hiring, promotion, and training; but currently there is no bipartisan support for a comprehensive bill, and thus little chance for anything to pass. The most promising legislation is narrow in scope. The Protecting Older Workers Against Discrimination Act, which passed the House in June, would reverse a 2009 U.S. Supreme Court decision and would make it easier for individuals to successfully challenge age discrimination in court. To fully engage older workers on an equal basis, what is needed are proactive and preventive policies, not merely rules enabling defensive lawsuits.
Improving pay for older workers also could help encourage them to work. Raising the minimum wage and lowering barriers to unionization would make work more attractive to older workers. Expanding the earned-income tax credit to people who have no children and raising the minimum wage may increase the household income of working older households.
Last, collateral damage from increasing disability and morbidity caused by older people working to age 70 must be acknowledged. Work is good, and many Americans like it. Anyone who loves to work should be able to do so. The benefits of secure and adequate retirement programs extend to groups not often thought of as benefiting from pensions: the young, employers, taxpayers, and the economy as a whole. However, penalizing retirement will hurt those who are not accepted by the labor market, or those whose situations, health-related or otherwise, do not allow for working longer.
In this Issue
In this Fall 2019 issue of Generations, the fifteen articles that follow, in four sections, explore the implications of older people having to work longer to overcome the steady erosion of retirement income security that has occurred across the past thirty years. Most authors represent the discipline of economics, with one journalist in the mix.
The central question addressed in this issue is how can the vast majority of the 18 million people approaching retirement age between 2018 and 2028 expect to rely only upon Social Security benefits (the average benefit is $1,300) in old age? About half of workers reaching age 60 in 2018 have a 401(k)-type plan or IRA with an median balance of $92,000, and about half of these older workers have no retirement savings at all.
Section one lays out the landscape of the older worker labor market: their pay and working conditions, and how their bargaining power has changed. Though social policy presupposes the goal that every adult who wants to work will have a job, some social theorists define work as a “right,” to be coupled with the aspiration to eliminate barriers faced by adults who want to work in old age. The right to work should be expanded to include the right to retire after a lifetime of working.
In the first article, Papadopoulos (page 11) describes the growing inequality in compensation for older workers by gender, race, and education levels. Older workers are employed in growing and shrinking sectors, and are more likely to be in low-paying traditional jobs and jobs with contingent characteristics.
Ghilarducci (page 14) addresses power in the labor market and why older workers have been losing bargaining power. Policies that strengthen older workers’ fallback positions—enhanced unemployment benefits for laid-off older workers or programs such as a universal pension plan like the Guaranteed Retirement Account, which helps workers to accumulate retirement savings— would improve older peoples’ jobs (Ghilarducci and James, 2018). A Department of Labor Older Workers Bureau, similar to the Women’s Bureau formed in the 1920s, should be established to investigate the conditions of older workers and to formulate standards and policies to promote the welfare of wage-earning older people, while advancing opportunities for fairly paid employment at a living wage.
Van Horn and Heidkamp (page 21) address the fact that millions of older Americans work in precarious or part-time jobs with low wages and no benefits. The article also discusses involuntary part-time work, pay rates, share of income coming from part-time work, and the gender and race of older part-time workers. The authors recommend lifelong learning, increased enforcement of anti-age discrimination laws, and stronger social insurance.
Estes and DiCarlo (page 29) view older workers from what they call an “emancipatory gerontology” perspective, and within the political-economy-of-aging framework. In this framework, policy debates and policy outcomes may be understood as socially constructed narratives, which means that all labels and problems regarding older workers should be contested and understood from a more general social and political point of view.
Sociologist and writer Katherine Newman (page 35) describes the research for her book on how workers’ losses of promised pensions and lack of retirement readiness degrade individuals, hurt families’ living standards, and harm community health.
Section two examines the barriers facing older workers who need to work longer. Barriers to training and promotion mean that older workers are more likely to be laid off or pushed out because of persistent ageism and age discrimination. As a result, many older workers face longer unemployment periods and are left with no options other than to retire with insufficient resources.
Both Neumark and Song McLaughlin (pages 51 and 59, respectively), describe the insidious practice of age discrimination. America is unique in its long tradition of having statutory protections against age and disability discrimination. But the physical and mental conditions facing older workers are becoming more difficult— should age discrimination laws take on some characteristics of the ADA and require accommodation? Song McLaughlin cautions those who advocate for working longer to be mindful of persistent age discrimination. Neumark explains the uses of audit studies as the gold-standard for discrimination research.
Alicia Munnell (page 42) is a longtime (but reluctant) advocate of people working longer to make up for eroding pensions and declining Social Security benefits. Social Security benefits are declining for two reasons: because Medicare premiums are increasing and Medicare premiums are deducted from Social Security benefit checks; and because the normal retirement age has been increased from age 65 to age 67, which means a benefit for a cut for people collecting benefits at all ages. But Munnell worries that longevity and health gains have disproportionately gone to the top of the socioeconomic status (SES) distribution. People at lower SES have lost union and bargaining power. Can the bottom third really work in jobs that match their abilities?
The third section features articles examining the working conditions of older workers. Older workers with adequate pensions and retirement savings have more bargaining power—their choice to work is because the benefits of work far outweigh the costs. But for workers without those assets, their choice to work longer is constrained; though the benefits of working could be minimal and the psychological and health costs high, they would continue to work.
Schmitz, a health economist working on genomics, and her colleagues McCluney, Sonnega, and Hicken (page 78) note that older workers’ mental health is affected by various workplace factors and correlated with SES. Bad jobs can lead to deteriorating mental health and an early exit from the labor force. But the good news is that there are ways workplace environments can be adjusted to improve workers’ perceptions of their psychosocial environment and, consequently, their health and labor force attachment.
Johnson (page 63) is perhaps the most well-known expert in this issue on the labor market for older workers. He updates his work (chillingly, first presented immediately after the 2008 crisis), which shows that experience does not matter as it once did in the labor market. For this issue he updates that paper, concluding that the rates of return for seniority and experience continue to fall, while older workers’ wages do not grow proportional to their experience.
Phillipson and Lain (page 71) are two prolific writers in the area of “emancipatory gerontology” and have sharp insight into why older workers are increasingly likely to be in low-paying, insecure jobs with little control over their jobs’ pace and content. They use data gleaned from hospitality workers in England to show the negative effects of expecting people to work beyond traditional retirement ages when they have low levels of health and education and struggle to continue working in physically demanding jobs.
Kyle Moore (page 86) complements Munnell’s work and addresses the effects of work upon older people from a stratification economics point of view, taking into account their socioeconomic status and race. Black older workers are more likely to face high levels of stress at work, with severe health consequences.
Kate Bahn (page 90) reviews how older women are exposed to employers’ monopsony power, which exploits workers by keeping wages low. The gender wage gap and women’s choices to work in low-wage industries eventually lead to inadequate retirement savings, which further reduce women’s bargaining power at older ages. Older women’s wages would be higher if they had more bargaining power.
Section four describes how to move forward. Journalist Helaine Olen (page 93) envisions what the future of work and retirement will look like for Millennials and calls for a commonsense retirement income security policy. Finally, Monique Morrissey (page 98) outlines one such policy, the Guaranteed Retirement Account, which aims to solve the problem of inadequate retirement income, and to increase older workers’ bargaining power by giving them a way out of low-quality, low-paying jobs.
Teresa Ghilarducci, Ph.D., is a labor economist and expert in retirement security. She is the Bernard L. and Irene Schwartz professor of economics at The New School for Social Research and the director of the Schwartz Center for Economic Policy Analysis (SCEPA) and The New School’s Retirement Equity Lab (ReLab) in New York City. Siavash Radpour, Ph.D., is a research associate at SCEPA.
Ghilarducci, T., and James, H. 2018. Rescuing Retirement. New York: Columbia University Press.
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/y46y6mpp. Retrieved July 12, 2019.10 | Fall 2019